COMPANY LAW I

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What is company law?

Formation and termination of companies
Confers companies special features
Regulates the relationship between the participant in
companies
Facilitates dealings between companies and outsiders
MHB 4013 - Company Law (Introduction)
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SOURCES OF COMPANY LAW
1. Main Legislation
Companies Act 1965
Securities Commission Act 1993
Companies Commission of Malaysia Act 2001
Capital Markets and Services Act 2007

2. Subsidiary Legislation
Companies Regulations 1966
Companies (Reduction of Capital Rules) 1972

4. Listing Requirements of Bursa Malaysia
Securities Berhad
- with regards to public-listed companies

5. Codes of Conduct
e.g. Malaysian Code on Corporate Governance


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CLASSIFICATION OF COMPANIES
CA 1965 classifies registered companies according to the following:

Liability of members
Status (public/private)
Relationship with other companies (holding/subsidiary)
Place of incorporation (local/foreign)
Type of business
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Liability Of Members
The liability of the members in respect of the companies debt can be
limited or unlimited.

The question of liability often arises when the company goes into
liquidation and the debts cannot be fully discharged out of its assets.


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Limited by shares
Unlimited Liability
Limited Liability
Limited by guarantee
Company Limited By Shares
s.4 (1):
Liability of members limited to the amount of unpaid shares respectively held by them (if
any).

Shares do not have to be fully paid upon issue; a portion of the nominal value may be left
outstanding as uncalled capital.

Company can elect to adopt the Fourth Schedule (Table A) as its Articles of Association
(AOA) (ss.29 & 30)

Must state that liability of members is limited.

s.22(3)- a limited company (by shares/guarantee) must have the word berhad or its
abbreviation bhd as part of and at the end of its name.

Failure to do so shall amount to an offence punishable with imprisonment not exceeding
3 years and a fine not exceeding RM50,000 (s.367(1))
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Company Limited By Guarantee
s.4(1):
Liability of members limited to the respective amounts that they undertake to
contribute to the assets of the company in the event the company is wound-up.

s.214(1)(e):
Upon winding up, no contribution shall be required from any member exceeding
the amount undertaken to be contributed by him.

Does not have a share capital.

May be convenient for clubs & other non-trading co. (capital needs can be
acquired from outside sources, subscriptions & social activities).

Cannot adopt Table A as its AOA.

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Unlimited Company
s.4(1):

No limit placed on the liability of its members.

Members are liable upon winding-up for the debts of the
company without limit if the company has insufficient assets
to meet its debts.

A unlimited company may be converted into a limited
company. (s.25(1))


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Private Companies
A company with a share capital (whether limited or unlimited) may be
incorporated as a private company.

Definition: s.4(1) cf ss.15 and 26(1)

Criteria of private companies (s.15):

1. Restriction on the right to transfer shares
2. Limitation on number of members to not more than 50
3. Prohibition from raising money from the public
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Public Companies

Definition: s.4(1)

Have access to public funding.

Not prohibited from offering or inviting the public to invest in its securities.

Before it can offer or invite the public to subscribe to its securities, must
comply with Securities Commission Act 1993 & Securities Industry Act 1983.

Further categorised into public listed company & unlisted public company
(informal classification).

A public company may be converted into a private company,
and vice-versa (ss.26(1) &(2))
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Related Companies

The term group refers to companies that are related.

A company is related to each other if it is in a holding-subsidiary
relationship, or if it is a subsidiary of a common holding
company.

This classification is important for accounting and regulatory
purposes.




MHB 4013 - Company Law (Introduction)
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Related Companies (contd)
e.g. Tok Abas Cofee Ltd will be the holding
company of Boboboi Ltd if any one of the
following conditions are met:

(a) Tok Abas Cofee Ltd controls the
composition of the board of directors of
Boboboi Ltd;

(b) Tok Abas Cofee Ltd controls more
than half the voting power of Boboboi Ltd;

(c) Tok Abas Cofee Ltd owns more than
half the issued share capital of Boboboi
Ltd (not counting preference shares).

*refer s.5(1)(a)
MHB 4013 - Company Law (Introduction)
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Tok Abas
Coffee Ltd
Boboi Ltd
Gopal Ltd
Yaya Ltd
Related Companies (Contd)
Ultimate holding company
(s.5A)
A corporation which has
subsidiaries and is not in itself
a subsidiary of some other
corporation.

Wholly-owned subsidiary
(s.5B)
A subsidiary in which all of its
shares are wholly-owned by
the holding company and/or
its wholly-owned subsidiaries.

X Ltd
Y Ltd
Z Ltd
MHB 4013 - Company Law (Introduction)
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X Ltd owns 100% of
Y Ltds shares
Y Ltd owns 100% of
Z Ltds shares



Foreign Companies
s.4(1):

A foreign company refers to:

(a) a company, corporation, society, association or other body incorporated
outside Malaysia; or

(b) an incorporated society, association or other body, which:

(i) does not have its head office or principal place of business in
Malaysia; and

(ii) under the law of its place of origin, may be sue or be sued, or
hold property.


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Investment Companies
Engaged primarily in the business of investment in marketable
securities for revenue & profit & not for the purpose of
exercising control (s.319(2)).

Marketable securities- debentures, funds, stocks or bonds of
any govt, local authority or any corporation or society (s.84).

Investment companies are subject to certain restrictions &
prohibitions contained in Part XI Division I of CA 1965.
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Trustee Corporations
s.4(1):

A trustee corporation refers to:

(a) a company registered as a trust company under the Trust
Companies Act 1949; or

(b) a corporation that is a public company under CA 1965 or
under the laws of any other country, which has been
declared by the Minister to be a trustee corp. for the
purposes of the CA 1965.

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COMPANY LAW
INCORPORATION OF A COMPANY
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WHO ARE PROMOTERS?
Persons who are involved in the formation of a company

Persons who have entered into contracts on behalf of a company before
that company has received its certificate of incorporation

A promoteris one who undertakes to form a company with reference to
a given project, and to set it going, and who takes the necessary steps to
accomplish that purpose.
- Twycross v Grant -

A promoter is one who starts off a venture any venture not solely for
himself, but for others, of whom he may be one.

- per Gopal Sri Ram JCA in Tengku Abdullah ibni Sultan Abu Bakar v Mohd
Latiff bin Shah Mohd [1996] 2 MLJ 265

A promoter owes fiduciary duties to the company promoted

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PRE-REGISTRATION CONTRACTS
Common Law Position

Prior to registration, a company as a legal entity does not exist.

At this stage, the company therefore cannot enter into contracts nor
appoint any person to enter into contracts on its behalf.

Therefore, a company is not bound by a contract made prior to its
registration

A company is also incapable of ratifying a pre-registration contract
after it is registered
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Pre-registration Contracts (contd)
S. 35(1) of CA 1965

Alters the common law principle

Enables a company upon its registration to ratify a pre-registration contract
and upon such ratification, the company will be bound by the contract.

In such a situation, the third party with whom the pre-registration contract is
entered into, can enforce the contract against the company.

S. 35(2) of CA 1965

If the company upon registration does not ratify the pre-registration contract,
the person(s) who purported to act in the name of or on behalf of the
company shall be personally liable by the contract.
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Procedure:
Please refer SSM website
- Company Law (Introduction)
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