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Topic Overview
1. Type of companies
• Classification of companies by limitation
Chapter 6 • Classification of companies by status
• Holding & subsidiaries

2. Constitution of Companies
1) Type of Companies • General Concept & Content
2) Constitution • Effect
• Alteration

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Companies Limited by Share

 S.10 (2) CA 2016: A company is limited by shares if the

liability of its members is limited to the amount, if any,
unpaid on the shares held by the members.
 This is the most common type of company being
incorporated.
 The member knows his maximum liability. His other
personal assets will not be impacted when the company
becomes insolvent.
 According to S.11(1) CA 2016, a company limited by
shares shall either be a private or a public company.
 Ends its name with “Bhd.” or “Berhad”
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Companies limited by guarantee Companies limited by guarantee

 S.10 (3) CA 2016 – In a company limited by guarantee, a  Not very common.
member’s liability is limited to the amount he agrees to
 According to S.11(2) CA 2016, a company limited by
contribute in the event of the company is being wound up.
guarantee shall be a public company.
 S.45(1) required that only a CLBG may be formed to provide
recreation or amusement or promote commerce, industry, A company cannot be formed as or become a company
art, science, religion, charity, pension or superannuation limited by guarantee with a share capital.
scheme or any object useful for the community.  Examples: World Vision Malaysia Berhad, a charitable
 S.45 (2) does not allow the company to distribute its profits organization; Business Ethics Institute of Malaysia;
as dividends and its assets to its members on its winding up. Badan Pengawas Pemegang Saham Minoriti Berhad
(MSWG); The Tun Hussein Onn National Eye Hospital.

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Characteristic of private company

Unlimited Companies  Having not more than 50 shareholders. See S.42 (1)

 S.10(4) CA 2016 defines an unlimited  Liability of the members shall be limited by shares.
See S.42 (1)
company as where there is no limit on the
liability of its members.  Must have share capital. See S.42 (1)
 Usually the primary liability is the liability of  (S. 11 (2) CA 2016 Company limited by guarantee
shall be a public company. Thus a private company
the company, only when the company cannot cannot be a company limited by guarantee).
pay its debts, then the members are fully
liable.  S. 42(2) CA 2016
 Uncommon kind of company  A private company shall restrict the transfer of its
shares.
 According to S.11(3) CA 2016, an unlimited
company shall either be a public or a private
be a company.
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Characteristic of private company

Exempt Private Company
 S. 43(1) CA 2016 A private company shall NOT
 “exempt private company” means a private
 offer any shares or debentures of the company company in the shares of which no beneficial
to the public; or interest is held directly or indirectly by any
 allot or agree to allot any shares or debentures corporation and which has not more than 20
of the company with a view to offer such members none of whom is a corporation; - S.2 CA
securities to the public; or 2016
 Invite the public to deposit money with the Thus,
company for fixed periods or payable at call,
 Max number of members – not more than 20 members.
whether bearing or not bearing interest.
 All members must be individuals. No corporation is allowed
to be a member.
 No share of the exempt private company is to be held
directly or indirectly by any corporation.

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Advantages of Exempt Private Company Public Company

Defined in S.2 CA 2016 as a company other than a private
 S.260(1) CA 2016 - An exempt private company. Thus:
company may lodge with the Registrar for  It can be limited by shares or limited by guarantee or
each financial year a certificate relating to unlimited company.
its status as an exempt private company in
lieu of the financial statements within 30  It need not restrict the transfer of its shares.
days from the circulation of the financial  No limit in the number of members (can have more than
statements and reports. 50)
 May lend money to its directors or any  It can offer its shares or debentures to the public
person connected with its directors –  It can invite public to deposit money with the company
S.224(2)(a) & S.225(1) CA 2016.
 May be listed subject to Listing Requirements.
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S.5 CA 2016 provides definition of “ultimate holding company”

Definition of “subsidiary and holding company”
 A corporation (UH) shall be deemed to be the ultimate holding
company of another corporation (S) if:
 S.4(1) CA 2016 states a corporation (S) shall be deemed
to be a subsidiary of another corporation (H) only if S is a subsidiary of UH; and
(a)(i) H controls the composition of the board of UH is not itself a subsidiary of another corporation.
directors of S;
(a)(ii) H controls more than 50% of the voting power in
S; or  S.6 CA 2016 provides definition of “wholly-owned
subsidiary”
(a)(iii) H holds more than 50% of the total number of
issued shares (excluding preference shares)of S; or  A corporation (WOS) is a “wholly-owned subsidiary” of another
corporation (H) if it has no other members:
(b) S is a subsidiary of any corporation which is a
subsidiary of H. except H; or
H’s nominee; or
a wholly-owned subsidiary of H or its nominee.
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The importance of classifying & identifying companies as The importance of classifying & identifying companies as
a Group: a Group:
 For the purpose of group accounts under S.247 CA 2016, if there is  Monitoring provision of loans to directors
a holding and subsidiary relationship between 2 companies, the  - S.224 CA 2016: prohibits the company from giving loans to
company must ensure that their financial year coincide within 2 its own directors or a related company. Only exempt private
years to enable group account to be prepared.
companies can do so.
 Purpose of monitoring giving financial assistance – S.123 CA 2016:  - S.225 CA 2016 - prohibits the company from giving loans to
company cannot give financial assistance for the purchase of its persons connected to its own directors or persons connected
own shares or that of its holding company. to directors of its holding company.

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The importance of classifying & identifying companies as Liability of Holding Company with Regards to
a Group (cont.) : Subsidiary’s Liability

 Monitoring dealings with the company - S.228 CA 2016: prohibit  Holding company is NOT liable for debts of
certain dealings by the company with its own directors or directors
subsidiaries UNLESS
of its holding company unless approved by the general meeting.
 Monitoring subsidiary from being a member of its holding company  The holding company stands as guarantor.
– S. 22 CA 2016: subsidiary cannot hold shares in its holding  The Holding company carrying on business
company.
with the subsidiary company to defraud the
public.

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2. CONSTITUTION OF COMPANY

End of First Part (i) Constitution of company: a document that generally set
out the rules for the management of a company

Next Part – including the relationship between its directors and

shareholders.

Constitution of (ii) Under the old regime (repealed Companies Act 1965),
the constitutions of company were:
Company’s
Constitution
Companies a. memorandum of association (MA); and
Company’s
b. articles of association (AA) Constitution

(both MA and AA are collectively referred to as M&A).

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a. General concept
Company’s
(iii) old regime, Constitution
(i) Constitution of company referred to in the CA 2016
● compulsory for every is a single document.
company to have upon
registration.
(ii) S. 34 CA 2016 “Constitution” is defined as:
● MA governs the external
matters of the company Type of Company Constitution defined
e.g.name, object clause
Co limited by shares A document adopted as
● AA governs the internal constitution of the company by
matters of the company e.g. way of special resolution.
meetings and directors’ Co limited by guarantee A document lodged for
powers. (template: Table A registration of the company
of the Fourth Schedule of the under S.38
repealed Companies Act Co registered under CA The M&A registered under CA
1965). 1965 1965.

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status of the M&A under the old regime?

S. 38 – must for CLBG

Yes,
Mandatory
S.90 any companies issuing
Is different classes of shares
constitution or preference shares.
mandatory?

No, S. 31 (1) all other

optional companies except CLBG
On 31/1/2017

S.619(3) still
remain in force How?
and operative S.32(4) at the time of registration
or anytime there after by lodging
within 30days after passing a
special reso.
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Co. without Co. with b. Content

constitution - constitution –
S.31(3) s.31(2) • S 35(1) CA 2016 - the constitution of a company (other than
CLBG) may contain the followings:
each director and
(a) The objects of the company;
each member of (b) The capacity, rights, powers or privileges of the
the company shall company, if the provision restricts such capacity, rights,
have the rights,
powers, duties and powers or privileges;
obligations set out (c) Matters contemplated by the CA 2016 to be included in the
in the CA 2016,
except to the constitution; and
each director and extent that such (d) Any other matters as the company wishes to include in its
each member of the rights, powers,
duties and constitution.
company shall have
the rights, powers, obligations are
duties and permitted to be
obligations as set modified in
out in the CA 2016. accordance with
the CA 2016, and
are so modified by
the constitution of
the company
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C. Object clause c. Object clause

➢ An object clause sets out the purpose for which a company is

➢ S.21(1) CA 2016 - a company shall be capable of exercising all
incorporated. The court in Arab-Malaysian Finance Bhd v Meridien
the functions of a body corporate and have the full capacity to
International Credit Corp Ltd London (1993) defined the objects of
carry on or undertake any business or activity. (S.16(2) required
a company as the company’s business activities.
the company to carry on lawful business and one that is not
➢ Following S.35(1), object clause is not compulsory to be included in
prejudicial to the public order, morality or security of Malaysia.)
the constitution of a company limited by shares, but the company may
still do so.
➢ Practice Directive No.2/2017 - a company is still required to
➢ S.35(2)(a) CA 2016 - Any company having an object clause in its
notify the Registrar of its nature of business or when there is a
constitution, shall be restricted from carrying on any business or
change to its’ nature of business. These documents would be
activity that is not within those objects (ultra vires – a transaction
publicly available.
outside the company’s object clause).
* but 3rd party dealing with the company can assume the
company has full capacity.

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3. EFFECT OF CONSTITUTION OF COMPANIES

ALTERATION OF CONSTITUTION OF COMPANIES

a. Parties who are bound

A constitution of company may be altered or amended by
way of:-
➢ S.32(3) CA 2016 - a constitution which is adopted by a
(a) Passing of special resolution: S.36(1) CA 2016; or
company binds:
(b) Order of court on the application of a director or
(a) The company;
member of a company: S.37(1) CA 2016.
(b) The directors; and
(c) The members.
a. By special resolution: S.36 CA 2016

➢ S.33 (1) CA 2016 – Once adopted, the constitution is

❖ The members of the company may pass a special resolution to
having same effect as if it is signed and sealed by each
alter or amend the constitution.
member.
❖ The alteration or amendment will bind the company and the
members on the date the special resolution was passed or on
such date as specified in the resolution.

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b. By court order: S.37 CA 2016

Revisit
❖ When an application is made by a director or a member of a
company to the court for an order to alter or amend the 1. Nature of companies
constitution, the court must before grant the order, first satisfy
itself that it is not practicable to alter or amend the • Classification of companies by limitation
constitution of the company using the procedures set out • Classification of companies by status
in CA 2016 or in the constitution itself.
• Holding & subsidiaries
❖ If the court made an order to alter and amend the constitution,
the company shall within 30 days from the date of the court’s
order, lodge an office copy of the order together with a copy of 2. Constitution of Companies
the constitution as altered or amended with the Registrar for
registration. • General concept & content
• Effect
• Alteration
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THE END

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