Malaysian Company law

Chapter 12 : Company Law

Introduction to Malaysian Company Law

ACT 125, COMPANIES ACT 1965, (REVISED-1973)

Incorporating latest amendment – Act A1299/2007

What is a company?

A company is a corporate body o corporation which artificial legal person that exist independently of the individuals who at any given time are the members of the corporate body.

Which means that incorporation will bring the effect of separate legal entity – refer

Salomon v Salomon & Co. Ltd.

What are the different between company and corporation?

The meaning of a corporation is broader than a company since that it includes a company itself. In other word, all companies are corporation but not all corporations are company.

Concept of separate legal entity

Refer to the case of Salomon v Salomon & Co. Ltd.

The concept of separate legal entity was established by this case where it brings those effects:

That the company is a body corporate with the powers of an incorporated company;

That it may sue & be sued;

That it has perpetual succession;

That it may own land; and

That the liability of its members may be limited.

Exceptions to the veil of incorporation.

Also known as lifting of the corporate veil.

Salomon’s case held that a company and its members are different people.

This concept is known as the veil of incorporation.

But in exceptional cases, where uploading the rule in Salomon would lead to injustice, the courts will lift the corporate veil.

The court will look behind the corporate entity and take action as if no entity separate from the members existed.

After that the court will make the company, directors or managers liable for debts and obligations.

Lifting of the corporate veil

Can arise in the following circumstances.

-          Number of members below 2

-          Responsibility for fraudulent trading

-          Publication of name

-          Taxation and nationality rules

         Daimler Co. Ltd. v Continental Tyre & Rubber & Co. (Great Britain) Ltd.

-          Holding and subsidiary companies

Differences between a company, partnership and sole proprietorship

A sole proprietorship is a business that has a single owner who is responsible for making decisions for the company. A partnership consists of two or more individuals who share the responsibility of running the company. A corporation is one of the most recognizable business structures and has a separate identity from the owners of the company. One or more owners may participate as shareholders of a corporation.

Type of Companies

A company can be formed in a number of ways:

(a) By Royal Charter (Chartered Companies)

Formed by grant of a charter by the Crown. Promoters of the company petition the Privy Council attaching draft of proposed charter to the petition. Still used to incorporate learned societies and professional bodies. No longer used to incorporate trading companies.

(b) By Act of Parliament (Statutory Companies)

Formed by private Act of Parliament. Formerly used to incorporate public utilities such as gas, electricity and railways. (The privatized public utilities have been incorporated as registered companies).

(c) By Registration (Registered Companies)

Formed by registration under the Companies Act 1985 (as amended) or one of the preceding Companies Acts. Registration is the most commonly used means of forming a company and virtually the only method now used to form a trading company. CA 1985, s.1(1): "Any two or more persons associated for a lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company, with or without limited liability."

"Limited Liability" - this refers to the liability of the members, not the liability of the company. The company will always be liable to the full extent of its debts. The liability of the members, whether limited or unlimited, is to the company, not to the individual creditors of the company.

(a) Unlimited Companies

(i) Members have unlimited liability (If company is being wound up, members can be made to contribute to the company’s assets without limit to enable it to pay its debts.)

(ii)Cannot be public companies.

(iii)Can be set up with or without a share capital.

(iv)Not subject to the same restrictions on alteration of capital as other types of company, and do not normally have to file annual accounts.

(b) Companies Limited by Guarantee

(i) Members agree to contribute a specified amount to the company’s assets in the event of the company being wound up. (Total amount payable by all members is called the "guarantee fund")

(ii) Members do not have to pay anything as long as company is a going concern - so company has no contributed capital.

(iii) Companies limited by guarantee are not usually formed for business ventures.

(iv) Prior to 1980, a company could be registered as a company limited by guarantee, but also have a share capital - these are called "hybrid companies".

(c) Companies Limited by Shares

(i) The most common kind of registered company.

(ii)Members of the company take shares issued by the company. Each share is assigned a nominal value - the amount that must be paid to the company for the share. Members may also agree to pay an extra amount - called a premium.

(iii)When the company is registered, its memorandum must state the total nominal value of all the shares it is going to issue (called the registered capital, or nominal capital or authorized share capital).

The memorandum also states the number of shares to be issued:

e.g. 10,000 shares of £1 each = registered capital of £10,000.

(iv)Liability of a member (shareholder), when the company is wound up is limited to the amount, if any, of the nominal value of his shares which has not been paid. ( Shareholder is also contractually bound to pay any premium which has not been paid).

(v) Shares are normally partly or fully paid for when issued, so company will have a contributed capital.

Private and Public Company

A private company is define under Section 4(1) as, any company incorporated as a private company by virtue of Section 15, or any company converted into a private company pursuant to Section 26(1) & which has not ceased to be a private company under Section 26 or Section 27.

A company having a share capital may be incorporated as a private company if its Memorandum/Articles:

Restricts the rights to transfer its share.

Limits the number of members to not more than fifty.

Prohibits any invitation to the public to subscribe for any shares in or debentures of the company, and prohibits any invitation to the public to deposit money with the company.

A Public company is a company other than a private company. An exempt private company is 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.

Formation of company

1. Application of Name Search

A name search must be conducted to determine whether the proposed name of the company is available. Refer to Government Gazette No. 716 dated 30 January 1997, Gazette (Amendment) dated 11 October 2001, Guidelines for Naming A Company and Guidelines for Application of a Company Name. The steps involved are:

(i) Completion and submission of Form 13A CA (Request for Availability of Name) to SSM; and

(ii) Payment of a RM30.00 fee for each name applied.

Where the proposed company’s name is approved by SSM, it shall be reserved for three months from the date of approval.

2. Lodgement of Incorporation Documents

Incorporation Documents (as further explained in Part B below) must be submitted to SSM within 3 month from the date of approval of the company’s name by SSM, failure of which a fresh application for a name search must be done. (Steps (i) and (ii) above shall have to be repeated).

B. INCORPORATION DOCUMENTS TO BE LODGED WITH SSM

1. Memorandum and Article of Association

An original of the Memorandum and Article of association shall each be stamped at RM100.00. Stamps are affixed at the Inland Revenue Board’s stamp office.

•The first directors and secretaries shall be named in the Memorandum and Article of Association.

•The subscribers to the company’s shares shall sign the Memorandum and Articles of Association in front of a witness.

•Table A of the Fourth Schedule in the CA can be adopted as the Article of Association of the company (Section 30 CA).

For incorporation of a private company, the articles of association shall contain the following stipulations.

(i) Restriction on the right to transfer the company’s shares;

(ii) Limitation on the number of members to not exceed fifty;

(iii) Prohibition to any invitation to the public to subscribe the shares/debentures of the company; and

(iv) Prohibition on public invitation to deposit money with the company.

2. Form 48A (Statuary Declaration by A Director Or Promoter Before Appointment)

The director or promoter declares under oath that:

•He/She is not a bankrupt; and

•He/She has not been convicted and imprisoned for any prescribed offences.

3. Form 6 (Declaration of Compliance)

This declaration states that all the requirements of the CA have been complied with. It must be signed by the company secretary who handles the registration and is named in the Memorandum and Articles of Association.

4. Additional Documents:

•Original copy of Form 13A.

•A copy of the letter from SSM approving the name of the company.

•A copy of the identity card of each director and company secretary.

C. REGISTRATION FEES

Each application for the incorporation of a company shall be accompanied with payment as per the schedule following:

AUTHORISED SHARE CAPITAL (RM) FEES (RM)

AUTHORISED SHARE CAPITAL (RM)	FEES (RM)
Up to 400,000	1,000
400,001 – 500,000	3,000
500,001 – 1 million	5,000
1,000,001 – 5 million	8,000
5,000,001 – 10 million	10,000
10,000,001 – 25 million	20,000
25,000,001 – 50 million	40,000
50,000,001 – 100 million	50,000
100,000,001 and above	70,000

D. CERTIFICATE OF CORPORATION

A Certificate of Incorporation will be issued by SSM upon compliance with the incorporation procedures and submission of the duly completed Incorporation Documents.