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LAW485

COMPANY LAW
TOPIC 2: CLASSIFICATION OF COMPANY
MUHAMMAD UMAR BIN ABDUL RAZAK

Classification of Companies
1.
Classification according to
liability of members
Company Limited by Shares
Company Limited by Guarantee
Unlimited Company
2.
Public and Private Companies
3.
Related Companies

CLASSIFICATION
OF COMPANY
ACCORDING
TO LIABILITY
OF MEMBERS

LIMITED BY
SHARES

LIMITED
LIABILITY

UNLIMITED
LIABILITY

LIMITED BY
GUARANTEE

LIMITED BY
SHARES AND
GUARANTEE

Company Limited by Shares


A

member cannot be asked to pay more


than the amount of unpaid shares (if
any) when the company is wound up
(Section 214(1)(d) and Section
18(3) of the Companies Act)
If a company is wound up; creditors of
the company are not entitled to take a
members personal assets in
satisfaction of corporate liabilities

CASE: TAN TIEN KOK V MEDICAL


SPECIALIST CENTRE (JB) SDN BHD
[1994]

The issue was whether the D, a company


limited by shares, could impose a monthly
surcharge of RM2000 on its members to
help company meet its overheads.
Held: D could not impose the surcharge as
it is against the concept of limited liability
as provided in Section 214 (1) (d) where
contribution will only be required from
members to the extent of unpaid shares.

Company Limited by Guarantee

Contribution: limited to the amount


he had agreed to guarantee [Section
214(1)(e)]
Amount of contribution: as in
Memorandum of Association [Section
18(1)(e)].
This type of company does not have
share capital; e.g. charitable,
scientific or religious organization.

Company Limited by Share and


Guarantee

From 1985, it is no longer possible to


have a company limited by both
shares and guarantee.
The registration of the last type of
limited company is no longer possible
with the enactments of Section 14A.

Unlimited Company

Liability of the members to contribute


to the assets of the company on
winding up is not limited in any way.
An unlimited company is able to
reduce its share capital under Section
64 without any restrictions because
creditors have access to the personal
properties of all the members

Private and Public Companies

Companies can also be classified according to


their public status in that either it is a public or
private company.
Public companies have access to public
funding, they are not prohibited from offering
or inviting the public to invest in its securities.
Must comply with legislation such as Securities
Commission Act 1993 and Securities Industry
Act 1983 in order to protect interest of the
public.

Definitions of Public and Private


Companies

Public Companies Section 4 (1):


A company other than a private company.
In addition, a public company is further classified
into public listed and unlisted company
Private Companies Section 4 (1):
A company registered by virtue of Section 15 or its
predecessors which has retained its private status or
Any company converted into a private company
under Section 26 (1)
In addition, the private company is further classified
into exempt private company and non-exempt
private company.

Required under Section 22 (4) to have


the word Private/Pte or Sendirian/Sdn Private
Companies
Stated
in certificate
of incorporation of a
company
A company with a share capital (whether
limited or unlimited) can be a private
company if its memorandum or articles of
association contain all of the following
under Section 15 (1)

A restriction on the right to transfer


shares;
A limitation on the number of members to
not more than 50;
Prohibit any invitation or offer to the public
to subscribe for shares in or debentures of
the company;
Prohibit any invitation or offer to the public
to deposit money with the company.

Conversion
public
to a aprivate
Section 26of(1)
enables
public
company
with
a share
capital
to be
company
and
from
private
to public
converted into a private company by
company
passing a special resolution.

The special resolution must also alter


the companys name so as to include
the word Sendirian and must amend
the MOA and AOA so as to comply
with Section 15.

Section 26 (2) enables a private company to


convert into a public company.
It provides that a private company may convert
to a public company by lodging with the CCM:
A special resolution for conversion and an
appropriate alteration to its name;
A prospectus; and
Statutory declaration verifying compliance with
Section 52 (2) (b)

Related Companies

Related to another company if it is in


a holding-subsidiary relationship;
or if it is a subsidiary of a common
holding company - Section 6

Example of Related Companies


A Ltd
(parent co.)

B Ltd
(subsidiary)

C Ltd
(subsidiary)

D Ltd
(subsidiary)

B Ltd is related to A Ltd because they


are in a holding-subsidiary
relationship.
C Ltd is related to B Ltd because they
are both subsidiaries of a common
holding company (i.e. A Ltd)

Related company is sometimes referred to


as group. E.g. Hicom Group or Sime Darby
Group
Associated company: no legal definition or
significance except for accounting purposes
An associate is a company in which
significant influence is exercised, but which
is not subsidiary. Generally, if A Ltd holds a
stake of 20% or more in B Ltd, B Ltd is
treated as an associate of A Ltd.

For regulatory purposes, certain dealings /


transactions are prohibited between holding
and subsidiaries companies.
For e.g A subsidiary is prohibited from being
a member of its holding company and a
holding company cannot provide financial
assistance to its subsidiary for the purpose
of acquiring shares in the holding company;
Section 67 (1)

Holding and subsidiary companies

Section 5 (1) (a), a corporation is deemed


to be a subsidiary of a holding company if
the holding company:
controls the composition of Board of
Director of the subsidiary or;
controls more than half of the voting power
of the subsidiary or;
owns more than half of the issued share
capital of the subsidiary.

A subsidiary of a subsidiary is a
subsidiary.
Thus, if D Ltd is a subsidiary of B
Ltd, D Ltd will be a subsidiary of A
Ltd too.

Ultimate Holding Company


o

A corporation is an ultimate holding


company of another corporation, if
that other corporation is a subsidiary
of that holding company and the
holding company is not itself, a
subsidiary of another
Section 5A

Wholly owned subsidiary


o

A corporation is a wholly owned


subsidiary under Section 5B if its
members is
its holding company,
a nominee of its holding company;
another wholly owned subsidiary of
the holding company;
nominee of such a wholly owned
subsidiary

End of Lecture
Thank You