CLASSIFICATION OF COMPANIES


CLASSIFICATION OF COMPANIES

There are various classifications of companies in company law: s 14(2), CA 1965. A company may be
              i.        a company limited by shares
             ii.        a company limited by guarantee
            iii.        a company limited by both shares and guarantee. Such company can no longer be formed: s 14A,CA 1965*, or
           iv.        an unlimited company
*This section was introduced by the Companies (Amendment) Act 1985 and became effective on 1 February 1986.

Companies are further classified as public and private companies, with some private companies being exempt private companies and as holding and subsidiary companies, according to certain special attributes.The Act also has provisions for the regulation of foreign companies as well as investment companies - s. 4(1).

Company Limited by Shares

A company limited by shares is formed on the principle of having the liability of its members limited by the Memorandum of Association (M/A) to the amount, if any, unpaid on the shares respectively held by them: s 4(1), CA 1965.
It is a company which is formed with shares capital. Once a company has issued shares it cannot return the capital to the shareholders. The shareholder can however transfer his shares to another person subject to procedure as contained in the Articles of Association (A/A).
A shareholder may pay in full or in part for the shares. This will depend on the how the company wishes to raise its capital.
However, it should be noted that a shareholder need not pay more than the amount unpaid on the shares: s 214(1)(d), CA 1965.
His liability is limited – Fairview School Bhd v Indrani Rajaratnam & Ors (1998).

In TAN TIEN KOK v MEDICAL SPECIALIST CENTRE (JB) SDN BHD (1994) 3 MLJ 469, the issue was whether members of the respondent company (a limited company) were liable for payment of a surcharge as resolved by the Board of Directors by amendment of the company’s articles. It was held by Mohd Ghazali JC that the shareholders were not liable to pay the surcharge (for the purpose of enabling of its debt to be paid). Fundamental principle of company law the company is separate and distinct from its members and the members’ liability limited to the extent of his unpaid shares.

If a shareholder has paid for his shares in full he is known as a fully paid shareholder. In such a case, the company cannot ask for further contribution from the fully paid shareholder. If a shareholder has only paid partially, he is known as partly paid shareholder. In such a case, the shareholder will have to pay when the company makes a ‘call’.
A company limited by shares is required to have, as part of its name, the word Berhad or its abbreviation Bhd, to denote to the public that members’ liability is limited – s. 22(3)

Company Limited by Guarantee

A company limited by guarantee is formed on the principle of having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event the company is wound up: s 4(1), CA 1965.

The members of the company must pay the amount as stipulated in the M/A, but only if the company is wound up: s 214(1)(e), CA 1965. The members of a company limited by guarantee cannot be called shareholders since such company has no share capital.
Companies limited by guarantee can only raise funds through government funding, charity, grant, etc. The company cannot declare dividends as there is no investment in the first place. Thus, all profits are generated towards the growth and development of the company.
Such type of company is usually set up for education, religion, charity, research, art and scientific purposes.
Thus, a company limited by guarantee will usually apply to the Companies Commission of Malaysia (CCM) to omit the word ‘Berhad’ or the abbreviation ‘Bhd’ in its name: s 24, CA 1965.
Only a public company can be limited by guarantee.
If a company limited by guarantee wishes to buy land, it must obtain the approval of the Minister of Domestic Trade, Co-operatives and Consumerism: s 19(2), CA 1965.

Unlimited Company

An unlimited company is one whereby the liability of members of the company to contribute to the company’s assets is not limited: s 4(1), CA 1965. The company may request the members to contribute more than the amount invested.
An unlimited company’s name will contain the word ‘Sendirian’ or the abbreviation ‘Sdn’. The word ‘Berhad’ or ‘Bhd’ cannot be used since it is not a limited company. Hence, an unlimited company is a private company and not a public company. Obviously, members of the public would not be interested to invest in a company where their liability is unlimited.
An unlimited company is like a partnership or sole proprietor-ship in that members’ liability is unlimited. However, unlike such companies, an unlimited company is an entity and capital can be returned to members. Thus, members are not burdened with being tied down to the company.

PRIVATE AND PUBLIC COMPANY

Private Company
A private company is a company whose shares are not traded on the open market. By law, it is treated as a single legal entity. It has a life separate and apart from its owners, with rights and duties of its own. The owners are the shareholders.

A private company is defined in s 4(1) of CA 1965.
(a)  Any company which immediately prior to the commencement of the Act was a private company under previous written law
(b)  Any company incorporated  as a private company by virtue of section 15; or
(c)  Any company converted into a private company pursuant to s. 26(1), being a company which has not ceased to be a private company under s. 26 and s. 27

The company’s name must have the word ‘Sendirian’ or the abbreviation ‘Sdn’ as part of its name: s 22(4), CA 1965.

Under s 15(1) of CA 1965, in order to form a private company, the M/A must contain the following:
              i.        There must be restrictions on the right of members to transfer their shares.
             ii.        The member must not be more than 50.
            iii.        Prohibit any invitation to the public to subscribe for any shares in or debentures of the company; and
           iv.        Prohibits any invitation to the public to deposit money with the company

Exempt Private Company

An exempt private company is a private limited company, the shares of which are not held directly or indirectly by any corporation and which has not more than 20 members: s 4(1), CA 1965. In essence, there are no corporate shareholders and the maximum number of members is 20.
An exempt private company is known as such because it is ‘exempted’ from the requirement to lodge its financial statements with CCM. However, financial statements must be still be prepared and provided to the shareholders of the company. An auditors’ report need not be prepared but an auditors’ statement must still be prepared: s 165A, CA 1965.
Such a company can give loans to its directors: s 133(1), CA 1965. It can also give loans to connected persons: s 133A(1), CA 1965

Public Company

Any company which is not a private company is a public company: s 4(1), CA 1965. Such companies are called ‘public’ companies because the number of shareholders can exceed 50 and they can issue shares to the public.
A public company’s name must have the word ‘Berhad’ or ‘Bhd’ as part of its name: s 22(3), CA 1965. A public company is subject to more regulations compared to a private company. This because the public has invested their money in such a company and thus the law must ensure that they are protected.
There are two types of public companies, namely:
      i.        Listed Companies – listed companies are public companies listed on Bursa Malaysia, and
     ii.        Unlisted Companies – unlisted companies are public companies not listed on Bursa Malaysia.

Differences between Private and Public Companies

Public Limited Company
Private Limited Company
Its function is usually to run large operations.

Its function is usually to run small- and medium-sized industries or family business operations.
There is no maximum number of members.
The maximum number of members is 50.
Company’s name must have the word ‘Bhd’.

Company’s name must have the words ‘Sdn Bhd’.
Restrictions of s 15(1) CA 1965 do not apply.
Restrictions of s 15(1) CA 1965 apply.
Maximum age of a director is 70 years: s 129, CA 1965.
There is no maximum age for a director.
There must be a single resolution to appoint each director: s 126, CA 1965.
There can be a single resolution to appoint more than one director.
Only shareholders can remove a director: s 128, CA 1965.
The Board of Directors can remove a director provided the A/A of the company allows it.
A director cannot assign his office to another person.
A director can assign his office to another person.
The company can issue shares to the public.

The company cannot issue shares to the public
The company must publish a prospectus before offering shares to the public.
The company need not publish a prospectus before offering shares to its members.
The company must hold statutory meeting: s 142, CA 1965.
The company need not hold statutory meeting.


Omission of ‘Berhad’ by Minister’s License

Under s. 24, the minister may , by license permit the omission the word ‘berhad’ in a company’s name where it is proposed to be formed as a limited company for the purpose of providing recreation or amusement or promoting commerce, industry, art, science, religion, charity, pension or superannuation schemes or any other object useful to the community, and will apply its profits (if any) or other income in promoting its objects and will prohibit the payment of any dividend to its members.

HOLDING COMPANY, SUBSIDIARY COMPANY AND RELATED CORPORATIONS

Company A is a Holding company of Company B if:
  Company A can decide who can be a director in Company B – this means that Company A has at least 51% of shares in Company B and thus has the power to appoint and remove a director
  Company A has more than majority voting power or more than majority issued shares in Company B, or
  Company B is a subsidiary company of any company which is Company A’s subsidiary.

An ultimate holding company is defined in s 5A of CA 1965. An ultimate holding company has one or more subsidiary companies but is not itself a subsidiary of any corporation. Thus a holding company which is a subsidiary company of another company is not an ultimate holding company.

wholly-owned subsidiary company is defined in s 5B of CA 1965. It is a company where all the shares in the company are held by a holding company. In other words, the company only has one shareholder, which is the holding company.
Corporation X shall be deemed to be a wholly-owned subsidiary of corporation Y if none of the members of corporation X is a person other than:
  corporation Y
  a nominee of corporation Y
  a subsidiary of corporation Y, being a subsidiary none of the members of which is a person other than corporation Y or a nominee of corporation Y, or
  a nominee of such subsidiary.

Section 6 of CA 1965 states that a company is considered as related to another if the company:
a)    is the holding company of the other company.
b)    is a subsidiary company of the other company.
c)    is a subsidiary of the holding company of the other company.

CLASSIFICATION OF COMPANIES CLASSIFICATION OF COMPANIES Reviewed by Kamaruddin Mahmood on 7:43:00 PTG Rating: 5

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