Company Act 1965 in Malaysia

This assignment analyzes the Companies Act 1965 of Malaysia, its role in regulating companies, and various business structures within the country. It delves into the features of partnerships, public limited companies, private firms, and sole proprietorships, highlighting their differences. The report also discusses minority shareholder protection under Section 181 and provides examples like the Edwards v Halliwell case to illustrate key concepts. Finally, it touches upon foreign branches operating in Malaysia.

COMPANY LAW

INTRODUCTION
Company law is the legal term which consists rules, regulation and policies which are
imposed on large number of firms. Members are responsible to fulfil rules at the time of
establishment, liquidation and winding up (Klöhn, Hornuf, and Schilling, 2016). Companies
having separate legal entity with perpetual succession and common seal. Every transaction done
with the name of firm only. It governs entire business activities of companies.
TASK 1
Introduction of business entities in Malaysia.
Sole proprietorship-
It is simplest and cheapest entity to set up. It requires annual payment of fee to the
Companies Commission of Malaysia and it is to be renewed every year. There is no need to file
annual report and conduct audit in such entities. It has a negative point that it has unlimited
liability. It means that if sole proprietorship fails to pay all its liabilities then creditors can make
their payment through owner's personal assets therefore, owner's personal property is not safe.
Owner and its personal assets are not separate (Ferran and Ho, 2014).
Partnership-
It is very much similar with sole proprietorship except one thing that there is more than
one owner. It can be said extended version of sole proprietorship. Such set ups are suitable for
professional firms such as lawyers, auditors and chartered accountants.
Limited liability partnership (LLP)-
It is a hybrid between partnership and sole proprietorship. It is quite similar to partnership but
it has advantages of private limited company. Some of its salient features are-
 It is a body corporate and follows separate legal entity concept.
 It has perpetual succession.
 It can be sued and sue others.
 It does not have too many legal compliances.
Private limited company-
It is most common form of companies in Malaysia. Its features are-
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Separate legal entity- It works on principle of separate legal entity. It is able to acquire
assets, enter into contracts, sue or sued and have its own name and works on perpetual
succession. It can be dissolved only when directors and shareholders decides to do so
(Appleman, Appleman and Holmes, 2016).
Limited liability- There is separation between owners and their personal property. If
company fails to pay its liabilities, then creditor cannot recover it by selling owner's property.
Credibility- It gives credibility to its owners.
Such entities are preferred by business associates who are operating in B2B businesses.
Public limited company-
It is similar to private limited companies but it cannot offer its shares to public and cannot
have more than 50 members. These are usually listed companies. Such companies are governed
by Securities Commission of Malaysia. These are usually selected by large businesses.
Company limited by guarantee-
In such company’s liabilities of its members are limited to amount of guarantee
undertaken by its members. These are usually entities used by non-profit organisations like
charitable bodies and foundations.
TASK 2
Features of Company in Malaysia-
The features of Company in Malaysia are as follows-
Private limited company-
 Governed– Usually company in Malaysia is incorporated and governed under companies
act of 1965. Private firms are owned by particular person who is able to enjoy overall
profit.
 Names of company– The companies limited by shares generally carry 'sdn bhd’, '
sendirian berhad' behind their names. Furthermore, members have to understand that
name needs to be registered by legal authorities for the purpose of enjoy overall title.
They have to decide name which is not previously registered by any other firm.
Public limited company-
Limited by shares – The minimum number of members are two while maximum is
unlimited. Section 4 of this act defines liability of shareholders which is imposed on them equal
to the unpaid amount.
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Names of Company – Public company generally carry ‘bhd', 'berhad' behind their names.
Section 169 of Companies Act 1965, firm needs to issue prospectus which mentioned financial
status as well as activities related to selling of shares (The Company Law, Incorporation of
Company and Company Directors. 2017). In case directors or other members mentioned false
information in prospectus then they can have sued by others. Through it is easy for firms to get
loans from other financial institutions (Ricks, 2011).
Features of Voluntary Firm in Malaysia-
The various features of voluntary firm are-
No separate legal entity – Usually the main motive of business is the benefit of others thus, it
is not a separate legal entity. Removal and resignation of members not having direct impact on
the existence of firm. With the removal of director business still running successful.
Benefits of others are the main motive – the association main purpose is welfare.
Reduced liability of members – the liability of its members are limited to their contribution.
Protection of asset. Flexibility of asset and distribution of income
Expensive to establish and administer – The firm is difficult to be formed
Difficult to dissolve – Association once formed is difficult to be dissolved.
TASK 3
Concept of separate legal entity.
A company is any firm or organisation which is registered under the Companies Act 1965.
This means that the firm has the following rights:
 Enjoys same legal power and legal rights as any other human being. In addition to these
powers it also enjoys powers to issue, cancel, reissue or buyback its shares. As members
are bound to fulfil rules and policies which are imposed on them. Members needs to be
obtain registration through this firm can sue others and be sued by others. Also they can
take legal action against another firm and able to attain target as well.
 Just like any other corporate body it is separate from its members. This means that if a
board member or shareholder dies, leaves or joins the company it will not have any effect
on companies’ existence. The firm will tend to continue even on death of its member.
 The liability of its members will not affect companies’ liability and vice versa. As the
corporate body is an artificial unit it can act only through directors and shareholders. The
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liability of its members and shareholders is limited till the extent of amount contributed
and they are not answerable for the acts of the corporation (Law, 2015).
 It company can only be terminated by legally terminating it and not otherwise.
TASK 4
Explanation of Section 181 of Companies Act, 1965
Section 181 of Company Act 1965 of Malaysia has been provide unfair prejudice which
create disregard of members’ interest. It can protect members from unfair discrimination. It
consists various rules, regulation and policies which are imposed on them and mentioned under
law. This is helpful law for members of companies. Through this they can protect rights and
interest in order to secure their health.
Malaysian courts are able to appreciate unfairness grounds in section 181(1)(b). There
are different types of remedies are available to protect rights and interest of members.
Furthermore, it is related with effective affairs of company which are being conducted as well as
director’s power needs to be exercised under oppressive manner. Various legal policies are able
to protect position of minority shareholder in the case of limited companies. In which court
having power to take decision regarding oppressive conduct.
The various feature of partnership firm in Malaysia are described as under-
Formation - The formation of partnership firm is not mandatory however it is advisable.
Minimum numbers of owners are two or more. Owners of business entities are responsible to
follow roles and responsibilities which are imposed on them. As they are found to attain target
which is imposed on them. Companies needs to be establish, liquidate and windup with proper
legal procedure.
Cost of formation - The formation cost i.e. administration and registration fees is around
1000MYR. However, the procedure is not very complex. Companies have to spend amount at
the time formation and other functions of business entities (Rosen, 2014).
Liability of partners - The owners’ liability is always Unlimited as they are responsible for
their business. The management and administration is also handled by them as hiring a
professional may incur huge cost. Partners are liable to pay amount equal to imposed on them as
per the rule of law. certain rights and responsibilities imposed on them which are needs to be
fulfil by them.
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Business continuity – Partnership of any firm may get dissolve in case of death or retirement
of partner, but business will still continue. Resignation and removal of director not having impact
on the existence of firm.
Tax treatment – Firm is not liable for any tax but still owners of business firm will be liable
for tax on their own money. Income, excise and other taxes are considered as compulsory
payment which is needs to be paid by them with in stipulated time period (Hudson, 2017).
Raising capital – Capital will get raised by contribution made by partners and thus less
option is available for the firm. Banks and other lending institute may also hesitate to give them
huge amount of loan.
Record keeping – Few legal requirements are there with regard to record keeping. Financial
records need to be maintained by every members of company which are submitted to legal
authorities annually. They are responsible to fulfil rules, regulation and policies which are
imposed on them.
TASK 5
Recommendations
Companies having separate legal entity with perpetual succession and common seal.
Removal and resignation of director not having impact on the existence of firm. Every
transaction should be done with the name of company’s own name (Law, 2015). In order to
enjoy such rights, owners are responsible to obtain registration. After registration firm can sue
others and can be sued by others.
Companies Act 1965, defines that majority of shares are belonging to directors. It
consists rules that directors can take legal action on themselves. Thus, it can protect minority
interest which is stated under section 181 of Companies Act 1965. This section mentioned
remedies in case of oppression.
Case: Edwards v Halliwell, the trade union had rules, regulation and policies which is
equivalent to articles of association. Contribution of members has been agreed by 2/3 of
majority. A meeting has been decided by simple majority of 1/3 it can increase the prescribed
subscription without holding a ballot. Stakeholders involvements is the company can invite for
public subscriptions of shares and debentures. Members have the right to transfer its shares and
debentures without anyone approvals. Members are having limited liability for the amount spent
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on shares and debentures. Shareholders and members are required to maintain register in order to
mentioned significant information. Incomes through tax gains and profits from carrying on
business will be considered as business income. Expenses incurred to generate the business
income are allowed for calculating chargeable income and personal expenses like phone bills, car
expenses are not allowed. Company limited by guarantee is such company’s liabilities of its
members are limited to amount of guarantee undertaken by its members. These are usually
entities used by non-profit organisations like charitable bodies and foundations.
Liability of members has been defined as the liability of members is limited to the no. of shares
they hold in the company. They are responsible to pay amount which is imposed on them as per
the policies of firm. As bound to fulfil rules and procedure in order to comply with law and
maintain performance in effective manner (Taylor, 2015). Restricts the right to transfer its
shares. Maximum number of members is 50. Restriction for inviting public subscription of
shares and debentures. Foreign companies able to define any foreign branch in Malaysia are
considered as foreign company. Branch office is registered as part of parent company so it does
not have separate legal entity. Liabilities of branch offices are limited to parent company
(Tomasic, 2011). Such foreign branches are not allowed to operate trade related businesses
whether it is retail or wholesale.
CONCLUSION
From the above report, it is affirmed that Company Act 1965 is the legal term which is
controlled the activities and performance of companies of Malaysia. There are various business
entities present in Malaysia such as partnership, public limited firm, partnership, sole trader and
private firms. In the above report discussed about features of such entities which is different from
each other in terms of establishment, minimum and maximum number of members for start and
run business etc. Section 181 mentioned for minority protection in case of oppression.
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REFERENCES
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