Company Law
WHAT IS COMPANY ?
Company is a legal entity, allowed by legislation, which permits a group of people, as shareholders, to apply to the government for an independent organization to be created, which can then focus on pursuing set objectives, and empowered with legal rights to own property, hire employees or loan and borrow money. Companies in Malaysia are governed by the Companies Act, 1965. The Act is based on the Australian Uniform Companies Legislation of 1961 & the United Kingdom’s Companies Act 1948.
Types of companies
What is a Corporation ?
Firm that meets certain legal requirements to be recognized as having a legal existence, as an entity separate and distinct from its owners. Corporations are owned by their stockholders who share in profits and losses generated through the firm's operations, and have three distinct characteristics. A firm can buy, sell, own, enter into a contract, and sue other persons and firms, and be sued by them. It can do good and be rewarded, and can commit offence and be punished.
Types of business entity :
- Sole proprietorship
- Partnership
- Limited liability company
- Corporation
- Foreign company
- Foreign company local agent
Who can be appointed as a director?
An individual can be a director as long as he is :
- 18 years old
- Must not be an undercharged bankrupt.
- Must not have been convicted of criminal offence involving fraud or dishonesty.
- Must not have been imprisoned for an offence under S132, S132A or under S303 of Companies Act.
What are the classifications of Private and Public company ?
Private Company :
According to S.15(1) of the CA 1965, a company having a share capital may be incorporated as a private company if its Memorandum or Articles:
- Restricts the right to transfer its shares.
- Limits the number of members to not more than fifty.
- Prohibits any invitation or offer of shares or debentures to public.
- Prohibit invitation or offer public to deposit money with company.
Public Company :
- Section 4(1) of the CA 1965 defines a public company as a company other than a private company.
- In Malaysia, a public limited company has "Berhad‟ or (Bhd.) as part or at the end of its name.
Directors
What does it mean by directors?
- A company must have at least 2 directors, both of them must be residence of Malaysia.
- No comprehensive definition of director but the term director include any person occupying the position of director by whatever name called.
- A director is an officer of a company but he is not an employee unless he has separate contract of employment as a salaried executive.
What are the types of directors?
Non-executive director
- He has no other function except by express delegation
- Take part in the collective decision of the " BOD "
Managing or Executive Director
- Who is in addition to their function of attending board meeting as but also work, usually full-time, in the management of the company as employee.
- Fiduciary Duties
- Duties of skill, care and diligence
- Statutory duties
Incorporation can be defined as the process of legally declaring a corporate entity as separate from its owners. Incorporation has many advantages for a business and its owners, including:
- Protects the owner's assets against the company's liabilities.
- Allows for easy transfer of ownership to another party.
- Achieves a lower tax rate than on personal income.
- Receives more lenient tax restrictions on loss carry forwards.
- Can raise capital through the sale of stock.
Advantages of Incorporation
1. Limited Liability
Limited personal liability is one of the most common reasons businesses become corporations. A corporation is a distinct legal entity, so incorporating protects the business owner’s personal assets, even if the corporation is in debt or facing other liabilities.
2. Tax Benefits
Owners of corporations are only taxed on their own salary, bonuses and dividend payments. There are also other tax benefits that are available to some corporations.
3. Business Credibility
When a business has completed the process of becoming incorporated, it can have a favorable impact with investors, making it easier to raise capital. Plus, in some cases, there is a perceived permanency and reputability on the part of clients or customers when a business is a corporation.
4. Shares Incentives
One of the defining elements of a shares corporation is the shares structure, which gives board members and employees a share in the ownership of the company. This can be an attractive benefit for employees and can lead to higher employee retention rates.
5. Perpetual Existence
Unlike a sole proprietorship or partnerships, a corporation continues to exist even if the owner passes away or leaves the business. A corporation will remain in existence until the shareholders take measures to dissolve it, or until the corporation is merged with another business.
Disadvantages of Incorporation
1. Cost
The initial cost of incorporation includes the fee required to file your articles of incorporation, potential attorney or accountant fees, or the cost of using an incorporation service to assist you with completion and filing of the paperwork. There are also ongoing fees for maintaining a corporation.
2. Loss of Personal “Ownership”
If a corporation is a shares corporation, one person doesn’t retain complete control of the entity. The corporation is governed by a board of directors who are elected by shareholders.
3. Required Structure
When you form a corporation, you are required to follow all of the rules outlined by the state in which you filed. This includes the management of the corporation, operational requirements and the corporation’s accounting practices.
4. Ongoing Paperwork
Most corporations are required to file annual reports on the financial status of the company. Ongoing paperwork also includes tax returns, accounting records, meeting minutes and any required licenses and permits for conducting business.
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