WHAT DOES IT TAKE TO RUN A COMPANY

1. Types of Business Organisations and Nature of Registered Companies

2. Development of Malaysian Company Law
3. Sources of Company Law & Regulated Bodies
4. Definition of Corporation & Company
5. Classification of Companies

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TYPES OF BUSINESS ORGANISATIONS &
NATURE OF REGISTERED COMPANIES
• Sole proprietor:
 Registration of Businesses Act 1956 (Act 197) ( ROBA)
 Registration of Businesses Rule 1957 (ROBA Rules 1957)

• Partnership governed by Partnership Act 1961

• Limited Liability Partnerships (LLP) governed by Limited Liability

Partnerships Act 2012

• Company governed by Companies Act 2016

Business organisations
Sole Proprietor
& Partnership
Limited Liability
Partnership
Note the differences between a registered company and a firm of partnership from
the following aspects:

• Legal status
• Liability
• Procedure for formation
• Membership
• Management and ownership
• Capital
• Duration of existences

Differences
• Companies Enactment 1897 → Companies Enactment No 20 of 1917 → Companies
Enactment 1927 → Companies Ordinance 1946

• Companies Act 1965 (CA) – modelled upon English Companies Act 1948 and
Australia Uniform Companies Act 1961

• Companies Bill 2015 ​→ H​ouse of Representatives (Dewan Rakyat) on 4 Apr

2016​ → Senate (Dewan Negara) on 28 Apr 2016.

• On 31/1/2017, a new Companies Act 2016 (Act 777) was enforced replacing
the previous Companies Act 1965.

Development of Malaysian Company Law

• Amongst the aim of Act 777 are to reflect the importance of developed
information and communication technology, to reflect the cost compliance,
to reduce conflicts between various corporate regulatory bodies and to
simplify the operational process of a company in Malaysia.

• A company incorporated in Malaysia must be registered in accordance with

the Companies Act 2016 (CA).

• The CA performs two functions:

○ an enabling function; and
○ a regulatory function.

Companies Act 2016

(a) Companies Act 2016
(b) Securities Commission Act 1993
(c) Capital Markets & Services Act 2007
(d) Company Commission of Malaysia Act 2001.
(e) Civil Law Act 1956
(f) Companies Regulations 2017
(g) Listing requirements of Bursa Malaysia Securities Berhad (BSMB)
(h) Securities Commission Guidelines
(i) Best Practices in Malaysian Code of Corporate Governance 2012.
(j) Common law

Sources of Company Law

(a) Companies Commission of Malaysia / SSM

(b) Securities Commission (SC)

(c) Bursa Malaysia Securities Berhad

Regulatory Bodies
• A statutory body formed as a result of a merger
between the Registrar of Companies (ROC) and
the Registrar of Businesses (ROB).
• SSM came into operation on16 April 2002. Prior
to 16 April 2002, administration of Companies
Act was vested with ROC.
• The establishment, functions and powers of
SSM are provided under Companies Commission
of Malaysia Act 2001 (Act 614).
• From 16 April 2002, the Chief Executive Officer
of SSM is the Registrar of Companies.
• Under CA, the responsibilities of the CEO of the
SSM include ensuring companies and their
respective officers to comply with the provisions
of CA.

Companies Commission of Malaysia / SSM

• SC is a single government body responsible for
overseeing the development of Malaysian capital
market.
• Created under Securities Commission Act 1993.
• Core function : regulate capital market, ensure that
investor interests are protected and ensure the
systematic development of capital market.
• Mission : to promote and maintain a fair, efficient,
secure and transparent securities and derivatives
market and to facilitate the orderly development of
an innovative and competitive capital market.

Securities Commission (SC)

Bursa Malaysia is an exchange holding
company established in 1973 and listed
in 2005.

Bursa Malaysia Securities Berhad

“company” means a company
incorporated under this Act or
under any corresponding previous
written law;

Definition of “corporation” & “company”

 CLASSIFICATION OF COMPANIES

LIABILITY STATUS RELATIONSHIP

LIMITED UNLIMITED
PUBLIC PRIVATE HOLDING SUBSIDIARY

GUARANTEE SHARES PLACE

LOCAL FOREIGN
 • The company’s own liability for its debts
is never limited.
• A company must pay off what it owes to
its creditors.
• S. 10 (1) CA 2016 • A member’s liability will be important in
the event the company cannot pay its
• What is limited liability? debts in full out of its own assets
(liquidation).
• A privilege granted to shareholders of a company.
• S. 435 CA2016: the extent of contribution that must be made by a member
towards the liability of a company in the event the company is wound up.
• S 435(2)(b) CA2016 : contributions to be made limited to the unpaid amount.
• c/- Tan Tien Kok v Medical Specialist Centre (JB) s/B [1994] 3 MLJ 469 :
surcharge imposed by the Defendant was contrary to the concept of limited
liability of the act. Relevant section – s 214(1)(d) CA 1965 which is equivalent
to S 435(2)(b) CA2016.

Classification according to liability of members

• Definition : S. 10(2) CA
• Enjoys the privilege of limited liability – upon
winding up of the company, the liability of
the shareholders is limited up to the unpaid
amount of the shares only.

Company Limited by shares

• Definition : S. 10(3) CA – liability of its members is
limited to such amount as the members undertake
to contribute in the event of its being wound up.
• A company limited by guarantee does not have
share capital.
• S. 435(2)(c) CA: Upon winding up, no contribution
shall be required from any member exceeding the
amount undertaken to be contributed by him to
the assets of the company.
• S. 38 CA: must have a Constitution & submit its
Constitution at the point of incorporation.

Company Limited by Guarantee

• Definition : s. 10(4) CA
• Upon winding up, members of unlimited
company are liable for the debts of the
company if the company has insufficient
assets to meet its debts.
• Rare type of company
• S. 25(c) CA: Name to have ‘Sendirian’ or
‘Sdn’

Unlimited Liability Company

• S. 11 CA
• By looking at the status of a company, it can
be classified to either:-
 Public Company; or
 Private Company.

Classification according to status

 • Definition: S. 2(1) (a) – (c) CA
• S. 25 CA: To have the word ‘Sendirian’ or ‘Sdn’ as part of its name
• Amongst the distinguishing features of a private company:
 S. 42(2) CA: Restrict the transfer of its shares
 S. 42(1) CA: Limit number of members
 S. 43(1) CA: Prohibits the offer of shares or debentures or invite public
to deposit money.
• Exempt private company : S. 2 CA

Private company
• Definition: S. 2(1) CA : ‘ a company other than a private
company’
• S. 11(2) CA: A company limited by guarantee shall be a public
company
• S. 11(1) & (3) CA :
 Company limited by shares
 Unlimited company
• A public company shall have no restriction on transfer of shares.

Public Company
• Conversion from unlimited to limited
company : s. 40
• Pass special resolution
• Lodge notice for conversion with Registrar
• Conversion shall not affect identity & render
defective any legal proceedings : s. 40(5)

Conversion from Unlimited to Limited Company

• S. 41 (1) : public co. convert to private co.
• S. 41 (2) : private co. convert to public co.
• S. 41 (3) & (4) : Lodgement of notice for conversion.
• s. 42 (4) & (5) : company ceased to be private

Conversion from Public Private Company

• Formation of private companies with a single shareholder : s.9(b); s.42
• Requirement of only one director for private companies : s.9 & s.196
• Generally, all companies registered in Malaysia, must have a director.
• Requirement of having a director :
• S. 196(1) : minimum number of director of company in Malaysia:-
 Private company: 1 director
 Public company : 2 directors
By Relationship with other companies
• In commercial usage, the term ‘group’ often refers to related
corporations  Note : the term has no legal significance
• Definition of “subsidiary & holding company” s.4

• Definition of “ultimate holding company” s.5

• Definition of “wholly-owned subsidiary” s.6

• When co. deemed to be related to each other. s.7

Holding & subsidiary companies

• S. 4 CA describe when the relationship between a holding and subsidiary
comes into effect.
• S. 4(1)(a)(i) – (iii) : A company is deemed a subsidiary (‘S”) of a holding (“H”)
company if :-
(i) BOD: H controls the composition of BOD of S
 How to determine ‘control’?
 S. 4(2) CA: If H can appoint or remove all or majority of S directors.
 How??
 S. 4(2)(a) – (b) How to determine power or shares ? [s. 4(3)]

(ii) Voting power: H controls >1/2 of the voting power of S • Shares / power in fiduciary capacity
• By a person as a nominee
(iii) Issued capital: H holds >1/2 of the issued share capital of S, • By a nominee
excluding preference shares. • By virtue of any debentures / trust deed

• S. 4(1)(b) : A company is deemed S of H if the subsidiary is a subsidiary of

• Business includes lending of money

another company which is also the holding’s subsidiary.

By Relationship with other companies

A corporation shall be deemed to be the ultimate holding
company of another corporation if-

(a) the other corporation is a subsidiary of the corporation; and

(b) the corporation is not itself a subsidiary of any corporation.

Ultimate Holding Company : s. 5

A corporation is a wholly-owned subsidiary of another
corporation if it has no members except -

a) that other corporation or its nominee; or

b) a wholly-owned subsidiary of that other corporation
or its nominee.

Wholly-owned subsidiary: s 6
A corporation is deemed to be related to each other if -
(a) it is the holding company of another corporation;
(b) it is a subsidiary of another corporation; or
(c) it is a subsidiary of the holding company of another corporation.

Related corporations : s. 7
Test to determine Relationship
• A company is related to another if it is in a holding-subsidiary relationship (vertical)
OR if it is a common holding (horizontal).
• E.g.:

RC PNA BHD H

RC RC
P Sdn Bhd N Sdn Bhd A Sdn Bhd S

To satisfy any of the following:

The Test when a
H-S relationship • H controls the composition of the BOD of S.
exists: • H controls more than ½ of the voting power of S.
• H holds more than ½ of the issued capital of S (excluding preference shares).
• S is the subsidiary of another company which is H’s subsidiary.
• Membership of holding company : s.22
• Subsidiary acting as a participating dealer : s.23
• Protection of 3rd party : s. 24

Restriction on S being Member of its H

By place of incorporation
 • Place of incorporation refers to either the company is a local
company or a foreign company.
• Definition of foreign company : S. 2 CA
• A foreign company desiring to establish a place of business in
Malaysia must be registered here. Prohibition : s. 561

 Thirteenth Schedule
 S. 562 CA : registration of a foreign company.
 Relevant documents need to be lodged with the SSM.
 S. 566 CA: requirement to have a registered office.

By place of incorporation : Div 1 of Part V [s.561 – s.579]

S. 2(1) : “foreign company””

means-

(a) a company, corporation society, association or other body incorporated outside Malaysia; or

(b) an unincorporated society, association or other body which under the law of its place of origin may
sue or be sued, or hold property in the name of the secretary or other officer of the body or
association duly appointed for that purpose and which does not have its head office or principal
place of business in Malaysia;
TYPES OF COMPANIES

1 • Company limited by share

2 • Company limited by guarantee
3 • Unlimited company
4 • Private company
5 • Public company
6 • Related company
7 • foreign company
Essential Readings

Kenneth Foo Poh Khean and Lee Shih, Companies Act 2016 : The New Dynamics of Company Law in Malaysia (CLJ Publication 2017)
Cheah Foo Seong, Companies Act 2016 with Overview (Sweet & Maxwell 2016).
Chan Wai Meng, Essential Company Law in Malaysia : Navigating the Companies Act 2016 (Sweet & Maxwell 2016).
Companies Act 2016
• The court held that the function of copyright is to preserve
rights over the artistic expression of the drawings and not as
a measure to protect the functionality of the articles drawn.
Goodyear Tire & Rubber Co & Anor v Silverstone Tire & Rubber
Co S/B [1993]
 syaidatul.adzmi@mmu.edu.my

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