TOPIC 1- INTRODUCTION

T O C O M PA N Y L AW
AFIQAH ASRI BLS. LL.B LL.M
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CONTENTS
o WHAT IS COMPANY?

o SOURCES OF COMPANY LAW IN MALAYSIA

o TYPES OF THE COMPANIES IN MALAYSIA

o INCORPORATION OF THE COMPANIES

o PROMOTERS

o EFFECTS OF INCORPORATION
TOPIC 1 – INTRODUCTION TO COMPANY LAW
 W H AT I S C O M PA N Y
Companies Act 2016 (CA 2016)

• An artificial person created by the law.

• The company can sue and be sued, and can hold, sell and acquire
property.
• To hold property and carry on business or other activity as an entity
separate from the participants (investors, managers) in that business or
activity. – separate legal entities
 S O U R C E S O F C O M PA N Y
L AW I N M A L AY S I A

Companies Act Other relevant
2016 (CA 2016) legislative Act
• Securities Commission Act
(SCA) 1993,
• Capital Market and Securities
Act (CMSA) 2007,
• Financial Services Act (FSA)
2013 and Islamic Financial
Services Act (IFSA) 2013.
Guidelines Case Law & English Law
• Companies Commission of • Decided cases in Malaysia
Malaysia (SSM) and
accounting standards. • English law in – Sec3 & 5 of Civil
Act – BUT only when there is
• Securities Commission of LACUNAE
Malaysia
 WHO ARE MEMBERS OF
C O M PA N Y
• People who have invested money with the company in the expectation that they
will receive a return on their money if the company is successful.
• Section 192(1) of the CA 2016, a member shall not be liable for the obligation of
a company just because he is a member of the company.
• The liability of a member towards a company debts is determined by whether the
company is a limited or unlimited company.

Sec10 (1) CA 2016, company may be.incorporated as company limited by shares, company
limited by guarantee or unlimited company.
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LIABILITY OF MEMBERS
L I M I T E D & U N L I M I T E D C O M PA N Y
UNLIMITED COMPANY
• Sec 25(1)(c) of CA 2016 – name of the company must have the word Sendirian or the abbreviation Sdn
• the liability of members in the company is unlimited.
• its members have unlimited liability to contribute to the company during winding up if the company has
insufficient assets to pay its debts.
• Can be in private or public companies and can be a company limited by shares or guarantee.

Types of companies – Liability of the members– LIMITED & UNLIMITED COMPANY

 LIABILITY OF MEMBERS
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L I M I T E D C O M PA N Y
• Section 10(1) (a) and (b) of CA 2016, members liability in a company can be limited either by
shares or by guarantee.

LIMITED COMPANY –LIMITED BY SHARES

• Sec10(2) of CA 2016 - 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 member.
• Liability = amount of unpaid of shares
• No liability on company’s debts if; shares fully paid - Salomon v Salomon & Co Ltd [1895-1899] =
Sec435(2)(b) - at the time of commencement of winding up, no contribution exceeding the amount
unpaid on the shares shall be required from any member of a company limited by shares
• Sec435(a) and (b) = if member is ceased to be a member from 1year or more before the winding up
then he is not liable to contribute on the company’s debt.

Types of companies – Liability of the members– LIMITED & UNLIMITED COMPANY

 LIABILITY OF MEMBERS
8

L I M I T E D C O M PA N Y
• Section 10(1) (a) and (b) of CA 2016, members liability in a company can be limited either by
shares or by guarantee.

LIMITED COMPANY –LIMITED BY GUARANTEE

• Principal – liability of its members limited by the Constitution; amount as the members undertake to
contribute to the assets of the company if the company is wound up.
• Company that has no share capital.
• Normally known as non-profit company.
• Not allowed to distribute profits or declare dividends. Sample: schools, universities, foundations.

Types of companies – Liability of the members– LIMITED & UNLIMITED COMPANY

P R I VAT E A N D P U B L I C
C O M PA N I E S
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CHARACTERISTICS & PROHIBITIONS OF

P R I VA T E C O M P A N I E S
Characteristics (Sec42 of Prohibitions (Sec43 of CA2016)
CA2016)
o A company limited by shares o Cannot offer shares to the public.
o It has not more than 50 shareholders o Cannot allot shares with a view of offering to
o Restriction in transfer of shares. the public.
o Sec25(1) (b) of CA 2016 requires that the name of o Cannot invite the public to deposit money to
a private company should end with the words the company
Sendirian Berhad or its abbreviation Sdn Bhd.
o Sec196(1)(a) & (4)(a) – may have 1 Director who
ordinarily resides in Malaysia, by having a principal
place of residence in Malaysia.

Private Companies – Characteristic & Prohibitions

 E P C – E X E M P T P R I VAT E
C O M PA N Y

Character Certificate Exempt from?

Sec2(1) - A private Sec260 CA:
company can be an director, auditor and secretary of
exempt private company the company confirming that
if it has less than 20 • Company is EPC
members and none of • Financial report circulated to
them is companies all members
• Company able to meet
liabities
• Sec224(2) & 225(1) – Prohibition of giving loans to Directors
• Sec260(1) - Does not need to lodge financial statements and
records on annual basis.
• Sec261 - Must provide financial statement in the prescribed
form to its shareholders. The financial statement needs to be
signed by the auditor.

Private Companies – Exempt Private Company

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CHARACTERISTICS OF PUBLIC
C O M PA N I E S
Characteristics
o Section 25(1)(a) provides that the name of a public company should end with the words Berhad or its
abbreviation Bhd.
o A public company may raise capital by issuing shares to the public.
o Sec196(1)(b) – must have at least 2 Directors
o Sec196(4) - ordinarily resides in Malaysia, by having a principal place of residence in Malaysia & min. 1
promoters
o Sec144 – must maintain register of substantial shareholders
o Sec340 – must have Annual General Meeting each financial year
o Bursa Malaysia – where investors can buy and sell shares of public listed companies.

Private Companies – Characteristic & Prohibitions

 CONVERSION OF
C O M PA N Y S TAT U S
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P U B L I C C O M P A N Y L I M I T E D B Y S H A R E S T O P R I VA T E
C O M PA N Y
SEC40 CA 2016

1 2 3 4 END

Step 1 Step 2 Step 3 Step 4

Passing a Lodging a Altering the Altering the company’s
special notice of name Bhd to constitution to fulfil
resolution conversion with Sdn Bhd requirements of a
the Registrar private company

Crypto: investing & trading

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P R I VA T E C O M P A N Y T O P U B L I C C O M P A N Y
SEC41(2) CA 2016

1 2 3 4 5
Step 1 Step 2 Step 3 Step 4 Step 5
Passing a Lodging a Alter the Lodge a Issue a
special notice of name Sdn statement statutory d
resolution conversion Bhd to Bhd in lieu of a eclaration
with the prospectus
Registrar
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U N L I M I T E D C O M PA N Y T O L I M I T E D C O M PA N Y
SEC49 CA 2016

1 2 3 END

Step 1 Step 2 Step 3

Passing a Lodging a Alter the name
special notice of of the company
resolution conversion to Bhd or Sdn
with the Bhd
Registrar
 HOLDING &
SUBSIDIARIES
C O M PA N I E S
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H O L D I N G C O M PA N Y – S E C 4 C A 2 0 1 6

Controls the composition
of the board of directors of
the corporation
Controls more than half of Holds more than half of the
the voting power of the issued share capital of the
corporation corporation, excluding any
part of the share capital
which consists of preference
shares
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P R O C E D U R E S O F I N C O R P O R AT I O N

1 2 3 4

Name Document Certificate Appoint Co-

Section 14(1) CA 2016 • Paid prescribed fee.
Search
Complete online
• Registrar will issue Sec &
application/info in SSM. • Proposed name notice of approval. File in the
• Type of companies • SSM will provide
the name will be reserved & business
for 30 days by the Registrar • Address
certificate of constitution
incorporation
from the date of approval. • Details & Form9/Sec15 of the
declaration of
Directors & Company
promoters
 PROMOTERS

Refers to a person who takes active steps to incorporate the

Company.
Twycross v Grant (1877)
• Natural person
• Person who undertakes to form a company and takes
necessary steps to accomplish this purpose.
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DUTIES OF PROMOTERS

Promoter owes He has a duty He cannot the company must be aware of all
a fiduciary to disclose have conflict transactions that it enters into
duty to the his interest in of interest with the promoter. A promoter
all transactions with the
company, has a company he
cannot make secret profit out
relating to his
duty to act in position as a is promoting. of his position.
good faith. promoter One of the most common
problems would be such as where
the company is buying the
promoter’s property, the company
must know about it.
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REMEDIES FOR BREACH OF PROMOTER’S

DUTIES
1. Rescission
o To terminate or annul a contract entered into by a co. that was not aware of the truth due
to the promoter’s breach of fiduciary duty. The promoter must return any benefit or profit
he had gained, and the company must return the property.
o A contract made cannot be rescinded under three circumstances

If a company without justification
delays rescinding a contract it may
also be considered as if it had
affirmed, and thus will lose the
right to rescind.
Where the parties Where third parties have
involved cannot be acquired rights that
restored to their original cannot be defeated.
position
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REMEDIES FOR BREACH OF PROMOTER’S

DUTIES
2. Damages
o To claim damages the company must prove that it had suffered a loss. The company may
sue for damages for breach of fiduciary duty, fraudulent misrepresentation, deceit or
negligence.

3. Claim for Secret Profit

o This is a useful alternative remedy where the company cannot rescind the contract or where
the company chooses to retain the contract, but the secret profit recoverable in this case
must be separate from the contract price.
o To recover secret profit the company must show that there was failure to disclose and that
the profit arose from transaction within the promotion period
 P R E - I N C O R P O R AT I O N
CONTRACT

COMMON LAW MALAYSIA POSITION HOW TO RACTIFY?

• contract entered by Sec65(1) CA 2016 • A pre-incorporation contract can be

unformed company Allows pre-incorporation contract
cannot be adopted or Section 65(2) provides that pre-
ratified by the company
after incorporation.
incorporation contract may be
• a new contract must be ratified after the company being
made after its incorporated and upon
incorporation in the same ratification, the company shall be
term as the old contract bound by the contract as if the
to enable the parties to company had been in existence at
be bound by the contract. the date the contract was entered
into by the promoter.
Pre-incorporation Contract
expressly ratified through a board of
directors or general meeting resolution.
• If there is no expressed ratification, the fact
that a company has taken steps to
unequivocally accept the responsibility of
the contract shows that the pre-
incorporation contract has been impliedly
ratified.
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E F F E C T S O F I N C O R P O R AT I O N

1. A body corporate comes into existence capable of exercising all the functions of an
incorporated company;

2. Having the ability to sue and be sued;

3. Enjoying perpetual succession – Sec20 (1)(a) CA 2016

4. Having power to hold property; and

5. The liability of the members depends on the type of company- refer slides 6-8 (above)

6. Separate legal entity/Corporate Veil -Sec20 (1)(b) CA 2016

E f f e c t s o f I n c o r p o r a t i o n
 C O R P O R AT E V E I L

• The effects of incorporation figuratively cast a veil on the natural person behind the
company as the law is only interested in the company as an entity.
• The real person behind the corporate entity will not be known until the court decides
to lift the corporate veil.
GENERAL RULE = The company is a legal person [artificial] having a distinct
entity from its members
27 L I F T I N G O F T H E C O R P O R AT E V E I L
EXCEPTION TO THE GENERAL
RULE
Judicial Exception – COURT decision to lift the veil
o Attribution of o Use of the o Company o Avoidance of o Public Policy
Physical or Company as Employed as an Contractual
Mental State or a Sham or to Agent of its Obligations
Character Commit Controllers
Fraud

Statutory Exception – provision in CA2016

o Sec123 of CA 2016: o Sec539(3) and 540(2) of CA 2016: o 540(1) imputes criminal liability
While winding up or in any to any person who is a knowing
A company is prohibited
proceedings against the company, party to the carrying on of any
from giving financial
member who expected being able to business of the company with the
assistance for the purchase
pay debt can be made personally intent to defraud the creditors of
of its own shares or shares
liable the company or for any
of its holding company.
fraudulent purposes.
THANK YOU
Afiqah Asri
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