LAW485

COMPANY LAW

TOPIC 2: CLASSIFICATION OF COMPANY

Classification of Companies
1.Classification according to liability of
members
Company Limited by Shares
Company Limited by Guarantee
Unlimited Company
2.Public and Private Companies
3.Related Companies
 CLASSIFICATION
OF COMPANY
ACCORDING
TO LIABILITY
OF MEMBERS

LIMITED UNLIMITED
LIABILITY LIABILITY

LIMITED BY
LIMITED BY LIMITED BY
SHARES AND
SHARES GUARANTEE
GUARANTEE
Company Limited by Shares

A 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 Guarantee
Contribution: 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
Companies
Public Companies Section 4 (1):
A company other than a private company.
In addition, a public company is further classified
into public listed and unlisted company
Private Companies Section 4 (1):
A company registered by virtue of Section 15 or
its predecessors which has retained its private
status or
Any 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
company
A 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 company
Section 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

A Ltd
(parent co.)

B Ltd C Ltd D Ltd

(subsidiary) (subsidiary) (subsidiary)
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
purposes
An 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 Company
o A 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 another
o Section 5A
Wholly owned subsidiary

o A corporation is a wholly owned

subsidiary under Section 5B if its
members is
its holding company,
a nominee of its holding company;
another wholly owned subsidiary of
the holding company;
nominee of such a wholly owned
subsidiary
End of Lecture
Thank You