CLASSIFICATION OF COMPANIES

In accordance with the Companies Act 2016, companies are classified into a few types.

There are limited companies which can be divided into company limited by shares or company

limited by guarantee, there are unlimited company, public or private company, and related

company which consists of holding and subsidiary company.

LIMITED COMPANIES

Section 10(1) Companies Act 2016 states that a company may be incorporated as ‘(a)

a company limited by shares; (b) a company limited by guarantee; or (c) an unlimited

company.’

CLASSIFICATION OF LIMITED COMPANIES

I. LIMITED BY SHARE

 Section 10(2) stated that a company is limited by shares if the liability of its members is

limited to the amount, if any, unpaid on shares held by the members.

 In a company limited by shares, its member has either fully paid up upon his shares or

otherwise.

 Section 42(2) stated that the company shall be the private company.

 Where member of a limited company has fully paid up on his shares, the general principle

is that he will not be liable for the debts of the company. Even the company is wound up,

and the assets of the company are insufficient to meet its liabilities towards its creditors, a

member who has fully paid up on his shares will not be called upon to contribute. He can

be made liable if and only if the veil of the corporation is lifted.

 Where a member of a limited company has not fully paid up on his shares, he may be

called upon at any time by the company to pay the unpaid portion. In the event the company

is wound up, and the assets of the company are insufficient to meet its liabilities towards

its creditors, a member who has not fully paid up on his shares will be called upon to

contribute. However, unless the corporate veil is lifted, the amount required from him

cannot exceed the amount unpaid on his shares. [section 435(2)(b)]

 The member of the limited company knows his maximum liability. At the most, he will

lose the amount he has agreed to invest in the company. His personal assets will not be

impacted when the company becomes insolvent.

II. LIMITED BY GUARANTEE

 Section 10(3) stated that a company is limited by guarantee, a member’s liability is limited

to the amount they agreed to contribute in the event the company is wound up.

 Section 31(1) requires the company to have a constitution which shall contain matters

prescribed in Section 38(3), namely :-

 The company is a company limited by guarantee;

 The objects of the company;

 The capacity, rights, powers, and privileges of the company;

 The number of members with which the company proposes to be incorporated;

 Other matters required by the Companies Act 2016; and

 Any other matter as the company so wishes.

 As the members do not give upfront financial contributions to kick start the operation of

the company, usually the company is formed not to carry on a business but rather to provide

recreation or amusement or promote commerce, or any object useful for the community or

country. Such a company depends on fees collected from members to fund its operation.
 Under the Companies Act 2016, Section 45(1) required that only the may be formed to

provide recreation or amusement or promote commerce, industry, art, science, religion,

charity, pension or superannuation scheme or any object useful for the community or

country.

 Section 45(2) does not allow the company to distribute the profits as dividends and its

assets to its members on its winding up. Instead, the company is to apply its profit and

income to achieve or promote its objects, and in the event of winding up, the transfer its

assets to another body with similar objects or for the promotion of charity.

 Under Section 11(2), the company shall be a public company. Following the Section

25(1)(a), the name such company should end with the word “Berhad” or its abbreviation

“Bhd”. However, Section 45(3) provides that the company may apply to the Minister to

omit the said word or its abbreviation from its name.

 Section 10(2) prohibits the incorporation of the company with a share capital.

UNLIMITED COMPANIES

 Section 10(4) of Companies Act 2016 defines that a company is an unlimited company

if there is no limit on the liability of its members.

 Section 11(3) of Companies Act 2016 state that an unlimited company shall either be a

private company or public company.

 Section 25(1)(c) of Companies Act 2016 provides that the name of an unlimited

company shall end with word "Sendirian" or the abbreviation " Sdn."

 It may or may not have a share capital.

 Members of an unlimited company are liable for all the debts of company.

 Liability of its members in a winding up for the debts of the company is without

limit in case of company does not have enough assets to meet its debts.
  Unlimited company enjoys separate legal entity from its members and thus has

perpetual succession.

 Unlimited company are more regulated.

 The company have to comply with strict regulations in the Companies Act 2016,

particularly with the requirements for the company's accounts and meetings.

 Company are able to reduce its share capital without restrictions imposed by Section

115 and 116.

 This is because creditors have access to the personal property of all members to an

unlimited extent if company is wound up and has insufficient funds.

Conversion from An Unlimited Company to A Limited Company

I. Unlimited company to limited company

 It is to the advantage of members but to the disadvantage of creditors.

 The members would no longer be liable for all the debts of the company.

 The creditors have recourse against only the company to recover their debts.

II. Limited company to unlimited company

 It is the reverse if company is converted from limited company to unlimited company.

 The creditors would have recourse against both the company and its members to recover

their debts.

Section 40(1) provides that unlimited company may convert to limited company by

passing a special resolution and lodging the notice for conversion with the Registrar of

Company. Subsection (4) provides that the conversion takes effect upon issuance of the notice

of conversion by the Registrar of Company.

 Though there is a change in the company name and status, Subsection (5) and

Subsection (6) provides that the identity, rights, and obligations of the company are not affected

after its conversion.

PUBLIC COMPANIES

Section 2(1) of Companies Act 2016 defines that any company that is not incorporated

as , or converted to, a private company.

It means that the share from public company can be subscribed by the public.

Thus, unlike a private company, a public company may have any of the following

characteristics:

 It can be a company limited by shares or guarantee , or it can be an unlimited company;

 It can have more than 50 shareholders;

 It need not restrict the transfer of its shares;

 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; and

 It can invite the public to deposit money with the company.

Allotment of shares by public company is a copy of prospectus or statement in lieu of

prospectus that have been delivered to Registar of Companies (ROC).

The Companies Act 2016 reforms the requirement for an Annual General Meeting (AGM).

Section 340 provides that only a public company is required to hold an AGM.

A public company can be categories into two which are limited company or unlimited

company. It also may be limited by shares or limited by guarantees.

According to section 11(2) of Companies Act 2016, all companies limited by guarantee are

public companies. It is because company limited by guarantee cannot be a private company, so

it can be incorparated only as a public company.

Under section 597(2) of Companies Act 2016, a company shall not use the word “Sendirian”

or “Sdn” as a part of its name if the company does not fulfill the requirements required by this

Act to be fulfilled by private companies.

Section 25(1)(a), the name of the public company should be end with word “Berhad” or “Bhd”.

However, under section 25(1)(a) does not consider a public which is not limited.

Public Listed Companies

Public listed companies are companies whose shares are listed on Bursa Malaysia.

The shareholding of a public listed company cannot be concentrated in a few, there must be a

spread of shareholders.

Thus, the shareholders in public listed company can freely dispose their share without any

restrictions.

To protect the public, a listed company in Malaysia need to comply with the Listing

Requirements formulated by Bursa Malaysia.

PRIVATE COMPANIES

Section 2 of the Companies Act 2016, ‘Any company that is registered as, or converts to a

private company under the Companies Act’.

Section 25 of the companies Act 2016, ‘A private company limited by shares must always

include the words “Sendirian Berhad” or the abbreviation “Sdn Bhd” in its name.
A company with a share capital (whether limited or unlimited) can be private company it its

memorandum or articles of association contain all of the following under section 15(1):

 It has not more than 50 shareholders

 It restricts the transfer of its shares

 It cannot offer its shares or debentures to the public, under of the Companies Act 1965,

a private company was prohibited from inviting the public to subscribe its shares or

debentures.

 It cannot invite the public deposit money with the company

Exempt Private Company

An exempt private company is defined in section 2(1) 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 corporation’.

An exempt company private company is a private limited company with not more than

20 members. Its shares are exempted from filling its audited, financial statements and reports

with the ROC (Registrar of Companies), Section 260 provided that the company should provide

files a certificate signed by a director, auditor and secretary conforming the following:

 The company is an exempt private company

 A copy each of the company’s audited financial statements and reports has been

circulated to its members

 As at the date of the financial statements, the company appeared to be able to meet its

liabilities as and when the liabilities fall due

In real, the exempt private company must be solvent and it must fulfil that condition by all the

private companies.
Differences between Private and Public Companies Prescribed in Companies Act 2016:

 Statutory minimum number of resident directors for a private company is only one,

while, a public company is required to have at least two resident directors.

 Only a public company is mandated to hold its Annual General Meeting.

 Certain categories of private company are exempted from having its accounts audited.

 The name of private company should have “Sendirian” or “Sdn Bhd”, while in the

public company it is without the “Sendirian” or “Sdn Bhd”.

 For the allotment of shares, in the private company it cannot offer to the public. For the

public company it is Prospectus.

Conversion from A Private Company to A Public Company

Under section 42(4), a private company that ceases to restrict the transfer of its shares,

ceases to have a share capital or has more than 50 shareholders may be converted into a public

company by the ROC serving a notice on the company.

A private company may also voluntarily convert into a public company by passing a

special resolution and following the procedure laid down in section 41(2).

Section 41(4) provides that the company is converted into a public company upon the ROC

issuing the notice of conversion. It means that the conversion of status of company from private

to public company need to be approval by ROC which is ROC must issuing the notice of

conversion.
Conversion from Public to Private Company

Section 41(1) enables a public company with a share capital to be converted into a

private company by passing a special resolution and to lodge the notice of conversion with the

ROC. A private company may convert to a public company by lodging with the ROC if it

provided:

 A special resolution for conversion and an appropriate alteration to its name. The

special resolution must also alter the company’s name so as to include the word

‘Sendirian’ as to comply with section 15.

 A Prospectus, and

 Statutory declaration verifying compliance

RELATED COMPANIES

By virtue of Section 7 of the Companies Act 2016, related companies are companies,

which consists of a company that controls another company called a holding company, and the

company being controlled which called as a subsidiary, or the companies are both subsidiaries

of the same holding company.

Holding Companies

The Companies Act 2016 does not provide a direct definition of a holding company.

However, by referring to the definition of subsidiary companies in Section 4(1) and Section

4(2) of the Act, it is understood that a company is deemed to be a holding company if:

 The company controls the composition of the board of directors of another company

(subsidiary), which means that the company (holding) has the right to appoint or

remove all or a majority of the directors of subsidiary companies.

 The company controls more than 50% of the voting power in another company

(subsidiary).

 More than half of the issued share capital not including preference shares in the

subsidiary company is held by the company (holding).

 The corporation held by the holding company has a subsidiary company. Hence, the

company is a holding company of the latter.

Ultimate Holding Company

The term ultimate holding company is defined in Section 5 of the Companies Act 2016

where a corporation is deemed to be an ultimate holding company if:

 Another company is a subsidiary of the company (ultimate holding company).

 The company (ultimate holding company) is not a subsidiary of another company.

Subsidiary Companies

Section 4 of the Companies Act 2016 stated that a company is deemed to be a subsidiary

company of another corporation if:

 The composition of its board of directors are controlled by another company (holding),

where the holding company could appoint or remove all or majority of the directors in

the subsidiary company. – Section 4(1)(a)(i) and Section 4(2)

 More than half of the voting power in the company is controlled by another company

(holding). – Section 4(1)(a)(ii)

 Excluding the preference shares, more than 50% of the issued share capital of the

company are held by another company (holding). – Section 4(1)(a)(iii)

 The company is a subsidiary of another company where the latter is other corporation’s

subsidiary. – Section 4(1)(b)

Wholly-owned Subsidiary

In accordance with Section 6 of the Companies Act 2016, a company is a wholly-owned

subsidiary of another company if all the members in the company are:

 The holding company

 The nominee of the holding company

 The wholly-owned subsidiary of the holding company

 The nominee of the wholly-owned subsidiary of the holding company

REFERENCES

 https://www.accaglobal.com/an/en/student/exam-support-resources/fundamentals-

exams-study-resources/f4/technical-articles/mys-comp-act.html

 https://www.scribd.com/document/240031501/Exempt-Private-Company

 http://www.federalgazette.agc.gov.my/outputaktap/aktaBI_20160915_CompaniesAct

2016Act777.pdf

 https://hhq.com.my/new/article/classification-of-companies/

 https://www.easylaw.com.my/statutes/general-litigation/companies-act-2016