Differences between a private company, public company and exempt private company PDF

Preview

Summary

good...

Description

Differences between a private company, exempt private company and a public company A company can also be classified as either a private or a public company. A subset of private companies is exempt private companies. Public companies can be further subclassified into public companies whose shares are listed on the Bursa Malaysia ("public listed company") and public companies whose shares are not listed on the said stock exchange ("public company which is not listed"). They are described below. First and foremost, the definition of private companies is defined in S.2 of CA (a): any company which immediately prior to the commencement of this Act was a private company under any previous written law, (b) any company incorporated as a private company under this Act, (c) any company converted into a private company under S.41 and ceased to be a private company under S.42 of CA. On the other hand, a public company is defined in S.2 (1) of CA as a company other than a private company. While for an exempt private company, company is defined in section 2(1) as "a private company in the shares of which no beneficial interest is held directly or indirectly by any corporation. Thus, only a private company limited by shares can be an exempt private company. The second difference refers to the name of the companies. According to S.25 (1) (b) of CA stated that the name of a private company shall end with the word ‘Sendirian Berhad’ or the abbreviation “Sdn Bhd”. As reaffirmed in S.597 (2) of CA, a company shall use the word ‘Sendirian or Sdn’ as part of its name if the company does not fulfil the requirements fulfilled by private companies. Hence, the name of ‘Sendirian Berhad’ or ‘Sdn Bhd’ in S.25 (1) (b) of CA shall also apply to an exempt private company. As for a public company, S.25 (1) (a) submits that the word ‘Berhad’ or the abbreviation ‘Bhd’ shall be used at the end of the name. As prohibited by S.597 (2), the public company must without the name of ‘Sendirian’ or ‘Sdn’. Third, the membership of the companies. The minimum number of shareholders of a private company must have at least one or more members, having limited or unlimited liability for the obligations of the company. This is submitted in S.9 (b) of CA. While for the maximum number of the shareholders are established in S.42 (1) of CA: "a company limited by shares having not more than 50 shareholders may be registered as a private company...". There are two conditions in the said provision. First, only a company limited by shares may be a private company. A company limited by guarantee is not qualified to be a private company because it does not have a share capital. Contrary to section 11(3), a private company also cannot be an unlimited company under the CA 2016. The position was different under the CA 1965 as a private company was then defined in section 15 as "a company having a share capital ...". A company having a share capital was not necessarily a company limited by shares. Secondly, the number of members is limited to only 50. In ascertaining the number of members, section 42(3) says that the following is to be done: Joint holders will be counted as one and a shareholder who is or was an employee of the company or its subsidiary when he became a shareholder shall not be counted.

As for a public company, similar with S.9 (b) of CA gives the minimum number of shareholders of a company which are either one or more shareholders but there is no limit for the number of members in a public company. However, in an exempt private company, S.2 (1) provides that: as "a private company in the shares of which no beneficial interest is held directly or indirectly by any corporation and which has not more than twenty members none of whom is a corporation". Fourth, the restriction on transfer of shares. This is restricted under S.42 (2) of CA which a private company shall restrict the transfer of its shares. This restriction on transfer also applies to exempt private companies. Nonetheless, the public companies do not have such restriction on the transfer of shares. For instance, in Gan Sin Tuan v Chew Kian Kor [1958] 1 MLJ 62, The court held that the agreement for sale of shares made contrary to the restrictions of sale imposed by the articles of association of the company was void and no rights, legal or equitable, arose between the appellant and the respondent under it. This is because the appellant and respondent entered into an agreement whereby the appellant agreed to sell to the respondent his holding of 2,340 shares in the United Traction Company Ltd. for the sum of $46,800. The United Traction Company Ltd. was a private limited company and its articles of association contain restrictions on the transfer of shares. Thus, the agreement to sell the shares would contravene the restrictions to transfer the shares. Fifth, the allotment of shares. For a private company, stated in section 43(1). It prohibits a private company from first, offering its shares or debentures to the public; secondly, allotting or agreeing to allot shares or debentures with a view to offering them to the public; and thirdly, inviting the public to deposit money with it. In addition, according to S.43 (2) of CA, unless the contrary is proved, an allotment or agreement to allot shares or debentures is presumed to such shares or debentures being offered to the public if an offer of the shares or debentures, or any of the shares or debentures, to the public is made (a) within 6 months after the allotment or agreement to allot; (b) before the receipt by the company of the whole of the consideration to be received by it in respect of the shares of debentures. Following section 106(1), the restrictions should be contained in the company's constitution. It must be noted that, exempt private company is the subset of the private company, thus it shall have the similar prohibition on the allotment of shares to public. As contrast with a public company, it can offer its shares and debentures to the public without any limitations. Sixth, invitation to the public to deposit money or offer shares to the public or to allot shares with a view to offer them to the public. For a private company, it is as mentioned above, that a private company shall not invite the public to subscribe to its shares or debentures. All the restrictions are mentioned in S.43 of CA. Therefore, any officers of the company contravenes this section commits an offence be liable to imprisonment for a term not exceeding five years and to a fine not exceeding three million ringgit. This restriction is also adopted by exempt private companies. As indicated above, both the public companies

are not prohibited to invite the public to deposit money or offer shares to the public or allot shares with a view to offer them to the public. In the case of Quek Leng Chye & Anor v Attorney General [1985] 2 MLJ 270, the appellants and two others were convicted of an offence punishable under section 39(4) read with section 43 of the Companies Act, the substance of the offence being the unlawful issue of letters of invitation to the public to subscribe for shares in a company. This is principled as a private company which is prohibited to offer or allot the shares to the public. Similarly in, Mahima Singh & Ors v Buldev Singh [1975] 1 MLJ 173 where in this case, Seremban Town Service Sendirian Bhd. Which is a private limited company had resolved at its annual general meeting to allot shares to bumiputras. The directors of the company subsequently decided to issue shares to Malay employees. The court of Appeal held that the acts of the appellants were ultra vires the articles of association as the shares are not allowed to be transferred to the public. Seventh, the share capital. As according to S.11 (1) of CA, a company limited by shares can either be a private company or public company. It must be noted that only company limited by shares can be a private company. Hence, pursuant to S.42 (4) (b) provides that where a private company ceases to have a share capital, the company ceased to be a private company. Similarly, an exempt private company will also need to have a share capital since both the private companies and exempt private companies are companies limited by shares. However, a public company needs not to have a share capital. This is mainly because some public companies are limited by guarantee which do not have any share capitals. Furthermore, whether a company can purchase of its own shares? According to S.123 of CA, a private company shall not give any financial assistance by means of a loan, guarantee or the provision of security for the purpose of purchase or subscription made for any shares in the company or where the company is a subsidiary company, any shares in its holding company. The prohibition shall also applies to an exempt private company. As a public company, it allowed for the members to purchase its own shares. This is permitted in S.127 (1) where a company whose shares are quoted on a share exchange may purchase its own shares if so authorised by the constitution. Next, the maximum number of directors. For both private and exempt private companies, based on S.196 (a) shall have only one director. As in the case of public companies, S.196 (b) allowed to have two directors. Also, relating to the members’ single resolution to appoint 2 or more directors. For a private company and exempt private company, there is no prohibition on a single resolution to appoint 2 or more directors. However, for a public company, in S.203 (1) of CA held that the appointment of two or more directors shall not be made by a single resolution unless a resolution that has been agreed by the meeting without any vote being given against it. Therefore, when the resolution is passed which contravenes this section shall be deemed as void in S.203 (2) of CA.

Whereas in the case of mode of resolution, for both private and exempt private companies, in S.290 (1) (a) a resolution shall be passed by a written resolution; (b) passed at a meeting of the members. Additionally, in S.290 (2): a resolution of the members of a public company shall be passed at a meeting of the members. As for exempt private companies, the board of directors may also pass a single resolution to make the decisions of the companies. Whether the company can make the loans to the directors? As restricted in S.224 (1) of CA, both private and public companies shall not make a loan to a director of the company or any other related companies as well as the companies shall not enter into any guarantee or provide security in connection with a loan to a director. Nevertheless, this restriction shall not be applicable to an exempt private company in S.224 (2) (a) of CA. Not only that, in S.225 (1) of CA, both private and public companies shall not make a loan to any person connected with a director of the company or enter into any guarantee or provide security in connection with a loan to such person. However, this provision does not apply to an exempt private company. A person is deemed to be connected with a director when the person falls within the categories in S.197 (1) who may include director’s family, body corporate related to the director, trustee of a trust which the director or his family is a beneficiary and a partner of director or partner of person related to director. Next, both private and public companies are regularly required to file of the balance sheets as well as profit and loss accounts. While for an exempt private company, an exempt private company is exempted from filling its audited financial statements and reports with Registrar of Certificate but based on S.260 (1) of CA: an exempt private company may need to lodge with the Registrar for each financial year a certificate relating to its status as an exempt private company within 30 days from the circulation of the financial statements and reports. In S.260 (2) of CA, the said certificate shall be signed by a director, auditor and secretary of the company stated that the company is an exempt private company, the audited financial statements and reports have been circulated to its members and the financial statement has been made up to meet its liabilities when the liabilities fall due. The company and every office who fails to comply with the provision shall be liable to a fine not more than RM20,000 and not more than RM 1,000 for an continuing offence. This is penalised in S.260 (3) of CA. As for the case of an exempt private is mentioned in Dato Tan Kim Hor & Ors v Tan Chong Consolidated Sdn Bhd [2004] 1 MLJ 690, the plaintiffs were directors of the defendant, they owed certain statutory duties, which duties ensured that they would be kept informed of the defendant's financial affairs. The plaintiffs had also all along approved the defendant's annual accounts and possessed credentials as evidence of accounting and financial skills. The defendant also submitted that since it was an exempt private company, the privacy of its accounts had to be maintained. The plaintiff denied the defendant is an exempt private company. Therefore, the court concluded that the defendant needs to comply with the express requirements to approve the financial submissions and records.

Last but not least, both private companies and exempt private companies do not require the company’s annual general meeting. Unlike public company, the annual general meeting is required in S.340 (1) of CA to distract the audited financial statements and the reports of the directors and auditors, the election of directors, the appointment of the fee of directors and any resolution required. For exempt private companies, it does not require any Annual General Meeting regime....