Lecture 1

Introduction to The
Companies Act 1965

Lecture by: Muhamad Saiful Alizan Nordin

PPPHT, FSPU UiTM Shah Alam

Credit: Sr Dr Hasrol Haffiz Aliasak

PPPHT, FSPU UiTM Seri Iskandar
 Topic Outline

• Historical of the Companies Regulations in Malaysia

• Companies Regulations in Malaysia

• Role and Functions of the Suruhanjaya Syarikat

Malaysia (SSM)

• Business Entity in Malaysia

 Subtopic 1

• Historical of the
Companies Regulations
in Malaysia
 Historical Background

• The Malaysian Companies Act 1965 was promulgated

with a long lineage of historical background
beginning more than 100 yearsago.

• The Companies Enactment 1897 was first implemented

by the British Government into the Malay States as a
result of the migration of businessmen from both the
east and west who came into the country to carry on
business in the tin mining and rubber plantation
industry.

• This enactment was then repealed and replaced by

the Companies Enactment No. 20 of 1917.
 Historical Background

• Ten years later, a new enactment known as the

Companies Enactment 1927 was introduced to
replace the 1917 enactment.

• The 1927 enactment continued to be enforced until

1946 when the Companies Ordinance 1940 of the
Straits Settlements was extended to apply all
Federated Malay States.

• This ordinance was enforced until 15 April 1966

when the present Companies Act 1965 was
implemented.
 Report from Dewan Negara
Parliamentary debates
dated 19 August 1965

• Although prior to independence our company

legislation was largely borrowed from English Statues,
the Companies Act 1965 which is currently enforced
mirrored the provisions of the Australian Uniform
Companies Act 1961 which was introduced to
provide protection for investors in view of the policy
of the Government at that time in promoting “a
healthy investment climate and to prevent fraudulent
and undesirable practices”, which in essence was the
incorporation of good corporate governance
provision.
 Subtopic 2

Companies Regulations in
Malaysia
 Background of the
Companies Regulation
in Malaysia

• The modern company is the most important form

business vehicle in Malaysia where it has facilitated
economic development.

• Such vehicles are incorporated under the

Companies Act 1965 which allows a person to
invest his money/capital in a company and
become joint owners of the company together
with other persons who have similarly invested their
money in the company without imposing
unlimited liability and management
responsibilities.
 Background of the
Companies Regulation
in Malaysia

• The limited liability company remains the primary

vehicle for commercial expansion and economic
advancement.

• The three basic elements which have made the

modern limited companies more popular and
successful asvehicles for doing business are :-

– Limited liability
– Perpetual succession; and
– Transferability of securities.
 Features of the Registration
of Businesses Act 1956

• The purpose of this act is to provide the regulations and

provisions related to the business registration.

• This act was came enforced as following territory in

Malaysia :-
– Peninsular Malaysia (1 January 1957)
– Federal Territory of Labuan (15 March 1996)

• This act contains three parts as follows :-

– Part I : Preliminary (3 Sections)
– Part II : Registration, Renewal and Termination of Business
(11 Sections)
– Part III : Miscellaneous (19 Sections)
 Subtopic 3
Role and Functions of
the Suruhanjaya
Syarikat Malaysia (SSM)
 Background of the Suruhanjaya
Syarikat Malaysia (SSM)

• Suruhanjaya Syarikat Malaysia (SSM) is a statutory body

established under the Companies Commission Act 2001
which regulates companies and businesses.

• SSM came into operation on 16 April 2002 formed as a result

of a merger between the Registrar of Companies (ROC) and
the Registrar of Businesses (ROB) in Malaysia.

• The main activity of SSM is to serve as an agency to

incorporate companies and register businesses as well as to
provide company and business information to the public.
 Background of the Suruhanjaya
Syarikat Malaysia (SSM)

• As the leading authority for the improvement of corporate

governance, SSM fulfils its function to ensure compliance with
business registration and corporate legislation through
comprehensive enforcement and monitoring activities to
sustain positive developments in the corporate and business
sectors of the Nation.

• SSM is responsible for the administration and enforcement of

the following legislation:
– Companies Act 1965 (Act 125);
– Registration of Businesses Act 1956 (Act 197);
– Trust Companies Act 1949 (Act 100);
– Kootu Funds (Prohibition) Act 1971 (Act 28);
– any subsidiary legislation made under the Acts specified
above such as Companies Regulations 1966; and Registration
of Businesses Rules 1957
 Functions of SSM

According to the Sect. 17 of the SSMAct 2001, the functions of SSM:-

• To ensure that the provisions of the Companies Commission of Malaysia Act and
laws are
administered, enforced, given effect to, carried out and complied with;
• To act as agent of the Government and provide services in administering,
collecting and enforcing payment of prescribed fees or any other charges under
the laws administered;
• To regulate matters relating to corporations, companies and businesses in
relation to laws administrated;
• To encourage and promote proper conduct amongst directors, secretaries,
managers and other officers of a corporation, self-regulated corporations,
companies, businesses, industry groups and professional bodies in the corporate
sector in order to ensure that all corporate and business activities are conducted
in accordance with established norms of good corporate governance;
• To enhance and promote the supply of corporate information under any of the
laws administrated, and create and develop a facility whereby any corporate
information received by the Companies Commission may be analysed and
supplied to the public;
• To carry out research and commission studies on any matter relating to corporate
and business
activities;
• To advise the Minister generally on matters relating to corporate and business
activities in relation to the laws administered;and
• To carry out all such activities and do all such things as are necessary or
advantageous and proper for the administration of the Companies Commission or
for such other purpose as may be directed by the Minister
 Powers of SSM

Section 18 of the SSMAct 2001, stated the powers of SSMas follows :-

• To utilise all assets of the Companies Commission, both movable and

immovable, in any way deemed fit and appropriate by the Companies
Commission including to obtain loans by the charging of those assets;
• To impose fees or charges for services rendered by the Companies
Commission as prescribed by the Minister through regulations established
under section 40;
• To appoint agents, experts or consultants, as deemed necessary, to aid
the
Companies Commission in carrying out its functions;
• To provide loans to employees of the Companies Commission for
purposes approved by the Minister;
• To plan and carry out human resource development as well as
cooperative and financing programmes for proper and effective
implementation of its functions;
• To collaborate or cooperate with any other societies/organisations,
bodies or government agencies to form smart partnerships in
implementing the functions of the Commission; and
• To do all such things as are aligned with any of its functions and powers.
 Subtopic 4

Business Entity in
Malaysia
 Business Entity

• Business entity in Malaysia as follows :-

– Sole Proprietor
– Partnership
– Limited Company
 Sole Proprietor

• Business executed by an individual who want to manage his

own
business.
• Capital and assets solely contributed by an individual.
• have the least government rules and regulations affecting it.
• has no separate legal existence from its owner.
• Liabilities for business debts are not limited to assets of
the business.
• The owner of the business is responsible for all debts incurred
by the business.
• The owner can have the business under his/her name or
“doing
business as” (DBA).
• Accounting for a sole proprietorship is the most simple of
legal forms.
 Sole Proprietor

• Advantages :
– they are the ability
•to raise capital either publicly or privately,
•to limit the personal liability of the officers and
managers, and
•to limit risk to investors.
– absolute freedom in decision making.
– All profits will be your personal property.
– No reports of accounts are required.

• Disadvantages :
– unlimited liability where the owner's personal assets canbe
taken away.
– The enterprise may be crippled or terminated if the owner
becomes ill or death.
 Partnership

• is a type of business entity initiates by two or more individuals

and maximum up to 20 individuals.

• A type of unincorporated business organization in which

multiple individuals, called general partners, manage the
business and are equally liable for its debts; other individuals
called limited partners may invest but not be directly
involved in management and are liable only to the extent of
their investments.

• Unlike a Limited Liability Company or a corporation, in a

partnership each partner shares equal responsibility for the
company’s profits and losses, and its debts and liabilities.

• According to the Sect. 3, Partnership Act 1961, “Partnership is

the relation, which subsists between persons carrying on a
business in common with a view of profit”.
 Partnership

• Advantages :
– easy to establish.
– With more than one owner, the ability to raise funds
may be increased, both because two or more partners
may be able to contribute more funds and because
their borrowing capacity may be greater.
– Prospective employees may be attracted to the
business if given the incentive to become a partner.
– A partnership may benefit from the combination of
complimentary skills of two or more people. There is a
wider pool of knowledge, skills and contacts.
– can be cost-effective as each partner specializes in
certain aspects of
their business.
– provide moral support and will allow for more creative
brainstorming.
 Partnership

• Disadvantages :
– Business partners are jointly and individually liable for the
actions of the other partners.
– Profits must be shared with others.
– Since decisions are shared, disagreements can occur. A
partnership is for the long term, and expectations and
situations can change, which can lead to dramatic and
traumatic split ups.
– The partnership may have a limited life; it may end upon
the withdrawal or death of a partner.
– A partnership usually has limitations that keep it from
becoming a large business.
– Need to consult the partner(s) and negotiate more as an
individual cannot make decisions by himself. Therefore they
need to bemore flexible.
– Unlimited liability. General partners are liable without limit
for all debts contracted and errors made by the
partnership.
 Limited Company

• A form of incorporation that limits the amount of liability

undertaken by the company's shareholders.
• In a limited company, the debts of the company are separate
from those of the shareholders.
• As a result, should the company experience financial distress
because of normal business activity, the personal assets of
shareholders will not be at risk of being seized by creditors.
• Ownership in the limited company can be easily transferred,
and many of these companies have been passed down
through generations.

• there are two types of limitedcompany :-

– Private Limited Company
– Public Limited Company
 Limited Company

Memorandum of Association
– The “Memorandum of Association” defines the essential components of
the structure of the company. Its essential contents are:-
• The name of the company (which must end with the words “Sendirian
Berhad” if it is a private company, or just “Berhad” if it is a public
company);
• The situation of the company’s registered office;
• The objects of the company, i.e the nature of business intended to be
carried out;
• That the liability of the members is limited
• The nominal amount of the authorized share capital with which it is
proposed to register the company and the division of such capital into
shares of a fixed amount; and
• The association clauses
– The “Memorandum of Association” must be signed by at least two
subscribers; duly dated. The signature of each subscriber must be witnessed
by a third person. Each of the subscribers must undertake to subscribe for one
or more shares of the company.
– The Memorandum states the company's name; location, share capital
and what the company can and can't do (this latter section is
contained in an “Objects Clause”).
 Limited Company

Article of Association
– can loosely be described as the “rulebook of the company” because they will
describe the conduct expected from the directors and govern administrative
matters and the calling of meetings.
– constitutes the internal regulations of a company usually contains clauses
dealing with under-mentioned matters. Every company is required to have a
written constitution in the form of the above two documents.
– About Articles of Association?
• The name of the company
• The name of each first director (minimum two)
• The name of the first company secretary
• The minimum and maximum number of directors
• The share qualifications of each director, if any
• Name, identity card number (if Malaysian), passport (if foreigner),
address and occupation of each subscriber
• Name, designation and address of the witness to the signature of each
subscriber
– also includes a provision governing the use of a company seal on certain
formal documents such as share certificates.
 Private Limited
Company (Pte. Ltd.)

• A type of company that offers limited liability to its

shareholders but that places certain restrictions on its
ownership.
• These restrictions are spelled out in the company’s articles
of association or bylaws and are meant to prevent any
hostile takeover attempt.
• The major ownership restriction are:
– shareholders cannot sell or transfer their shares
without offering them first to the other shareholders
for purchase,
– shareholders cannot offer their shares or debentures to
the general public over a stock exchange,
– the number of shareholders cannot exceed a fixed
figure (commonly 50).
 Public Limited
Company (Ltd.)

• The standard legal designation of a company which has

offered shares to the general public and has limited liability.

• A Public Limited Company's stock can be acquired by

anyone and holders are only limited to potentially lose the
amount paid for the shares.

• Two or more people are required to form sucha company,

assuming it has a lawful purpose.
• A limited company grants limited liability to its owners
and management.

• Being a public company allows a firm to sell shares to investors

this is beneficial in raising capital.
• Only Public Limited Companies may be listed on the Stock
Exchange and will have the suffix PLCon theirticker symbol.
 Company Limited
by Shares

• In Malaysia, the most common type of limited companies is those limitedby shares.
• These companies are incorporated and governed by the Companies Act, 1965.
• Companies limited by shares will carry “Sdn Bhd”, “Sendirian Berhad” behind their
names according to Section 22(4) of the Act.
• The meaning of private limited companies is that the liabilities of its members are limited
to the amount of shares they hold in the company.
• For example, if Mr. Tan’s shares in a Sdn Bhd amounted to RM10,000.00, and he has fully
paid for the shares, in general, he has no further liability with regards to the Sdn Bhd
concerned.
• A private limited company can only be incorporated if its memorandum and
articles:-
– Restricts the right to transfer its shares subject to the approval of its directors;
– Limits the number of its members to not more than fifty (require a minimum of 2
natural persons, but allow another company to wholly own 100% of its issued
shares).
– Prohibit any invitation to the public to subscribe for any shares or debentures of the
company;
– Prohibits any invitation to the public to deposit money with the company for fixed
periods or payable at call, with or without interest.
 Company Limited
by Shares
• Advantages
– The most obvious advantage is the liability “protection” to its shareholders,
limited their exposures to the amount of share capital that they subscribed for.
Any amount of debts beyond their shareholdings, they are not liable but
provided there is no fraud or other malpractice.
– Another advantage is the simplicity to transfer existing shares or issue additional
shares to new investors. Existing member can transfer his shareholding, wholly or
partially, through selling of his shares (subject to directors’ approval, that is). Unlike
sole proprietors or partnerships, there is no need to wind up the company in the
event of death of its shareholders or directors.

• Disadvantages
– The company’s financial affairs will be accessible by the public.
– Compliance with the Companies Act, 1965. Although complying itself is not a
disadvantage, the amount of effort required to comply with the Act is much
more than a sole proprietor/partnership.
– The company had to perform annual audits on its financial statements.
– At least one company secretary is required to manage its statutory submissions and
returns as well as attending and preparing minutes for board and shareholders’
meetings.
 Company Limited by
Guarantee

• Definition : Incorporated firm without share capital, and in

which the liability of its members is limited to the amount
each one of them undertakes to contribute at the time the
firm is wound up.

• In a limited company’s Memorandum and Articles of

Association, members’ liability is limited to the amount they
‘guarantee’ or undertake during winding up – In which the
amount is specified in the Memorandum, agreed and
signed by all members.

• In many cases, companies limited by guarantee are

often registered by non-profit organizations, public
societies and clubs.
 Company Limited by
Guarantee

• Advantages:
– The member's' liabilities will be restricted to the amount each agrees
to contribute to the assets of the company on winding-up. This
amount is usually specified in its memorandum of association, which
forms part of a company's constitution.
– In the event of company wound up, each member of that time may
be required to contribute up to the amount of the guarantee
towards payment of the debts incurred while he was a member. Past
members are liable only if the present member default.

• Disadvantages :
– Although this type of company does not have a share capital, it is a
separate legal entity.
– It is not normally used for trading, but is often formed to run clubs and
other organizations that is maintained by subscription, social activities
and donations.
 Comparison And Distinction
between a Company, Partnership
and Sole-Proprietorship

Elements Company Partnership SoleProprietorship

Structure A company is Two or more Individual

a person persons in
separate carrying on business
from its business with a on his
members. view of profit. own.
Registration Need to be Need to Needs to
registered with register register his
the Registrar their business under
of Companies business the
as a company. under the Registrationof
Registration Businesses Act,
of 1956.
Businesses
Act, 1956.
 Comparison And Distinction
between a Company, Partnership
and Sole-Proprietorship
Elements Company Partnership SoleProprietorship

Transferability Shares in a Generally, a partner Asole-

company are cannot transfer his proprietor
generally status aspartner to may transfer
transferable someone else without his business to
although the the consent of all the someoneelse.
right of other partners.
transfer maybe
restricted.
Management Members of Partners are agents of The sole- proprietor
a company the firm for carrying owns and
assuch are on its business in the manages the firm
neither its ordinary course of himself and can
managers business and are employ
(directors) generally entitled to employees to
nor is agents. manage the firm. manage the firm
for him.
 Comparison And Distinction
between a Company, Partnership
and Sole-Proprietorship
Elements Company Partnership SoleProprietorship

Number of There is no The maximum is There is only

members maximum twenty. (There isno one person in
number of ceiling on the a sole-
members number of proprietorship.
(expect where it is members for
a private professional
company, in firms.14E)
which case the
maximum isfifty).
Constitution Acompany must Partners may Asole-proprietor
be constituted in withdraw capital may also
writing, i.e. by a but their liability withdraw
Memorandum for the firm’s capital. His
and Articles of debts to its liability for the
Association. creditors is firm’sdebts to its
unlimited. creditors is
unlimited.
 Comparison And Distinction
between a Company, Partnership
and Sole-Proprietorship

Elements Company Partnership SoleProprietorship

Capital and Capital subscribed by Partners may A sole proprietor

liability members for their withdraw capital may also
shares cannot ordinarily but their liability withdraw capital.
be returned to them, for the firm’s His liability for the
but (in a limited debts to its firm’s debts to its
company)they are not creditors is creditors is
liable for its debts once unlimited. unlimited.
they hold fully paid
shares.
Borrowing Companies can borrow Partners have A sole proprietor
powers for purposes covered unrestricted has unrestricted
by their objects as powers of powers of
contained in their borrowing interms borrowing.
Memorandum of of amount and
Association. purpose.
 Comparison And Distinction
between a Company, Partnership
and Sole-Proprietorship
Elements Company Partnership Sole Proprietorship
Security over Companies can use Partners cannotcreate Asole proprietor
assets current assets as floating charges but they cannot create
security bycreating can mortgage the firm’s floating charges
floating charges. assets. but can
mortgage the
firm’s assets.
Rules, Companies are subject Partnership may be Soleproprietor-ships
procedure to various statutory rules formed informallyand are formed
and of procedure they need not supply informally and
information and are required to information to the information about
topublic supply certain public. the firm need not
information to the be published.
public.
Dissolution Acompany is dissolved Partnership may be Sole proprietor-
by winding up and dissolvedinformally, ship may be
liquidation which is a e.g. by agreementof dissolved in-
formal procedure. the partners. formally by the
sole proprietor
himself.
Q& A
Session