Introduction Notes
Introduction Notes
CHAPTER 1
Introduction
5 types of business entities: Sole proprietorship, partnership, limited partnership (only available in Labuan), limited
liability partnership & company.
Factors to consider before deciding which type of business entity is best suited:
Procedure required: Steps & expenses required for formation.
Liability: Debts of business
Continuity: Perpetual succession?
Transferability: Transfer rights to 3rd party
Taxation: Profits taxed at entity level
BUSINESS ENTITIES
SOLE-PROPRIETORSHIP
• Business wholly owned by a single individual using personal name as per his/ her identity card or trade name.
• Responsible for the capital required for the business and running of the business.
• He alone is responsible for repayment of the debts incurred by the business.
• Registration of Business Act 1956
• Start-up costs not high
• Lack of formality but need to register
• Exclusive control & management of business
• Liable for all debts & obligations of business
PARTNERSHIP
• Business owned by two or more persons but not exceeding 20 persons. Identity card name can’t be used as
business name.
• Governed by the Partnership Act 1965.
• Unincorporated association; not a separate entity.
• Unlimited liability, partners are personally liable
• Membership - Min: 2; Max: 20 (subject to exception)
• Every partner may take part in management
• S.3(1) PA= The relationship which subsists between persons carrying on business in common with a view of
profit.
• S.47(2) PA & S.13 CA= Maximum number of people in this business is 20, but S.13 CA does not prohibit
formation of a partnership more than 20 under any other written laws.
• Must be registered with Registrar of Business.
• S.11 PA= Every partner is jointly liable with his other partners for all debts of the firm incurred while he is still a
partner.
• IAC (Singapore) Pte Ltd v Koh Meng Wan- If partnership property is insufficient to satisfy judgment sum; the
creditor may sue the partners. The judgment creditor may elect to sue only one of them and such partner is liable
to settle the amount, notwithstanding the partnership agreement.
• S.19(2) PA= A partner who retires from the partnership continues to be liable for the partnership’s debts &
obligations incurred before his retirement.
• Re Siew Inn Steamship Co- retiring partners were still held liable for the debts incurred after their retirement.
• Terminated by expiration / notice; by death / bankruptcy of a partner / by charge under Partnership Act 1961;
dissolution by illegality of partnership; or dissolution by court.
COMPANY
• Companies Act 2016
• Artificial legal person/entity. The person is distinct from its members
• Liability of members can be limited
• S.9(b) CA= Membership- Min: 1;
• S.20 CA= A body corporate having legal personality separate from members & continue in existence until
removed from register. (separate legal entity, perpetual succession)
• Enjoys perpetual succession. If let’s say member is passed away still can success the company
• Max for private company: 50.
• No max number for public company.
• Management is vested on the board of directors
• A company incorporated in Malaysia must be registered in accordance with the Companies Act 2016 (CA).
• The CA performs two functions: à an enabling function; and à a regulatory function.
Regulatory Bodies
(a) Companies Commission of Malaysia / SSM
(b) Securities Commission (SC)
(c) Bursa Malaysia Securities Berhad
Companies Commission of Malaysia / SSM à Statutory body - merger between the Registrar of Companies (ROC) and
the Registrar of Businesses (ROB).
à Came into operation on 16/4/2002. Prior to that, administration of CA was vested with ROC. à The establishment,
functions and powers of SSM are provided under Companies Commission of Malaysia Act 2001 (Act 614).
Bursa Malaysia Securities Berhad à Exchange holding company established in 1973 and listed in 2005.
CLASSIFICATION OF COMPANY
• Section 2: “company” means a company incorporated under this Act or under any corresponding previous written
law;
• Section 3: “corporation” anybody corporate formed or incorporated or existing in Malaysia or outside Malaysia
and includes any foreign company, limited liability partnership and foreign limited liability partnership.
1. Liability
Company Limited by shares
• Definition: S.10(2) CA - Liability of its members is limited to the amount unpaid on their shares.
• S.435(2)(b) CA: Limited liability – upon winding up of the company, the liability of the shareholders is
limited up to the unpaid amount of the shares only.
• Where a member of a limited company has fully paid on his shares, the general principle is that he will not be
liable for the debts of the company.
• Even if the company wound up and the assets of the company are insufficient to meet its
liabilities, those members who fully paid won’t be called upon to contribute.
• Tan Tien Kok v Medical Specialist Centre (JB) s/B Surcharge imposed by the Defendant company on
members to help the company to meet its overhead was contrary to the concept of limited liability under
S.214(1)(d) CA 1965 [ equivalent to s 435(2)(b) CA 2016.]
• 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.
• Limited liability company knows his maximum liability. He will lose the amount he agreed to invest in the
company.
• Other personal assets will be impacted when company became insolvent.
• The advantage of the limited company is that he knew his maximum liabilities and his other personal assets
will not get affected when company becomes insolvent.
• S.435(2)(c) CA: Upon winding up, no contribution shall be required from any member exceeding the amount
undertaken to be contributed by him to the assets of the company.
• S.31(1) = Require company to have a constitution containing matters prescribed in S.38(3)
• S.38(3) CA: must have a Constitution & submit its Constitution at the point of incorporation.
• S.45(1) & S.45(2)
• S.11(2) – company limited by guarantee shall be public company.
• Is not qualified to be private company because no share capital.
• S.25(1)(a)- name of company end with BHD.
• Example company- World Vision Malaysia, Cybersecurity Malaysia, Malaysia Software Testing Board.
Private company
• Definition: ss 2(1) (a) – (c) CA
• s 25(1)(b) CA: To have the word ‘Sendirian Berhad’ or ‘Sdn. Bhd.’ as part of its name
• Amongst the distinguishing features of a private company:
s 42(1) CA: Max number of shareholders: 50
s 42(2) CA: Restrict the transfer of its shares
s 43(1) CA: Prohibits the offer of shares or debentures to the public or invite public to deposit money.
S.9 /S196 CA: 1 director
S.15(1)(c) = Cannot invite public to subscribe to its shares or debentures.
No need annual general meeting
Condition which required by private company. Company limited by shares
Restrict the transfer of shares
Cannot offer shares and debentures to public
Cannot invite public to deposit money with the company.
Public Company
• Definition: s 2(1) CA: ‘a company other than a private company’
• s 11(2) CA: A company limited by share, guarantee and unlimited company shall be a public company
• S.25(1)(a) = Name of public company should end with “Berhad” or “Bhd
• Number of members can be more than 50
• No restriction on transfer of shares, it can allot shares or debentures with a view of offering them to the
public and can invite the public to deposit money with the company
• May offer shares/debentures to the public
• S.9/S196 CA: 2 Director
• S340 CA: Need annual general meeting
s 41 (1): public co. convert to private co. by passing a special resolution and shall lodge with the Registrar a
notice of conversion and specifying an appropriate alteration to its name
• s 41 (2): A private company may also voluntarily convert to public company by passing a
special resolution on & following procedure in S.41(2)
• s 41 (3) & (4): Lodgment of notice for conversion and when conversion takes effect
• s 42 (4) - A private company that ceases to restrict transfer of shares, cease to have share capital or has
more than 50 shareholders may be converted to public company by ROC serving a notice.
3. Relationship
Holding & Subsidiary - s.4
S.4(1)(a)(i) - (iii) = A company is deemed S of a H company if
H controls composition of BOD of S,
H controls >1/2 of the voting power of S,
H holds >1/2 of the issued share capital of S, excluding preference shares.
S.4(1)(b) = A company is deemed subsidiary of H if S is a subsidiary of another company which is also the holding’s
subsidiary.
How to determine control?
S.4(2) = If H can appoint or remove all or majority of S directors
How to determine power or shares?
Shares / power in -duciary capacity
By a person as a nominee
By a nominee
By virtue of any debentures / trust deed
Business includes lending of money
S.5 = Definition of ultimate holding company
- A corporation shall be deemed to be the ultimate holding company of another corporation if-(a) the other
corporation is a subsidiary of the corporation; and(b) the corporation is not itself a subsidiary of any
corporation.
S.6 = Definition of wholly owned subsidiary
- A corporation is a wholly-owned subsidiary of another corporation if it has no members except -a) that other
corporation or its nominee; orb) a wholly-owned subsidiary of that other corporation or its nominee
S.7 = When company deemed to be related to each other.
Restriction on S being member of its H
S.22 = Membership of holding company
S.23 = Subsidiary acting as a participating dealer
S.24 = Protection of 3rd party
4. Place
Place of incorporation refers to either the company is a local company or a foreign company.
Definition of foreign company: s 2 CA
A foreign company desiring to establish a place of business in Malaysia must be registered here.
S.562
S.566
S.561
egal Status Not a separate legal Separate legal entity Separate legal entity Separate legal entity S.20(a)
entity
ase of formation Lack of formality but need Partnership agreement LLP Agreement S.14(3),(4)
to register (oral, written)
anagement SP exclusive control Every partner can take part unless Every partner can take part unless Board of Directors
stipulated in the agreement stipulated in the agreement
ability SP liable-unlimited Jointly liable-unlimited LLP limited Company liable, member liability
can be limited S.10(2)(3), S.435(2)
(b)(c)
uration Death, bankruptcy Expiration, dissolution Perpetual succession Perpetual succession S.20(b)
S.203
gulatory bodies:
Companies Commission of Malaysia (SSM):
Statutory body - merger between the Registrar of Companies (ROC) and the Registrar of Businesses (ROB).
•Came into operation on 16/4/2002. Prior to that, administration of CA was vested with ROC.
•The establishment, functions and powers of SSM are provided under Companies Commission of Malaysia Act
2001(Act 614).
•Ensuring companies and their officers to comply with the provisions of CA.
2) Securities Commission (SC): Single government body responsible for overseeing the development of Malaysian
capital market.
•Created under the Securities Commission Act 1993.
•Core function: regulate capital market, ensure that investor interests are protected and ensure the systematic
development of capital market. •Mission: to promote and maintain a fair, efficient, secure and transparent securities and
derivatives market and to facilitate the orderly development of an innovative and competitive capital market.
3)Bursa Malaysia Securities Berhad: Exchange holding company established in 1973 and listed in 2005.