TYPES OF BUSINESS ENTITIES AND CLASSIFICATION OF COMPANIES

(a) Business entities features and the applicable laws

(i) Sole Proprietorship

(ii) Partnership
(iii) Limited Liability Partnership
(iv) Company incorporated under the Companies Act 2016

(b) Types of companies that may be incorporated under the Companies Act 2016

(i) Under s. 2(1) of the Companies Act 2016, a company is defined as a company
incorporated under this Act or under any corresponding previous written law.

(ii) One way of classifying companies that may be incorporated under the
Companies Act 2016 is to determine whether the company is

a company limited by shares

a company limited by guarantee, or
an unlimited company.

(iii) The definition of these types of companies is provided for in s.10 of the
Companies Act 2016. Take note of the liability of a member in each of these
companies in relation to the companys debts.

A company is limited by shares if the liability of its members is limited

to the amount unpaid on their shares (see ss. 10(2) and 192(2)(a))

A company is limited by guarantee if the liability of its members is

limited to the amount that the members undertake to contribute in the
event of the company being wound up (see ss.10(3) and 192(2)(b)).
Note that for a company with specific objects as mentioned in s. 45(1),
the company must be formed as a company limited by guarantee. See
also s. 45(2) and (4)).

A company is an unlimited company if there is no limit on the liability

of its members (see s. 10(4)).

To distinguish between a limited company (by shares or by guarantee) and an

unlimited company, s. 25(1) of the Companies Act 2016 states that the name
of a limited company shall end with Sendirian Berhad (Sdn Bhd) or
Berhad (Bhd) and the name of an unlimited company shall end with
Sendirian (Sdn). Note that a company limited by guarantee may apply to
the Minister for a license to omit the word Berhad or its abbreviation Bhd
from its name. (see s. 45(4))

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 (iv) The second way of classifying companies that may be incorporated under the
Companies Act 2016 is to determine whether the company is a

private company,
public company or
exempt private company.

(v) For features of a private and public companies, see ss. 2(1), 42 and 43 of the
Companies Act 2016. For features of an exempt private company, see s. 2(1)
and ss. 224(2), 225(1), 260 and 261.

(vi) Concerning the conversion of an unlimited company to a limited company,

refer to s. 40(1). Concerning the conversion of a public company to a private
company and vice versa, refer to s. 41.

(c) Related Companies.

(i) Section 7 of the Companies Act 2016 provides circumstances when

companies are deemed to be related to each other. It states a corporation is
deemed to be related to each other if
it is a holding company of another corporation
it is a subsidiary of another corporation
it is a subsidiary of the holding company of another corporation

(ii) For the definition of a subsidiary company, a holding company, an ultimate

holding company and a wholly owned subsidiary, see ss. 4, 5 and 6.