types of companies and promoters

8/10/2019 Types of Companies and Promoters

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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 2001Capital 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 COMPANIESCA 1965classifies 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

limitedor unlimited.

The question of liability often arises when the company goes into

liquidationand the debts cannot be fully discharged out of its assets.

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Limited by shares

Unlimited LiabilityLimited Liability

Limited by guarantee


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Company Limited By Shares

s.4 (1):

Liability of members limited to the amount of unpaid shares respectively held by them (ifany).

Shares do not have to be fully paid upon issue; a portion of the nominal value may be leftoutstanding 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 itsabbreviation bhd as part of and at the end of its name.

Failure to do so shall amount to an offence punishable with imprisonment not exceeding3 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 undertaketocontribute 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 exceedingthe 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 beacquired from outside sources, subscriptions & social activities).

Cannot adopt Table A as its AOA.

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Unlimited Companys.4(1):

No limitplaced on the liability of its members.

Members are liable upon winding-up for the debts of thecompany without limitif the company has insufficient assetsto meet its debts.

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

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Private Companies

A company with a share capital (whether limited or unlimited) may beincorporated as a private company.

Definition: s.4(1)cf ss.15and 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) 11


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Related Companies (contd)

e.g. Tok Abas Cofee Ltd will be the holdingcompany of Boboboi Ltd if any one of thefollowing conditions are met:

(a) Tok Abas Cofee Ltd controls thecomposition of the board of directors of

Boboboi Ltd;

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

(c) Tok Abas Cofee Ltd owns more thanhalf the issued share capital of Boboboi

Ltd (not counting preference shares).

*refer s.5(1)(a)


TokAbas

Coffee Ltd

Boboi Ltd

Gopal Ltd

Yaya Ltd


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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 bythe holding company and/or

its wholly-owned subsidiaries.

X Ltd

Y Ltd

Z Ltd


X Ltd owns 100% of

Y Ltds shares Y Ltd owns 100% of

Z Ltds shares


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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 nothave 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 marketablesecuritiesfor revenue & profit& not for the purpose ofexercising 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 companyunder the Trust

Companies Act 1949; or

(b) a corporation that is a public company under CA 1965orunder the laws of any other country, which has beendeclared 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 beforethat company has received its certificate of incorporation

A promoteris one who undertakes to form a company with reference toa given project, and to set it going, and who takes the necessary steps toaccomplish that purpose.

- Twycross v Grant -

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

- per Gopal Sri Ram JCA in Tengku Abdullah ibni Sultan Abu Bakar v MohdLatiff 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 itsregistration

A company is also incapable of ratifying a pre-registration contractafter 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 contractand upon such ratification, the company will be bound by the contract.

In such a situation, the third party with whom the pre-registration contract isentered 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 thecompany shall be personally liable by the contract.

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Procedure:

Please refer SSM website

- Company Law (Introduction)

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types of companies and promoters

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