COMPANY

LAW
CLASSIFICATION OF
COMPANIES
 Introduction

O In section 10(1) Companies Act 2016,

a company may be incorporated as;
Oa) a company limited by shares

Ob) a company limited by guarantee

Oc) an unlimited company

 Types of company
O There is another type of company known
as a company limited by both shares and
guarantee.
O However, this type of company is no
longer possible in Malaysia.
O A limited company is identified by the
word ‘Bhd’ or ‘Ltd’ at the end of the
company’s name.
 Company limited by shares

O The liability of a member or shareholder

depends on the number of shares in the
company that he has agreed to subscribe or
purchase.
O He is only liable for any amount unpaid on
the shares.
O Once it is fully paid, he is free from any
liability.
 Company limited by guarantee
O This type of company has no share capital. Members or
shareholders provide guarantees that upon winding up
of the company, they shall pay an agreed sum if the
company could not fully settle its liabilities.
O It is usually formed not to carry on a business but
rather to provide recreation or amusement or any
object useful for the community or country. For
example, a charitable organization that engages in
selling used goods for charity.
O It must also be a public company.
 Unlimited company
O An unlimited company is similar to a partnership where
the members or shareholders are personally liable for
the debts of the company.
O The members are liable to contribute whatever sums
are required to pay the outstanding debts (if any) of the
company if it goes into liquidation and its assets are
insufficient to pay its debts, liabilities and the expenses
of liquidation.
O Therefore, there is no limit on the liability of its
members. It can be a private or public company.
 Company limited by both shares and guarantee

O This type of company has a share capital

and at the same time, requires the
members or shareholders to give
guarantees.
O Section 12 CA 2016 prohibits the
incorporation of this type of company.
 Types Of Company
O Companies may also be divided into the
following criteria;
 Private company
 Exempt private company
 Public company
 Foreign company
 Holding Company
 Private Company

O A private company is identified as one by the

abbreviation ‘Sdn’ or ‘Pte’
O Only a company limited by shares may be a private
company. It must also have a share capital.
Consequently, a company limited by guarantee cannot
be a private company.
O A company is considered to be a private company if it
has all the features mentioned in section 42 and 43 CA
2016.
 Private Company
O Section 42 and 43 CA 2016 list out the features of a private
company.
1. It must be a company limited by shares – s.42(1) CA 2016
2. It must only have a maximum of fifty members – s.42(1) CA
2016
O A private company may not have more than fifty members. A private
company is usually a family based one so that the shareholders will be from
among the family members.
O If this number is exceeded, the company is no longer considered as a private
company. The company may also face action from the Registrar of
Companies.
 Private Company
3. Must have restrictions on the transfer of its shares –
s. 42(2) CA 2016
O The Companies Act 2016 does not spell out the restriction. The restriction
would be contained in the company’s constitution.
O However, a private company may restrict the rights of its members to freely
transfer shares. Normally, the ‘right of pre-emption’ is applied where any
member who wishes to sell his shares must offer them to the company’s
existing members first. He may only sell to outsiders when no existing
shareholders have agreed to buy his shares.
O Alternatively, the company’s constitution may also provide that the
company’s directors are required to buy the shares from any member who
wishes to sell them. This is not possible in a public company.
 Private Company
O Section 42(4) CA 2016 states that when a private
company ceases to restrict the transfer of its
shares, ceases to have a share capital or has more
than fifty members, the Registrar shall serve a
notice to the company that on such date as
specified in the notice, the company ceased to be
a private company.
O It will then become a public company.
 Private Company
4. Is prohibited from offering shares and debentures to
the public – s.43(1) CA 2016
O A private company cannot offer its shares and debentures
to the public.
O The shares and debentures are sold or transferred on a
‘one to one’ basis according to the law of contract. Hence,
the company cannot advertise itself or issue any
prospectus.
O By virtue of these restrictions and on transferring shares, a
private company may not list its shares in the stock market.
 Private Company
5. Is prohibited from inviting the public to deposit
money – s.43(1) CA 2016
O Similar to the prohibition against offering shares to
the public, a private company cannot invite the
public to deposit money with the company.
O Doing so will result in penalty from the authority
concerned and may cause revocation of the
company’s certificate.
 Effect of contravention
O If a private company breaches any of the first three
characteristics i.e. it ceases to restrict the transfer of its shares,
ceases to have a share capital or has more than fifty members,
it is no longer considered a private company. The company will
lose the status and rights given to a private company.
O In addition, the company and every officer who contravene
section 42 CA 2016 commit an offence and shall, on conviction,
be liable to a fine not exceeding fifty thousand ringgit and in
the case of a continuing offence, to a further fine not exceeding
five hundred ringgit for each day during which the offence
continues after conviction.
 Effect of contravention
O If a private company has invited the public to
subscribe for shares or deposit money with the
company, it is guilty of an offence against the Act. It
does not lose its status as a private company.
O However, the company and every officer who
contravenes section 43 CA 2016 commit an offence
and shall, on conviction, be liable to imprisonment
for a term not exceeding five years or to a fine not
exceeding three million ringgit or to both.
 Public Company
O The Companies Act 2016 does not define nor set out the
characteristics of a public company.
O Section 2 CA 2016 merely states that “public company means a
company other than a private company”. This indicates that any
company that does not possess all the features prescribed in
Sections 42 and 43 of CA 2016 will be regarded as a public
company.
O Thus, a company which does not restrict the transfer of its shares
or has more than fifty members may be deemed to be a public
company. It can then offer shares and debentures to the public as
well as invite the public to deposit money with the company.
 Exempt Private Company
O Section 4 CA 2016 defines it as ‘a private company
in the shares of which no beneficial interest is
held directly or indirectly by any corporation and
which has not more than twenty members none
of whom is a corporation’. In short, all the
company members are natural persons.
O The maximum number of members has been
restricted to twenty.
 Foreign Company
O Section 2 CA 2016 states that a foreign company is
a company, corporation, society, association or
other body incorporated outside Malaysia.
O Any foreign company that wishes to set up a place
of business in Malaysia must register itself with
the Registrar of Companies. The registration
follows similar procedures to that of a local
company.
 Holding Company
O A holding company is a company that owns
enough controlling shares or voting stock in
another company to control management and
operations by influencing or electing its board
of directors. It is also called a parent company.
O This control usually comes through owning a
controlling interest of more than 50 percent
of the stock of the other companies.
O Section 4 of the Companies Act 2016.
 Subsidiary Company
O A subsidiary is a business which is subordinate to
and controlled by another business.
O A subsidiary is most commonly a corporation
which is controlled by another corporation, which
holds controlling interest of the voting shares of
the subsidiary's stock.
O It is a company where a majority of the voting
stock is owned by a holding company.