LAW485COMPANY LAWTOPIC 2: CLASSIFICATION OF COMPANY

MUHAMMAD UMAR BIN ABDUL RAZAK

Classification of Companies1.Classification according to liability of members Company Limited by SharesCompany Limited by GuaranteeUnlimited Company2.Public and Private Companies3.Related Companies

Company Limited by SharesA member cannot be asked to pay more than the amount of unpaid shares (if any) when the company is wound up (Section 214(1)(d) and Section 18(3) of the Companies Act)If a company is wound up; creditors of the company are not entitled to take a members personal assets in satisfaction of corporate liabilities

CASE: TAN TIEN KOK V MEDICAL SPECIALIST CENTRE (JB) SDN BHD [1994]The issue was whether the D, a company limited by shares, could impose a monthly surcharge of RM2000 on its members to help company meet its overheads.Held: D could not impose the surcharge as it is against the concept of limited liability as provided in Section 214 (1) (d) where contribution will only be required from members to the extent of unpaid shares.

Company Limited by GuaranteeContribution: limited to the amount he had agreed to guarantee [Section 214(1)(e)] Amount of contribution: as in Memorandum of Association [Section 18(1)(e)].This type of company does not have share capital; e.g. charitable, scientific or religious organization.

Company Limited by Share and Guarantee

From 1985, it is no longer possible to have a company limited by both shares and guarantee.The registration of the last type of limited company is no longer possible with the enactments of Section 14A.

Unlimited Company Liability of the members to contribute to the assets of the company on winding up is not limited in any way.An unlimited company is able to reduce its share capital under Section 64 without any restrictions because creditors have access to the personal properties of all the members

Private and Public Companies Companies can also be classified according to their public status in that either it is a public or private company.Public companies have access to public funding, they are not prohibited from offering or inviting the public to invest in its securities.Must comply with legislation such as Securities Commission Act 1993 and Securities Industry Act 1983 in order to protect interest of the public.

Definitions of Public and Private CompaniesPublic Companies Section 4 (1):A company other than a private company.In addition, a public company is further classified into public listed and unlisted companyPrivate Companies Section 4 (1):A company registered by virtue of Section 15 or its predecessors which has retained its private status orAny company converted into a private company under Section 26 (1)In addition, the private company is further classified into exempt private company and non-exempt private company.

Private Companies

Required under Section 22 (4) to have the word Private/Pte or Sendirian/Sdn - Stated in certificate of incorporation of a companyA company with a share capital (whether limited or unlimited) can be a private company if its memorandum or articles of association contain all of the following under Section 15 (1)

A restriction on the right to transfer shares;A limitation on the number of members to not more than 50;Prohibit any invitation or offer to the public to subscribe for shares in or debentures of the company;Prohibit any invitation or offer to the public to deposit money with the company.

Conversion of public to a private company and from private to public companySection 26 (1) enables a public company with a share capital to be converted into a private company by passing a special resolution.The special resolution must also alter the companys name so as to include the word Sendirian and must amend the MOA and AOA so as to comply with Section 15.

Section 26 (2) enables a private company to convert into a public company.It provides that a private company may convert to a public company by lodging with the CCM:A special resolution for conversion and an appropriate alteration to its name;A prospectus; and Statutory declaration verifying compliance with Section 52 (2) (b)

Related Companies Related to another company if it is in a holding-subsidiary relationship; or if it is a subsidiary of a common holding company - Section 6

Example of Related Companies

B Ltd is related to A Ltd because they are in a holding-subsidiary relationship. C Ltd is related to B Ltd because they are both subsidiaries of a common holding company (i.e. A Ltd)

Related company is sometimes referred to as group. E.g. Hicom Group or Sime Darby Group Associated company: no legal definition or significance except for accounting purposesAn associate is a company in which significant influence is exercised, but which is not subsidiary. Generally, if A Ltd holds a stake of 20% or more in B Ltd, B Ltd is treated as an associate of A Ltd.

For regulatory purposes, certain dealings / transactions are prohibited between holding and subsidiaries companies.For e.g A subsidiary is prohibited from being a member of its holding company and a holding company cannot provide financial assistance to its subsidiary for the purpose of acquiring shares in the holding company; Section 67 (1)

Holding and subsidiary companies Section 5 (1) (a), a corporation is deemed to be a subsidiary of a holding company if the holding company:controls the composition of Board of Director of the subsidiary or;controls more than half of the voting power of the subsidiary or;owns more than half of the issued share capital of the subsidiary.

A subsidiary of a subsidiary is a subsidiary. Thus, if D Ltd is a subsidiary of B Ltd, D Ltd will be a subsidiary of A Ltd too.

Ultimate Holding CompanyA corporation is an ultimate holding company of another corporation, if that other corporation is a subsidiary of that holding company and the holding company is not itself, a subsidiary of anotherSection 5A

Wholly owned subsidiaryA corporation is a wholly owned subsidiary under Section 5B if its members isits holding company,a nominee of its holding company;another wholly owned subsidiary of the holding company;nominee of such a wholly owned subsidiary

Thank YouEnd of Lecture

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