7. Introduction to Companies

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COMPANIES


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COMPANIES

CONTENTS:

Types of Companies

Differences between Companiesand Partnerships

Advantages of Company over

Partnerships

Law of Assoc I/ Z.Elias


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WHAT IS A

COMPANY?

A companyis an association of persons,

existing as aSEPARATE LEGAL ENTITY

from the owners (or members).


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CORPORATION

Corporate Law / Z.Elias

LEGAL DEFINITION:

S.4(1) Companies Act (CA) 1965corporation is anybody corporate wherever formed or incorporated.

Includeany company or foreign company.

Exclude-:Public authorities, Instrumentalities or agencies of theGovernment of Malaysia or of any State or bodycorporate not incorporated for commercial purposes and

declared as such by notice of the Minister in the Gazette;Corporation sole;Co-operative societies; andTrade Unions


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REGISTERED COMPANIES


Incorporated/registered under the CA1965.

An artificial legal person may buy or

sell properties, exercise rights ofownership and may sign contract by usingits common seal.

Common seal is the signature of thecompany.


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Types of Companies

Companies in Malaysia are classified according to(i)liability, or

(ii) private or publicstatus.

(i) By LIABILITY: S. 14(2) Companies Act 1965 (CA) - a

company may either be:

A company limited by shares;

A company limited by guarantee;

A company limited by shares and guarantee;

An unlimited(liability) company.



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TYPES OF REGISTERED COMPANIES


Classificationaccording to liability

of membersS.14(2)

CO. LTD BY

SHARES

CO. LTD BY

GUARANTEE

CO. LTD BYSHARES &

GUARANTEE UNLTD. CO


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COMPANY LIMITED BY SHARES

S.4 - company formed on the principle of having theliability of its members limited by the

memorandum to the amount (if any) unpaid onthe shares respectively held by them.

Liability of a member of this company will depend on

whether his shares are fully paid or not.

If holds fully paid shares, has no further liabilityto the company. (If the company becomes insolvent

he does not have to contribute to the assets of thecompany).

If partly paid shares, will be liable to contributeto the companys assets, up to the amount stillunpaid on the shares.



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S.4- liability of its memberslimited by thememorandum to such amount as the

members may respectively undertake tocontribute to the assets of the companyinthe event of its being wound up.

The liability of the members is specified in thememorandum association.

Non-profit making purposes.

Does not have a share capital. Members notrequired to contribute capital while company isoperating.


COMPANIES LIMITED BY GUARANTEE


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Supported by subscriptions of the members.

Berhad or Bhd to indicate Ltd. liability.

S.22(3). May apply to the Minister (MDTCA)to omit the word Berhador Bhd-S.24.

After 1 February 1986 only in the form of

Public Company.


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If co is wound up, then its member who has undertaken inthe memorandum to contribute a certain sum of money to

the assets upon winding up, may be required to contributeup to his amount of guarantee towards payment ofdebts incurred by the company while he was amember.

This liability extends to those who had left the co, butwas a member within a year before the co wound up.

Although this type of co does not have a share capital, it isstill a separate legal entity.

It is not normally used for trading, but often formed torun clubs and other organizations that are maintained bysubscription, social activities and donation.



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UNLIMITED COMPANY

Defined by S.4as a company formed on the principleof having no limit placed on the liability of its

members.

In winding up, the members of this company areliable for the debts of the company without limitif the companys assets are not sufficient.

It is not much different from a partnership.

This type of company enjoys the advantage of being aseparate legal entity with two special features;

i.unlike other companies, they are free to returntheir capital to their members;ii.they must have their own Articles ofAssociation (unlike other companies that may adoptTable A - Fourth Schedule).



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UNLIMITED COMPANY

This company may or may not have a sharecapital and is rarely used as a tradingcompany.

It has been used for mutual funds wherethe company holds assets as investmentsamong the shareholders.

If a shareholder wishes to leave, he maysell back his shares to the company.



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...UNLIMITED COMPANIES


Creditors have access to the personalproperty of all members to an unlimited

extent if the company is wound up and hasinsufficient fund.

Major advantage ability to return capital

to members without having to comply withthe restrictions imposed by S.64.

A past member is STILL liable if he hasceased to be a member less than a year

prior to winding up.

Name of a private unlimited company needonly end withSendirianorSdn.


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A member liable to pay the amount, if any,unpaid on any shares held, in addition to

meeting the guarantee undertaking to contributea specified amount in the event that thecompany is wound up S. 214(4)

S.14Ano longer possible toform such company( as from1986)


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Classification as Private or Public Companies


Classification According to

Status

Public Company

S.4:

Other than privatecompany

Private Company - S. 15(1):

* Restrict the right to transfer shares.

* Limit the number of members to notmore than 50.

* Prohibits the invitation or offer of sharesor debentures to public.

* Prohibits the invitation or offer the public

to deposit money with the company.

Non-ExemptExempt


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PRIVATE COMPANIES - S. 15(1)Where its Memorandum or Articles:

i. Restrict the right to transfer shares. No prescribedform of restriction. The articles can state the restrictions,e.g. - giving right of pre-emption only to other membersbefore shares can be transferred to other persons, or thereis to be no transfer of shares unless the board of directorsapprove.

ii.Limit the number of members to not more than 50. Ifshares are jointly held they are considered as held by oneperson. Employees of the company or its subsidiaries whoare not members are not counted.

iii.Prohibits any invitation or offer to the public tosubscribe for shares in debentures of the company.

iv.Prohibit any invitation to the public to deposit moneywith the company.



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May have a share capital with ltd. or unltd. liability.

May be distinguished from public co in having the wordSendirian or the abbreviation Sdn. as part of itsname. (If the co is a limited liability co, then this wordshould come before the word Bhd. e.g. the nameSyarikat X Sdn. Bhd. is a private limited co.)

Can be exemptor non-exempt private co.

Enjoy certain privileges that are not given to public cos.as they do not seek funds from the public.


PRIVATE COMPANIES - S. 15(1)


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ExemptPrivate Company

Defined by s.4(1):a private co the shares of which no beneficial interestis held directly or indirectly by any corporation, andwhich has not more than twenty members none ofwhom is a corporation.

Therefore its characteristics are:

i. Its shares are held by individuals and not companies,ii. It has a membership of not more than 20 persons,iii. It is required to prepare a balance sheet and a profit and

loss account for their shareholders, but is exemptedfrom having to file them with the co.s annualreturn with the RoC.

iv. It can also give loans to the directors.



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PUBLIC COMPANIES S.4- a company other than a private company.

As this company raises funds from the public, it issubjected to more regulatory controls than a privatecompany. necessary to protect large numbers of peoplewho are the investing public.

Conversion of Private to Public Companies A private company may convert to a public company by

loading a special resolution with the Registrar ofCompanies.

It may also involuntarily become a public company if itcontravenes the restrictions of s. 15(1).

A public company with a share capital may convert to aprivate company also by lodging a special resolution.



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GROUP COMPANIIES

Holding and Subsidiary Companies

S.5 defines Holding (H) and Subsidiary(S) as:

i. H controls the composition of the BOD of S,

ii. H hold more than half of the voting power of S, or

iii. H holds more than half of the ISK of S;iv. S is a subsidiary of any other corporation which is in

turn a subsidiary of H.

Ultimate Holding Co.

Where another co. is a subsidiary of a company (UH),whilst the UH is not itself a subsidiary of any corporation.



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FOREIGN COMPANY

S.4(1): Where the company, corporation , society ,

association or other body incorporated outside Malaysia,but which carries on business in Malaysia or establishes aplace of business in Malaysia.

It is wholly or majority owned (measured in % of shares

held) by non-Malaysians.

Such company has to lodge certain documents as laid down insection 332 (1) of the Companies Act 1965 and pay theappropriate fees before commencing business in Malaysia.

A foreign company registered under the Companies Act1965 has the power to hold immovable property inMalaysia.



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ADVANTAGES OF COMPANIES OVERPARTNERSHIPS

COMPANY LAW/ Z.Elias

COMPANY PARTNERSHIP

Can sue and be sued in its own name. Legal action on a partnership generallythrough its members.

As one legal entity, also owns the

companys assets.Assets are generally collectively owned by

all the partners.

Has the unique ability to create floating

charges over their current assets to secure

a loan.

Can only borrow by charging on their fixed

assets.

May have limited liability. Partners liability is unlimited.

Continuous life until it is legally wound up,

and does not dissolve because of the death

of their member.

Death of a partner is a ground for

dissolving the partnership.


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Documents

7. Introduction to Companies