Malaysian Companies Act 2016: an overview

The Companies Act 2016 (CA 2016) repealed the Companies Act 1965 (CA 1965) and changed the landscape of company law in Malaysia. The CA 2016 reformed almost all aspects of company law in Malaysia. This article will provide an overview of the CA 2016.

Minimum Number of Members

Section 9(b) CA 2016 Act stipulates that ‘A company shall have one or more members…’. This provision allows the incorporation of a company with only one member.

Types of Companies

Companies can generally be classified as (1) limited and unlimited liability companies; and (2) public and private companies.

Limited and unlimited liability company
Section 10(1) CA 2016 states that a company may be incorporated as ‘(a) a company limited by shares; (b) a company limited by guarantee; or (c) an unlimited company.’ Where the company is a company limited by shares, the member’s liability is limited to the amount unpaid on their shares, and where the company is a company limited by guarantee, a member’s liability is limited to the amount they agreed to contribute in the event the company is wound up.  There is no limit placed on the liability of a member of an unlimited company.

To differentiate an unlimited company from the others, section 25(1) CA 2016 provides that the name of an unlimited company shall end with the word ‘Sendirian’ or the abbreviation ‘Sdn.’.

Private company and public company
A company can also be classified as either a private or a public company. Under the CA 2016, a private company is required to have the following characteristics:

  • It is a company limited by shares (s42(1))
  • It has not more than 50 shareholders (s42(1))
  • It restricts the transfer of its shares (s42(2))
  • It cannot offer its shares or debentures to the public (s43(1)). Under s15(1) of the CA 1965, a private company was prohibited from inviting the public to subscribe its shares or debentures
  • It cannot allot shares or debentures with a view of offering them to the public (s43(1)). This prohibition was not found in the CA 1965
  • It cannot invite the public to deposit money with the company (s43(1)).

Other than the above characteristics, s25(1) mandates that the name of a private company should end with the words ‘Sendirian Berhad’ or its abbreviation ‘Sdn. Bhd.’.

In the case of a public company, its name should end with the word ‘Berhad’ or its abbreviation ‘Bhd.’. A public company may have one or more of the characteristics imposed on a private company. For example, most public companies are limited by shares. 

Apart from the name, the other main differences between a private and public company prescribed in the CA 2016 are as follows: First, the statutory minimum number of resident directors for a private company is only one, whereas a public company is required to have at least two resident directors. Second, only a private company may pass a written resolution (s290). Third, only a public company is mandated to hold its annual general meeting (s390). Fourth, certain categories of private companies are exempted from having its accounts audited (s255).

Formation of Company

Under the CA 2016, the process of incorporating a company is simplified. The Act introduces a super form for incorporation. Section 15 provides that the Registrar of Companies (‘ROC’) will assign a registration number to the company and issue the notice of registration upon compliance of the procedure and payment of the appropriate fee. The notice of registration is conclusive evidence that the company is duly registered (section 19).  The ROC may issue a certificate of incorporation only upon an application by the company and payment of the prescribed fee.

Pre-incorporation contract

A pre-incorporation contract is defined in s65(1) CA 2016 as ‘a contract or transaction that purports to be made by or on behalf of a company at a time when the company has not been formed’. Section 65(1) provides that the person who signs the pre-incorporation contract will be personally liable on the contract or transaction accordingly. Unlike their previous position under the CA 1965, they cannot exclude their liability. Nevertheless, the position of the company with regards to its liability under the pre-incorporation contract remains the same. Section 65(2) permits the company to ratify the contract after its incorporation. If the company does ratify the contract, ‘the company shall be bound by the contract or transaction as if the company has been in existence at the date of the contract or transaction and had been a party to the contract or transaction’. 

Publication of Company Name

Section 30(1) CA 2016 requires the display of both registered name and company registration number at its registered office and every place where its business is carried on, and also every place where its books are kept. ‘Books’ is defined in s2(1) to include any register or other record of information and any accounts or accounting records, however compiled, recorded or stored, and also includes any document’. In addition, s30(2) also requires the company to disclose its registered name and company registration number in its business correspondence and documentation including its website.

Company Constitution

Under the CA 1965, every company was required to have a memorandum and articles of association. The memorandum and articles of association are now collectively known as the constitution, and it is expressly stated in s31 and 38 CA 2016 that only a company limited by guarantee shall have a constitution; other types of company may or may not have a constitution. It is optional for them.

If a company has no constitution, the company, each director and each member of the company shall have the rights, powers, duties and obligations as set out in the Act. And ‘if the company has a constitution, the company, each director and each member of the company shall also have the rights, powers, duties and obligations as set out in the Act, except to the extent that such rights, powers, duties and obligations are permitted to be modified in accordance with this Act, and are so modified by the constitution of the company’ (s31(2) CA 2016).

In other words, the rights, powers, duties and obligations of the company, director and member are prescribed by the CA 2016 unless modified by the company’s constitution. The company’s constitution can modify any of those rights, powers, duties and obligations only if the Act permits it.

For companies which were registered prior to the coming into operation of the CA 2016, s619(3) provides that the memorandum and articles of association of a company existing before the operation of the Act shall have effect as if made or adopted under the Act unless otherwise resolved by the company. Thus, a company’s existing memorandum and articles shall form the company’s constitution until the company alters it by passing a special resolution.

Company’s Objects

Section 21 CA 2016 provides that a company shall have the capacity to carry on or undertake any business or activity. Nonetheless, if the company has a constitution which states the company’s objects, s35(1) provides that the company shall be restricted from carrying on any business or activity that is not within those objects. 

The CA 2016 does not prescribe the consequences of a transaction outside the company’s objects clause. Thus, the consequences of an ultra vires transaction are uncertain. Drawing from the provisions in the Act, specifically s21 and 39, it is submitted that a third party dealing with a company can assume that the company has full capacity to carry on or undertake any business or activity. This is because s39 provides that the doctrine of constructive notice applies only to documents relating to instrument of charges. No person shall be deemed to have notice or knowledge of the contents of the constitution or any document (other than charges) related to the company which has been registered by the ROC or which is available for inspection at the company’s registered office. Thus, a third party dealing with a company can rely on s21 and 39 and assume that the transaction in question is within the capacity of the company, for the company has full capacity to carry on or undertake any business or activity.

Share Capital

With effect from 31 January 2017, all companies with share capital migrated to no par value regime. It is immaterial that the company was incorporated under the CA 1965 or any previous enactment. Section 74 CA 2016 reads, ‘All shares issued before or upon the commencement of this Act shall have no par or nominal value.’.

Nevertheless, a member who did not fully pay up on their shares before 31 January 2017 would still be liable to the company for the unpaid amount. Section 618(1)(b) still recognises the amount unpaid on shares as the difference between the issue price of the share (excluding premium) and the amount paid.

With regards to the credit balance standing in the share premium account as at 31 January 2017, s618(2) provides that the moneys will become part of the company’s share capital unless the company uses the moneys according to subsections (3) and (5).

Authority to issue shares
The general power to allot shares, grant rights to subscribe in the shares, convert any security into shares and allot shares under an agreement or option or offer is vested in the members by passing a resolution (s75 of the CA 2016). There are exceptions to this general principle. They are as follows:

  • First, the directors may allot shares or grant rights under an offer to existing members in proportion to the members’ shareholding.
  • Second, the directors may allot shares or grant rights on a bonus issue of shares to existing members in proportion to the members’ shareholding.
  • Third, the allotment of shares to the company’s promoter that the promoter has agreed to take.
  • Fourth, the shares are issued as consideration or part consideration for the acquisition of shares or assets by the company.

The CA 2016 has also included a provision in s85 to safeguard existing shareholders. It provides that where a company issues new shares which rank equally to existing shares as to the voting or distribution rights, the company must first offer the new shares to the holders of existing shares on a prorated basis unless the company’s constitution provides otherwise. This means all issues of shares shall be right issues unless otherwise prescribed in the company’s constitution.

Classes of shares
In general, the different classes of shares can be categorised into ordinary shares and preference shares. ‘Preference shares’ is defined in s2(1) to mean a share by whatever name called, which does not entitle the holder to the right to vote on a resolution or to any right to participate beyond a specified amount in any distribution whether by way of dividend, or on redemption, in a winding up, or otherwise.

The CA 1965 did not permit the class rights to be varied if the rights were incorporated in the company’s memorandum of association. However, the class rights could be varied if they were found in the company’s articles and its memorandum or articles allowed it.

As a company’s memorandum and articles are now combined to form its constitution, the CA 2016 allows the rights attached to the preference shares to be modified or varied. If the company’s constitution has provided the procedure for the variation of class rights, then the procedure is to be followed (section 91(1)(a)). If the constitution does not prescribe the procedure, then the company may do so with the consent of the holders of the shares in that class (section 91(1)(b)). The consent of the holders may be obtained as follows:

First the approval may be by way of written consent representing not less than 75% of the total voting rights of the holders of shares of that class.

Second, the approval may be given by passing a special resolution of the holders of shares of that class.

Maintenance of capital
At common law, a limited company shall not return its capital to its members. However the CA 2016 has prescribed some exceptions to this general principle.

Reduction of capital
Section 115 provides that a company may reduce its share capital following the procedures prescribed in the section unless its constitution provides otherwise. According to s115, a company may reduce its capital by either (1) a special resolution supported by a solvency statement from all directors; or (2) a special resolution confirmed by the court.

Share buyback
Generally, a company is not permitted to purchase its own shares or that of its holding company (s123 and 22) unless it is (1) a redemption of preference shares (s72); (2) a cancellation of shares (s. 116 and 177); (3) a share buyback by public listed companies (s127); or (4) a remedy awarded by the court in a case of oppression (s346).

Financial assistance
Section 123 CA 2016 also does not permit a company to give any financial assistance for the purchase of its own shares or that of its holding company. There are exceptions prescribed in s125 and 126 namely (1) where the lending of money is part of the company’s ordinary business; (2) where it is for a trust scheme for employees; (3) where the financial assistance is given to employees for their own benefit; (4) where the company is regulated by written laws relating to a bank, insurance or takaful or which are subject to the supervision of the Securities Commission; or (5) where the company is not a public listed company and it has complied with the conditions listed in s126.

In the CA 2016, the dividend rule is found in s131. It has two principles – ie (1) the dividend is to be paid out of the company’s profits; and (2) the dividend should not be paid if the payment will cause the company to be insolvent. As the directors are the ones who authorise the payment of dividends, they must be satisfied that the company will be solvent after the distribution is made.

Section 133(2) provides for the liability of the director and manager who wilfully paid or permitted to be paid dividends out of what they knew to be not profit. They are liable to the company to the extent of the amount exceeding the value of any distribution of dividends that could properly have been made.

The CA 2016 also prescribes the new liability imposed on the member. Section 133(1) states that the company may recover the amount of distribution received by a shareholder which exceeds the amount which could properly have been made unless the shareholder (1) has received the distribution in good faith; and (2) has no knowledge that the company did not satisfy the solvency test.

Share Certificate

Section 97 CA 2016 provides that it is no longer necessary for a company to issue a share certificate to a shareholder unless the company’s constitution requires it or the shareholder applies to the company for one to be issued to them.

Transfer of shares

Section 106(1) provides that the company shall register the transfer of shares within 30 days from the receipt of the instrument of transfer unless the following conditions are fulfilled: (1) the CA 2016 or the company’s constitution expressly permits the directors to refuse or delay the registration for reasons stated; (2) the directors have passed a resolution to refuse or delay the registration of the transfer within 30 days from the receipt of the instrument of transfer and the resolution states the reasons for the rejection or delay, as the case may be; and (3) the notice of the resolution is sent to both transferor and transferee within seven days of the resolution, and where the company is a public company, the notice of the resolution must also include the reasons for rejection or delay of the transfer.


Minimum number of directors
The CA 2016 prescribes the minimum number of directors in a company. Section 196(1) provides that a private company shall have a minimum of one director who ordinarily resides in Malaysia by having a principal place of residence in Malaysia (‘resident director’). For a public company, it shall have a minimum of two resident directors.

Service contracts
The CA 2016 has also provided for public companies to make available for inspection at its registered office a copy of every director’s service contract with the company or its subsidiary. Members holding at least 5% of the total paid up capital are entitled to inspect the documents.

Directors’ fees and benefits
Section 230 CA 2016 provides that the fees of the directors, and any benefits payable to the directors of a public company, or of a listed company and its subsidiaries, shall be approved at a general meeting. However, for a private company which is not a subsidiary of a listed company, the directors’ fees and benefits may be approved by the board unless the company’s constitution states otherwise.

Directors’ indemnity
Section 289 CA 2016 provides that a company may indemnify its director for their costs in defending a legal action if judgment in the action is given in their favour or where the court action is discontinued. In addition, the company may with the approval of its board of directors effect an insurance policy to cover its director’s liability.

Non-cash asset transactions involving directors and substantial shareholder
Section 228 CA 2016 provides that a non-cash asset transaction of the requisite value involving directors or substantial shareholder requires members’ approval. The section has raised the threshold of the requisite value to a minimum of RM50,000. Thus it is not a transaction of the requisite value if its value is less than RM50,000. It is a transaction of the requisite value if its value is (1) between RM50,000 and RM250,000 and exceeds 10% of company’s net assets, or (2) exceeds RM250,000.

Company Secretary

Citizenship and residency
Section 235(1) CA 2016 provides that the company must have at least one company secretary who is a citizen or a permanent resident of Malaysia. In addition, they must ordinarily reside in Malaysia by having their principal place of residence in Malaysia. A company may have more than one company secretary; and all of them must fulfil these requirements.

Removal and resignation
The CA 2016 provides the procedures for the removal as well as the resignation of a secretary. However, the procedures are not absolute and are still subject to the company’s constitution or the terms of their appointment.

Section 239 provides that the board of directors may remove a secretary from their office in accordance with the terms of their appointment or the constitution. In addition, unless the company secretary has entered into a contract to the contrary, they may on their own accord resign at any time by submitting to the board a letter stating their intention. Section 237(3)(a) provides that they cease to be the secretary on the expiry of 30 days from the date of the notice or the period specified in the company’s constitution or terms of their appointment.

Company Accounts

The CA 2016 decoupled the submission of the financial statements from the annual return. Section 259 CA 2016 requires a company to lodge its financial statements and reports (collectively called ‘the accounts’) with the ROC. For a private company, it must be done within 30 days from the day the accounts are circulated to the members (s259(1)(a)). The accounts must be circulated to the members within six months from the end of its financial year (section 258). In the case of a public company, the accounts must be lodged with the ROC within 30 days from its annual general meeting (‘AGM’).

However, s. 68 requires the company to lodge its annual return with the ROC every calendar year within 30 days from the anniversary of its incorporation date. Thus, whilst the submission of the accounts is referenced to the company’s financial year end, the submission of its annual return is linked to the anniversary date of its incorporation.


Another area of reform is the appointment of an auditor. The CA 2016 provides for the automatic re-appointment of an auditor for a private company, whereas for a public company, their appointment is until the conclusion of the company’s next AGM. In addition, under s255(3) CA 2016, the ROC may exempt certain classes of companies from appointing an auditor. On 4 August 2017, the ROC issued Practice Directive 3/2007 exempting three categories of private companies, namely dormant companies, zero revenue companies and threshold-qualified companies.

The CA 2016 also contains provisions to regulate the establishment of new audit firms. Section 265 requires the following. First, the ROC will maintain a register of firm of auditors. Second, a new audit firm is to notify the ROC within 30 days of the commencement of its business. Third, a reconstituted firm of auditors due to retirement, withdrawal or death of a partner, or due to the admission of a new partner, must lodge a notice with the ROC within 30 days of such alteration.

Company Meetings

Annual General Meeting (AGM)
The CA 2016 reforms the requirement for an AGM. Section 340 provides that only a public company is required to hold an AGM.

Notice of meeting
Section 321(1) CA 2016 provides that notice of a company meeting must be given to ‘every member, director and auditor of the company’. Section 319 (1) provides that the notice shall be in writing. It can be given in hardcopy or in electronic form or in hybrid form (ie partly in hardcopy and partly in electronic form).

Section 327 CA 2016 prescribes that the members’ meeting may be held anywhere so long as the main venue is in Malaysia. The chairperson of the meeting shall be at the main venue.

A member need not attend the company meeting in person. They may appoint another person to attend the meeting on their behalf. This person may participate, speak and vote on the member’s behalf at the meeting. They are known as the member’s proxy.

The CA 2016 has removed the restriction on who is qualified to be appointed as a proxy and currently, a member can appoint anyone to be their proxy.

The CA 2016 does not specify the maximum number of proxies which may be appointed by a member. However, where the member appoints more than one proxy, then they must specify the proportions of their holdings to be represented by each proxy (sections 294(2)(b) and 334(2)). The proxy may vote on poll. The proxy may vote by show of hands if they are the sole proxy for the member.


Members’ resolution is the decision made by the members. There are companies with few members, and sometimes it is cumbersome to call for a meeting of members to pass a resolution.

Under the CA 2016, only private companies can pass a written resolution. Thus, for a private company, its members may pass a resolution either at a meeting or by circulation (s290(1)). Whereas for a public company, a resolution of the members shall be passed only at a meeting of the members (s290(2)). 

The CA 2016 has reformed the procedure of a written resolution. First, s301 provides that the written resolution may be proposed by the directors or by any member holding at least 5% of the voting rights in the private company. A lower threshold may be provided in the company’s constitution (s302).

Second, s306(4) CA 2016 needs only the required majority of eligible members to agree to it. Thus, for a matter which requires an ordinary resolution, it is passed if it is agreed by a simple majority, and if it requires a special resolution, it is passed if it is agreed by at least 75% of the members.

Third, the period for agreeing to the written resolution is now capped at 28 days from the circulation date unless the constitution provides otherwise (s307). A member’s agreement to the proposed written resolution shall not be effective if it is received after the expiry date.

Corporate Restructuring

The CA 2016 provides a mechanism for a statutory corporate restructure scheme which will bind all creditors. However, the company is in a vulnerable state between the formulation of the scheme and the approval by the court, for a creditor who does not agree with the scheme may take legal action to recover their loan. Thus, the company or any of its members or creditors may apply to the court for an order to restrain further proceedings against the company except with the court’s leave.

The CA 2016 provides that the court can grant a restraining order for a period of not more than three months. On the application of the company, the court may extend the period for not more than nine months (s368(2)).

In addition, the CA 2016 has introduced two new corporate rescue schemes – ie corporate voluntary arrangement and judicial management. These schemes came into effect on 1 March 2018.

Liquidation of Companies

There are two ways to wind up a company: (1) voluntary winding up where the members have passed a resolution to wind up the company; and (2) compulsory winding up where the court has ordered the company to be wound up (s432(1)).

Commencement of winding up
Generally, the voluntary winding up of a company commences when the members’ resolution to voluntarily wind up the company is passed. However, where an interim liquidator is appointed before the members’ resolution is passed, then the winding up will commence when the directors declaration on the company’s insolvency is lodged with the ROC (s441).

In a compulsory winding up, the winding up commences at the passing of the members’ resolution if the company has passed a resolution to voluntarily wind up the company before the presentation of the winding up petition. In other cases, the winding up commences on the date of the winding up order (s467).

Unable to pay debts
One of the grounds for the winding up of a company is its inability to pay its debts. Section 466 CA 2016 provides that a company is deemed to be unable to pay its debts if it fails to pay a debt exceeding the amount prescribed by the Minister, within 21 days after it is served with a notice of demand at its registered office. Currently the amount prescribed by the Minister is RM10,000. Section 466 also states that the unpaid creditor must file the petition to wind up the company within six months from the expiry date of the notice of demand.

Secured creditor
The debts of a company can be secured or unsecured. Section 524 CA 2016 gives the secured creditor three options with regards to the property charged by the company to them as a security. First, if the secured creditor is entitled to realise the charged property, they may do so and claim for any shortfall as an unsecured creditor (s524(1)(a) and (3)(a)). Second, the secured creditor may value the charged property and claim for the balance as an unsecured creditor (s524(1)(b)). Third, the secured creditor may surrender the charge to the liquidator for the general benefit of creditors and claim as an unsecured creditor for the whole debt (s524(1)(c)). 


It can be seen that the CA 2016 has reformed almost all aspects of company law in Malaysia.

Chan Wai Meng is an associate professor at the Faculty of Business and Accountancy, University of Malaya, 50603 Kuala Lumpur, Malaysia. She authored the book Essential Company Law in Malaysia: Navigating the Companies Act 2016, published by Sweet & Maxwell Asia/Thomson Reuters.