Content Standard 14.1

Introduction to Companies Limited by Shares

Pengenalan kepada Syarikat Berhad Menurut Syer

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Explanation

A company limited by shares is a business entity established and registered under the Companies Act 2016 in Malaysia. Unlike a sole proprietorship or partnership, this type of company is a body corporate with a legal personality separate from its owners, the shareholders. This means the company can own property in its own name, enter into contracts, and sue or be sued in court as a separate legal 'person'. The capital of the company is divided into small units called shares, and anyone who buys shares becomes a part-owner of the company. Registration of companies is regulated by the Companies Commission of Malaysia (SSM).

The most important characteristic for students to grasp is limited liability. In a company limited by shares, the liability of shareholders is limited only to the value of the shares they hold or the amount unpaid on those shares. If the company suffers losses or becomes insolvent, the personal assets of shareholders cannot be seized to pay the company's debts beyond the amount they have invested. Other characteristics include perpetual succession (the company continues to exist even if a shareholder dies or sells their shares), transferability of ownership through the buying and selling of shares, and management by a Board of Directors appointed to run the company on behalf of shareholders.

The Companies Act 2016 no longer requires a company to have a Memorandum and Articles of Association (M&A) as the previous act did. Instead, a company may choose to adopt a Company Constitution or to operate without one and rely solely on the provisions of the Act. The Company Constitution is a document setting out the internal rules of the company, such as the rights of shareholders, the powers of directors, how meetings are held, and the objects of the company. This document binds the company, its directors and its shareholders as though it were a contract.

Companies limited by shares are divided into two main types: the Private Company (Sendirian Berhad / Sdn. Bhd.) and the Public Company (Berhad / Bhd.). A Private Company limits its number of shareholders to a maximum of 50, cannot offer shares to the public, and imposes restrictions on the transfer of shares. A Public Company, on the other hand, may have an unlimited number of shareholders, may offer shares to the public (for example through Bursa Malaysia), and its shares are freely transferable. The naming difference is also clear: Sdn. Bhd. for private companies and Bhd. for public companies.

Understanding the establishment, types and characteristics of companies limited by shares is an important foundation before students learn share capital accounting, share issuance, and the preparation of company financial statements. For instance, concepts such as authorised capital (which is no longer mandatory under the 2016 Act), issued shares, subscribed shares and paid-up capital can only be understood if students know that a company's capital is divided into share units. This standard therefore sets out the legal and structural concepts before double-entry recording is introduced in the following standards.

Worked examples

Example 1: Distinguishing Types of Company

Maju Teknologi Sdn. Bhd. is a private company that produces water monitoring devices. It has only 8 shareholders and its shares cannot be sold to the public without the directors' approval. The name 'Sdn. Bhd.' indicates that this is a private company with limited liability.

In contrast, Jaya Perkapalan Bhd. is a public company listed on the stock exchange. It has more than 5,000 shareholders and anyone may buy its shares on the open market. The name 'Bhd.' indicates it is a public company. Both companies are bodies corporate separate from their owners.

Example 2: The Concept of Limited Liability

Mr Rahim bought 10,000 shares valued at RM1 each in Bina Indah Sdn. Bhd. and paid the full RM10,000. The company later became insolvent with debts of RM500,000.

Because Mr Rahim's liability is limited, he loses only the RM10,000 he invested. His personal assets such as his house and car cannot be seized to pay the company's RM500,000 debt. This shows that the limited liability characteristic protects the shareholder's personal assets, unlike a sole proprietorship which carries unlimited liability.

Practice

State the act that governs the establishment and registration of companies limited by shares in Malaysia, and name the body that enforces it.

Answer: The act that governs the establishment and registration of companies limited by shares in Malaysia is the Companies Act 2016 (Akta Syarikat 2016). The body responsible for enforcing it and registering companies is the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia / SSM).

Explain the meaning of limited liability and how it protects shareholders.

Answer: Limited liability means that the liability of shareholders is limited to the value of the shares they hold or the balance unpaid on those shares. This means that if the company suffers losses or becomes insolvent, shareholders only lose the amount they have invested in their shares. The personal assets of shareholders, such as their house, car and savings, cannot be seized to pay the company's debts beyond their investment. Thus, this characteristic protects shareholders' personal assets from the claims of the company's creditors.

State TWO differences between a private company and a public company.

Answer: First difference: A private company (Sdn. Bhd.) limits the number of shareholders to a maximum of 50, whereas a public company (Bhd.) has no limit on the number of shareholders. Second difference: A private company cannot offer its shares to the public and imposes restrictions on the transfer of shares, whereas a public company may offer shares to the public (for example through a stock exchange) and its shares are freely transferable.

What is a Company Constitution? State two matters usually contained in it.

Answer: A Company Constitution is a document that sets out the internal rules of a company and binds the company, its directors and its shareholders as though it were a contract. Under the Companies Act 2016, a company may choose to adopt a constitution or to operate without one by relying on the provisions of the Act. Two matters usually contained within it are: (i) the rights of shareholders and (ii) the powers and responsibilities of directors. Other matters include the objects of the company and the manner of holding meetings.

Exam tips

Key terms

Company limited by shares: A business entity whose capital is divided into share units and whose members' liability is limited to the value of the shares they hold.
Limited liability: The liability of shareholders is limited only to the value of shares held or the unpaid balance on them; personal assets are protected.
Company Constitution: A document setting out a company's internal rules that binds the company, its directors and its shareholders under the Companies Act 2016.
Separate legal personality: The characteristic of a company as a body corporate existing separately from its owners, able to own property, make contracts and be sued in its own name.

Source: DSKP KSSM Prinsip Perakaunan Tingkatan 5

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