Company Law: T2-Types of Companies

Company Law
T2-TYPES OF COMPANIES
Introduction
 Private Company
 Private companies need only have 1 director
 Must keep accounting records for 3 years
 Can purchase their own shares
 Can provide financial assistance to purchase
their own shares
 Anything that needs to be done by virtue of
resolution may instead be achieved by a
resolution in writing without holding a meeting
Cont…
 Public Company
 Should have at least 2 directors
 Must keep accounting records for 6 years
 May not purchase their own shares
 No financial assistance to buy shares
 Must have a meeting to decide matters
that require resolutions
Minimum Capital Requirements to
Start A Company
 Private limited company
 must have a minimum paid up capital of RM2
 Public limited company
 Main Board of the KLSE – paid-up capital of not less
than RM60 million comprising ordinary shares of not
less than 10 cents per share
 Second Board of the stock exchange – paid-up capital
of RM40 million but less than RM60 million comprising
ordinary shares with a per value of not less than 10
cents per share
Other Types of Companies
 Unlimited companies- can be formed
without limited liability
 Limited companies- maximum liability of
shareholders is fixed and can’t be
increased without their agreement
Limited Liability
 Can be created in 2 ways:
 By shares- Liability is limited to the

amount remaining unpaid on the shares
 By guarantee- Liability is limited to an
agreed amount which is only used if the
company can’t pay its debts on winding up
Partnerships
 The law on partnerships in Malaysia is governed
by the Partnership Act 1961
 Sec 3(1)-partnership is ‘the relation which
subsists between persons carrying on a business
in common with a view of profit’
 Partnership must be more than 1 person
 Must have an agreement, either express or
implied, to have a business in common
 Sir Montague Smith in (Mollowo, March & Co v
Court of Wards) [1872] LR 4 PC 419- ’to
constitute a partnership must have agreed to
carry on business, or to share profits in some
way common’
Cont…
 Is also called a firm for convenience sake
 Registered under appropriate law, depending on
the place of business
 Details must be registered with the ROB
 A firm has no legal existence
 Is not a legal entity
 All partners are accountable
 When an action is brought against a firm’s
name, it is an action against all partners
Factors affecting Partnership
 Sec 4 - number of tests to determine if there’s
partnership
a) Sec 4(a): co-ownership of property. Joint
tenancy, tenancy in common are not
partnerships
b) Sec 4(b): sharing of gross returns. Must be
equal returns
 (Burnard v Aaron and Sharpley) [1862] 31 LJCP
334- one of 2 joint owners took over exclusive
management of a ship, bearing all expenses and
pays one-third of the gross earnings to the other
joint owner. No partnership
Cont….
c) Sec 4(c): sharing of profits. Prima facie evidence for
partnership but may be rebutted by the following
presumptions
 Payment of a debt by installments out of profits
 Remuneration to an agent of the business
 Paying a portion of the profits to the widow or children
of the deceased partner
 Paying the seller a share from the business profits as a
form of goodwill
Types of Partners
 Sec 21- agreements may be varied by
consent of the parties
 Consent may be express or implied
 A partner may be described as follows:
 General partner-has responsibility for the
actions of the business, can legally bind
the business and is personally liable for all
the business's debts and obligations
 Active partner-involved in the daily
operations of the partnership
Cont…
 Sleeping partner-does not play an active
role, who usually supplies capital
 Quasi partner-is an entity that joins one or
more other entities in an enterprise, such
as a joint venture that resembles a
partnership but actually is not one
Relation of Partners to Outsiders
 Power of partners to bind firms
 Sec 7- every partner is an agent for the firm and his
other partners for the purpose of the business of the
partnership
 Partners not liable if he has no authority to act in that
manner
 Implied authority
 Assumption that such acts could be done in business
 Liability of partners
 Sec 11- every partner in a firm is jointly liable for all
debts incurred while he is a partner
Cont…
 Liability of persons for ‘Holding Out’
 Where a person is not a partner, but holds
himself out as such, then he is liable
 May represent by words or conduct
 (Bevan v The National Bank Limited)
[1906] 23 TLR 65- carried out business as
MW & Co and employed MW as the
manager. It was held that MW was a
manager by virtue of ‘holding out’
Dissolution of Partnership
 May be terminated in several ways:
 By agreement
 By law
 Death or bankruptcy
 By supervening illegality
 By court order
Dissolution of Partnership
 Sec 39- a partner may make a public
notice and compel other members to sign
necessary notices of dissolution
 Sec 46- losses will be paid from profits,
capital and lastly, individually by partners
 Assets are used in this order:
1. Paying outside creditors
2. Repaying advances by partners
3. Repaying capital to partners
4. If there’s residue, divided among partners
in proportion of the profits
Advantages of A Company
 The separate legal person of a company
exists independently of its members
 A limited company has limited liability for
shareholders
 Shareholders are protected against the
loss of more than the nominal value of
their shareholding
 Provides greater capital potential than sole
proprietorship and partnership
Disadvantages of A Company
 There are considerable legal procedures
involved in setting up a company and
possible high cost of incorporation
 Small limited companies may have
difficulties to borrow fund
 Private limited companies cannot offer
shares to the general public thus
restricting the right of members to
transfer their shares
Key Terms
 Two types of companies-public and
private
 Limited liability companies-public and

private
 Partnership-must be more than 1 person

References
 Chan Wai Ming, Company Law in
Malaysia, Cengage Learning, 2012
 Concise Principles of Company Law in
Malaysia, 2nd Edition, Shanty
Rachagan, Janine Pascoe, Anil Joshi,
LexisNexis, 2010

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Company Law

 By shares- Liability is limited to the

 Limited liability companies-public and

 Partnership-must be more than 1 person

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