BCL - 9. Types of Companies

Business & Company Law9. Types of Companies : 

Business & Company Law9. Types of Companies Norsurianna Teh Binti Abdullah Malaysian Institute of Accountants – Qualifying Examination

Summary : 

Summary Characteristics of a private company Characteristics of an exempt private company Main differences between a private and public company Section 165 Certificate issued by auditor for an exempt private company Section 5[1][a] Subsidiary Company Reason for classification as holding and subsidiary company Section 5[A] Ultimate Holding Company Section 5[B] Wholly-owned Subsidiary Company Section 6 Related Company

1. Characteristics of a private company : 

1. Characteristics of a private company Most trading companies are companies limited by shares. Members’ liability is limited to the amount of any shares left remaining unpaid. A company may be limited by guarantee where the member is liable for the amount guaranteed when the company is in liquidation. Some companies may be unlimited where the members are liable for the full amount of any debts on insolvent liquidation of the company. Section 15 lays down the characteristics of a private company: Restricts the right to transfer its shares Limits itself to not more than fifty members [joint-holders are counted as one person] Prohibits any invitation to the public to subscribe for any shares or debentures and Prohibits any invitation to the public to deposit money with the company for fixed periods or payable on call whether bearing interest or not bearing interest.

1. Characteristics of a private company : 

1. Characteristics of a private company A private company must have the word “Sendirian” or the abbreviation “Sdn” as part of its name inserted immediately before the word “Berhad” or the abbreviation “Bhd” – Section 22[5].   A public company is a company other than a private company. It does not have the limitations or restrictions of Section 15 in its memorandum and articles of association: Section 5[2]. Like a private company it can be formed with two members holding at least one share each. There is no minimum capital requirement for incorporating a public company. All companies listed on the Bursa Saham Malaysia are public companies but not all public companies are listed. Public companies seeking a listing with the Stock Exchange have to make necessary applications in accordance with the Listing Requirements of the Stock Exchange.

2. Characteristics of an exempt private company : 

2. Characteristics of an exempt private company An exempt private company means a private company in the shares of which no beneficial interest is held directly or indirectly by any corporation and which has not more than twenty members none of whom is corporation: Section 4[1] An exempt private company does not need to lodge its financial statements with CCM thus able to keep its financial performance private. Prohibition of making loans to directors does not apply to directors or persons related to directors of exempt private company: Section 133

3. Main differences between a private and public company : 

3. Main differences between a private and public company Capital A public company may raise capital from the public by offering its shares or debentures to the public. Whilst a private company is prohibited from inviting the public so subscribe for its shares or debentures: Section 15[c] Commencement of business A private company can commence business immediately upon receiving the certificate of incorporation from the CCM. A public company on the other hand can only commence business when the CCM issues an additional certificate certifying that the company is entitled to commence business: Section 52[3].

3. Main differences between a private and public company : 

3. Main differences between a private and public company Dealing in shares In practice, only a company can obtain a Stock Exchange listing for its shares. To obtain the advantages of listing, the company must agree to elaborate conditions contained in a listing agreement with the Stock Exchange. Not all public companies are listed. Listing particulars and other officers of securities are regulated by the KLSE Listing Requirements and Securities Commission Act 1993 [SCA1993]. Disclosure of interests in securities There are special disclosure requirements for persons who have beneficial interests in voting shares of a public company: Section 69B – Section 69P.

3. Main differences between a private and public company : 

3. Main differences between a private and public company Directors Regulations are stricter on public company directors eg the directors’ retirement age: Section 129[1] restricts the appointment of directors of public companies who are over the age of 70. There is no restriction in the case of a private company. Directors of a public companies must be individually appointed unless a general meeting of members unanimously agrees to appoint two or more directors by a single resolution: Section 126[1]. Directors Directors of a public company may be removed under Section 128 by an ordinary resolution passed notwithstanding anything in the companies’ memorandum or articles or in the service contract between the director and the company. Directors of public companies can only assign their office if approval is given by special resolution: Section 138.

3. Main differences between a private and public company : 

3. Main differences between a private and public company Meetings A public limited company with a share capital must hold a statutory meeting within a period of not less than one month and not more than three months after the date at which it is entitled to commence business: Section 142. Such a requirement does not apply to a private company. Membership The maximum number of members for a private company is fifty: Section 15[b]. There is no restriction in the case of a public company. All limited companies must have the word “Berhad” or the abbreviation “Bhd” as part of and at the end of its name: Section 22[2].

4. Section 165 Certificate issued by auditor for an exempt private company : 

4. Section 165 Certificate issued by auditor for an exempt private company A certificate signed by a director, the secretary and the auditor of the company must be filed certifying that to the best of their knowledge and belief: The company is and been at all relevant times been an exempt private company; A duly audited profit and loss account and balance sheet which comply with the requirements of the Act have been laid before the company in a general meeting and As at the date to which the profit and loss account has been made up the company appeared to have been able to meet its liabilities as and when they would fall due [8th Schedule]

5. Section 5[1][a] Subsidiary Company : 

5. Section 5[1][a] Subsidiary Company A corporation is deemed to be a subsidiary of a holding company if the holding company: Controls the composition of the board of directors of the subsidiary; Controls more than half of the voting power of the subsidiary or Holds more than half of the issued share capital of the subsidiary (other than preference shares) The composition of the board of directors of the subsidiary is deemed to be controlled by the holding company if the holding company can appoint or remove all or a majority of the directors without the consent or concurrence of any other person: Section 5[2]

6. Reasons for classification as Holding & Subsidiary Company : 

6. Reasons for classification as Holding & Subsidiary Company A holding company must generally prepare group accounts in which the financial situation of the holding and subsidiary company is: Section 169[5]. A subsidiary may not ordinarily be a member of its holding company: Section 17 and a subsidiary may not give financial assistance for the purchase of shares of its holding company: Section 67.

7. Section 5[A]Ultimate Holding Company : 

7. Section 5[A]Ultimate Holding Company An ultimate holding company is a corporation which has subsidiaries but it is itself the subsidiary of some other corporations.

8. Section 5[B]Wholly-Owned Subsidiary : 

8. Section 5[B]Wholly-Owned Subsidiary A wholly-owned subsidiary as a subsidiary in which all the shares are owned by the holding company or its nominees or its’ wholly owned subsidiaries or the nominees of its wholly-owned subsidiaries.

9. Section 6Related Company : 

9. Section 6Related Company A company is related to another company if it is in a holding-subsidiary relationship or if it is a subsidiary of a common holding company. For eg if Company C and Company B are both subsidiaries of Company A, Company C is related to Company A since they are in a holding-subsidiary relationship. Similarly with Company B and Company A. Company B is related to Company C since they are both subsidiaries of a common holding company ie Company A.