On 4th April 2016, Companies Bill 2015 was passed at Dewan Rakyat. It is time we start to take a serious look into what this HUGE WAVES of change is all about and what you have to do or know about it.
Since Companies Act 1965 (CA 1965) was a COMPLETE CHANGE, this would simply means there is huge learning gap that needs to be filled. Directors and professionals have to relearn the new structure of company law and how things work.
Hence, we have summarized below (graphically) the key old principles in CA 1965 which NO LONGER applicable.
Bear in mind that it is the extract of key changes we think you should know and be aware of, the following list is non-exhaustive.
The following are 8 key concepts which are obsolete and subject to revolutionary changes in the Bill.
- CHANGE 1 : Why need 2 when one can do the work ?
- CHANGE 2 : Company is now given the capacity of a natural person
- CHANGE 3 : Bye Bye AA & MA
- CHANGE 4 : No Par Value
- CHANGE 5 : Loosen Prohibition on Providing Financial Assitance
- CHANGE 6 : Throw Away Common Seal
- CHANGE 7 : AGM No Longer Required for Private Company
- CHANGE 8 : Abolished Unanimity Ryle for Written Resolution
[UPDATE: The Bill has received Royal Assent on 31 August 2016 and has been gazetted on 15 September 2016 as the Companies Act 2016.]
CHANGE 1 : Why need 2 when one can do the work ?
Existing : The CA 1965 prohibits a company from carrying on business with fewer than 2 shareholders for more than 6 months and required to have a minimum of 2 resident directors.
NEW : Under the Companies Bill 2015, companies can be incorporated and operated with a single individual or corporate shareholder and need only have one resident director (who can also be the sole shareholder of the company).
Source :S 196 of CB 2015
This move will simplify incorporation process and reduce maintenance and cost in doing business.
P.S.: We are all excited to see what would happen to companies which have been using nominee director and shareholder all this while. Would they revert to single shareholder and director mode in order to cut down on director fee and dividend pay out? Although the risk of having sole director and shareholder might result in the risk of concentration of power, this is, however, countered in the CB 2015 with the heightening of penalties and enhanced corporate governance measures [we will discuss more on this in the next article].
CHANGE 2 : Company is now given the capacity of a natural person
Existing : The object clause of a company defines a company’s capacity to carry out commercial activities in its Memorandum of Association.
Any acts or actions outside its object clause are beyond the company’s legal power or authority (i.e. becomes illegal or aka ultra vires).
NEW : A company may choose not to specify its objects. Effectively, this will give a company the power of a natural person (i.e. unlimited capacity). It also removes the burden on third parties to verify if a company has capacity to enter into a transaction.
Source :S 35 of CB 2015
CHANGE 3 : Bye Bye AA & MA
Existing : For a company to be formed it requires memorandum of association (MA) and articles of association (AA).
NEW : These two documents are replaced by a constitution under the Bill.
Interestingly, the Bill does not make it compulsory for a company (other than a company limited by guarantee) to have a constitution.
If a company were to elect not to have a constitution:
the rights, powers, duties and obligations of the directors and shareholders will be regulated by the Companies Bill 2015.
If a company chooses to have their own constitution:
Other than clauses which are stated in the constitution, the rights, powers, duties and obligations of the directors and members will still follow that of the Act. However if the company includes clauses into the constitution which is contradictory to the Companies Bill 2015, the clauses in the Bill prevails.
Source :S 31 of CB 2015
CHANGE 4 : No Par Value
Existing : Shares of Malaysian companies are currently issued with a par/nominal value.
NEW : The Bill introduces a no-par value regime where all new shares issued by a company shall have no par/nominal value.
To ensure a smooth transition, the Bill provides for transitional provisions (such as a 24-month period to enable companies to utilize any amounts standing in its existing share premium account) and provisions to preserve the effect of existing contracts and other instruments which rely on the concept of par/nominal value.
Source :S 74 of CB 2015
CHANGE 5 : Loosen Prohibition to Provide Financial Assistance
Existing : CA 1965 contains a close-to-absolute prohibition against a company giving financial assistance for the purchase of its shares or the shares of its holding company. This restricts debt from being pass down to subsidiary and also prohibits acquirers from obtaining financing secured by the target company’s assets.
NEW : The Bill states that the company be it a private or public, may provide financial assistance for (i) the purpose of acquisition of its shares; or (ii) for the purpose of reducing or discharging liability incurred for such an acquisition, provided they satisfied the requirements as stipulated in s 126 of CB 2015.
Source :S 126 of CB 2015
CHANGE 6 : Throw Away Common Seal
Existing : CA 1965 imposes an obligation on a company to adopt a common seal.
NEW : The Bill provides company the discretion whether to adopt a company.
Should the company not adopt a common seal, it can make contract, written or oral, through a person acting under its express or implied authority and execute documents by having the same signed by two authorised officers, i.e. a director or secretary, of whom at least one must be a director, or where the company has only one director, by that director in the presence of a witness who attests the signature.
Source :S 61 of CB 2015
CHANGE 7 : AGM No Longer Required for Private Company
Existing : All companies (public or private) must hold an Annual General Meeting (“AGM”) once every calendar year.
NEW : The Bill allows private companies to not hold an AGM.
Safeguard procedure is also in place to prevent minority shareholders from being disadvantaged.
PS : The abolishment of the AGM requirement will reduce the maintenance costs of Malaysian private companies.
Source :S 340 of CB 2015
CHANGE 8 : Abolished Unanimity Rule for Written Resolution
Existing : CA 1965 allows resolution in writing to be passed.
If signed by all shareholders and will be treated as duly passed at a general meeting. Efficacy is restricted as all shareholders need to sign and any single shareholder can prevent a resolution from being passed.
NEW : The Bill abolishes the requirement for unanimity for private companies (but retains it for public companies) and allows for the passing of a written resolution by the same majority as required at a general meeting. Safeguard is also provided to prevent interest of minority being abused.
Source :S 290 of CB 2015
Finish reading Part I (Change 1 to 8), now you can proceed with Part II which covers Change 9 to 12.
The above summary is created by referencing to Companies Bill 2015, Company Act 1965, CLRC report also on write up prepared by Wong & Partner, Skrine, and MIA.
We are excited by the changes, and glad that there are so many tax gaps and GST planning opportunities arising from it.