CHAPTER 2: CLASSIFICATIONS OF COMPANIES

CONTENTS:
1. Introduction: definition, formation, application for incorporation,
registration, name of company, register of members, directors, managers
and secretaries, commencement of business, certificate of incorporation.
2. Classifications based on:
a. Liability: shares, guarantee, unlimited
b. Status: public and private
c. Relationship with other companies: holding, subsidiary, ultimate holding,
wholly-owned, related
d. Place of incorporation: foreign and local
INTRODUCTION
• S.2 Definition: “company” means a company incorporated under this Act or
under any corresponding previous written law;

Formation or Incorporation of Companies in Malaysia

• S.9: the company shall have :
1. A name
2. One or more members, having limited liability or unlimited liability for
the obligation of the company
3. One or more shareholders for a company limited by shares.
4. One or more directors.
Application for incorporation
• S.14: application to the Registrar of Company together with the
following particulars:
1. name of the proposed company
2. status of the company; private or public company
3. nature of the business
4. name, identification, nationality and the ordinary place of residence
of every person who is to be a member of the company
5. name, identification, nationality and the ordinary place of residence
of every person who is to be a director of the company
6. name, identification, nationality and the ordinary place of residence
of every person who is to be a secretary of the company
7. company limited by shares: the details of class and the number of
shares to be taken by a member
8. company limited by guarantee: amount up to which a member
undertakes to contribute to the assets of the company in the event of
its winding up
9. Other information as Registrar may require.
Registration for incorporation
• S.15: if the registrar satisfied that the requirement are complied with
and upon payment of the prescribed fees, the Registrar shall:
1. Enter the particulars of the company in the register
2. Assign the registration number to the company as its registration
number
3. Issue the notice of registration in the form and manner as the
Registrar may determine.
Name of the company
• S.25: a company name must end with the following:
➢Public Company, the word ‘Berhad’ (Bhd)
➢Private Company, the word ‘Sendirian Berhad’ (Sdn Bhd)
➢Unlimited company, the word ‘Sendirian’ (Sdn)
• S.26: The name of the company must not be:
➢Undesirable or unacceptable
➢Identical to an existing company, corporation or business
➢Identical to a name that is being reserved under Companies Act 2016
➢A name of kind that the Minister has directed the Registrar not to accept
for registration
The use of certain words in company’s name must be approved. Some of the
legislations restricted words as follows:
1. Accountants Act 1967: taxation, accounting, public accountant, auditor, tax
consultant and tax advisor.
2. Medicine ( Advertisement and sale ) Act 1956 : clinic, treatment, hair clinic, hair
loss, etc
3. Financial Services Act 2013: bank, insurance, assurance.
There are also words with suggest association with activities regulated by the
government such as:
1. Collage, institute, university – approval from the Ministry of Higher Education
Malaysia
2. Wakaf, Baitulmal, Halal – approval from JAKIM
Names which may be accepted with the consent of the Ministerial:
• Words connections with the crown such as ‘Royal’ or ‘Imperial’.
• Words connections with any ASEAN or Commonwealth
• Words connections with the state, federal government department,
statutory body, government agency or other local authority.
• Words connections with any policies, party, society, trade union, or
cooperative society
• Words that are misleading as to identity, nature, objects or purpose of the
company
• Blasphemous or offensive words
• Names including a proper name which is not the name of the director
Register of members
• S.50: every company must keep a register of its members and record in the register:
1. name, addresses, IC number, nationality and the ordinary place of residence of every
person who is to be a member of the company
2. For the company with share capital, a statement of a shares held by each members
3. The date at which the name of each person was entered in the register as a member.
Register of Director, Managers and Secretaries
• S.57: the company must register the following particulars:
1. Director – name, residential address, service address, date of birth, business
occupation identification and particular of any directorship of public companies or
companies which are subsidiaries of public company held by the director.
2. Managers or Secretaries – full name, identification, residential address, business
address and other occupation.
Commencement of business
• S.18:
• Private company can start to carry on business from the first day of its
existence, that is the date of registration, as stated on the notice of
registration
• Public company
➢Public company not issues prospectus can start the business if the
statement complies with Act has been lodge with the Registrar AND every
director of the company has paid to the company on each share taken or
contracted to be taken.
➢Public company issued prospectus can start the business if there is no
more possibility for the money invested by members.
Certificate of incorporation
• S.17: upon an application by a company and on payment of a
prescribed fee, the Registrar may issue to the company a certificate of
incorporation in the form and manner as the Registrar may determine
CLASSIFICATIONS OF COMPANIES.

1. S.10: Companies based on liability of members

• Company limited by share
• Company limited by guarantee
• Unlimited company

2. S.11: Companies based on status

• Public company
• Private company
3. Company based on relationship with other companies
• Holding company
• Subsidiary company
• Related company

4. Company based on place of incorporation / business

• Local company
• Foreign company
A. CLASSIFICATION ACCORDING TO LIABILITY OF
MEMBERS
Company Limited by Share
• S.10(2): the liability of its members is limited to the amount, if any,
unpaid on shares held by the members.
• A member cannot be asked to pay more than the amounts of unpaid
shares (if any) when the company is wound up S.214(1)(d) and
S.18(3).
• If a company is wound up; creditors of the company are not entitled
to take a member’s personal assets in satisfaction of corporate
liabilities
Tan Tien Kok V Medical Specialist Centre (Jb) Sdn Bhd [1994]
Issue: 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 S.214 (1)(d) where contribution will only
be required from members to the extent of unpaid shares.
Company Limited by Guarantee (CLBG)
• Liability of its members is limited by the constitution to such amount as the
members agrees to contribute to the assets of the company if the company
is wound up.
• Such company depends on fees collected from members to fund its
operations.
• Contribution: limited to the amount he had agreed to guarantee
[S.214(1)(e)]
• This type of company does not have share capital; e.g. charitable, scientific
or religious organization.
• There are two types CLBG under the Companies Act 2016:(a) CLBG without
the word "Berhad" or "Bhd"; and (b) CLBG with the word "Berhad" or
"Bhd"
Unlimited Company
• S.10(4): no limit on the liability of its members.
• Such liability arises only when the company is wound up and is unable
to meet its debt (quite similar to a partnership?)
• S.64: able to reduce its share capital without any restrictions because
creditors have access to the personal properties of all the members
• the benefit of an unlimited company over that of a partnership is an
unlimited company enjoys separate legal entity from its members and
thus, has perpetual succession.
B. CLASSIFICATION BASED ON STATUS OF COMPANY

Private Companies
• Usually small in size and the shareholders are often also the
directors.
• S.4(1) definition:
1. A company incorporated as such by virtue of S.15 or its
predecessors which has retained its private status;
2. Any company converted into a private company under
S.26(1) .
S.15(1) conditions required of a private company:
• limited by shares
• restricts the right to transfer its share
• not more than 50 shareholders
• cannot offer its shares or debentures to the public
• cannot allot shares or debentures with a view of offering them to the public
• cannot invite the public to deposit money with the company
• private company is further classified into exempt private company and non-
exempt private company.
• S.22(4): the word Private/Pte or Sendirian/Sdn - Stated in certificate of
incorporation of a company
Exempt private company
• S.2(1)
• Private company in the shares of which no beneficial interest is held directly or
indirectly by any corporation and which has no more than 20 members none of
whom is a corporation.

• The main advantages of exempt private company are as regard to:

➢Ability to keep financial information private where it is exempted from filing its
audit and financial statements with ROC.
➢Not prohibited from lending money or giving financial assistance to its directors.
• All companies are required to lodge an annual return and to attach certified
copies of their financial statement to their annual returns. However, exempt
private companies need not lodge their financial statements together with the
annual return. They are only required to provide financial statements in the
prescribed forms to their shareholders.
Public Companies
• S.2(1) Public company is a company other than private company
• A public company may be a limited or an unlimited company. It may be limited by shares
or guarantees.

• Unlike private company, a public company may have any of the following characteristics;
➢It is a company limited by shares or guarantee, or it can be an unlimited company;
➢It need not restrict the right to transfer its share
➢It can have more than 50 shareholders
➢It can offer its shares or debentures to the public
➢It can allot shares or debentures with a view of offering them to the public
➢It can invite the public to deposit money with the company
 Private Companies Public Companies
Name End with the word ‘Sendirian End with the word ‘Berhad’ or ‘Bhd’
Berhad’ or Sdn Bhd’
Transfer of Restriction on transfer of shares No restriction on transfer of shares
shares
Number of Number of members must not No limit in number of members
members exceed 50
Subscribing Cannot invite public to subscribe No restriction as to inviting the public
of share for shares or debentures to subscribe for shares or debentures so
long as prospectus requirements are
observed
Deposit Cannot invite public to deposit Can invite public to deposit money with
money money with the company the company eg. Bank
Allotment of No need to register a prospectus Must register a prospectus before
shares before allotting shares shares are offered to the public

Members’ Meeting or circulation Meeting

resolution
Annual Not required Required
General
Meeting
S.41: Conversion of public to a private company
and from private to public company.
• S.41(1): enables a public company with a share capital to be converted into
a private company by passing a special resolution.
• The special resolution must also alter the company’s name so as to include
the word ‘Sendirian’ and must amend the MOA and AOA so as to comply
with S.15.
• S.41(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 S.190(2)(b)
C. CLASSIFICATION ACCORDING TO THE
RELATIONSHIP WITH OTHER COMPANIES

Holding and Subsidiary Companies

• S.4 : definition of subsidiary and holding company

• It state that the relationship between Holding (H) and Subsidiary (S)
company may occur in any one of four situations:
• S.4(1)(a)(i)
• H controls the composition of the board of directors of S. Means, H can appoint or
remove all or a majority of its directors of its S;

• S.4(1)(a)(ii)
• H controls more than half (more than 50%) of the voting power in S;

• S.4(1)(a)(iii)
• H holds more than half (more than 50%) of the issued share capital of S;

• S.4(b)
• S is a subsidiary of any corporation which itself is a subsidiary of H.
Ultimate Holding Company

• S.5: a company is an ultimate holding company of another company

is:
➢That other company is subsidiary of that holding company ; and
➢The holding company is not itself a subsidiary of another.
Wholly Owned Subsidiary

• S.6: A company is wholly owned subsidiary if none of its members is a

person other than:
➢Its holding company
➢A nominee of its holding company
➢A subsidiary of the holding company
➢A nominee of such a wholly owned subsidiary
Related Companies

• S.7, where a corporation is a holding company with subsidiaries, all of

the companies are deemed to be related to each other if:
➢It is the holding company of another corporation; or
➢It is a subsidiary of another corporation; or
➢It is a subsidiary of the holding company of another corporation.
D. CLASSIFICATION BASED ON PLACE OF
INCORPORATION
Foreign Company
• S.2(1) foreign company means;
➢A company, corporation, society association or other body incorporated outside Malaysia; or
➢An incorporated 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 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.
• A foreign company desiring to establish a place of business within Malaysia must become
registered by lodging certain document with CCM

Local company
• Local company is a company incorporated in Malaysia.