ADM 221

CORPORATE COMPLIANCE & PRACTICE I

Lecturer: Mohd Faiz Ismail

CHAPTER 2
INCORPORATION OF COMPANIES &
CONVERSION OF COMPANIES
At the end of this topic, student should be able to understand:

• Name approval process

• Incorporation and application of incorporation

• Pre-incorporation contract

• Effect of incorporation

• Notice of registration

• Commencement of business

• Conversion of status of company

INTRODUCTION

• The medium of business in Malaysia can be in business or registered company. Business as been discussed in the previous chapter is
unincorporated body and is easier to be established. However, in term of liability, the owner or the partner is solely responsible for the
liability of the business.

• In this chapter, we focus on the incorporation process of a company. Before an individual decided to incorporate a company, there are
certain criteria that need to be taken into consideration in order to ensure smooth operation of the company.

NO Criteria/decision
1 Nature of business
2 Whether there is prohibition for carrying out the business by an incorporated company
3 Number of participants in the business
4 The relationship among the participants
5 The amount of capital available and required
6 Tax implications
7 Future plans and development of the business
FLOWCHART FOR INCORPORATION PROCESS

APPLICATION FOR A
NAME SEARCH

APPROVED REJECTED

WITHIN 3 MONTS

 Submit application for incorporation.

 Constitution (OPTIONAL FOR SHARE CAPITAL
COMPANY BUT COMPULSORY FOR CLBG)
*constitution will be furthered discuss in Chapter
3.
 A statement by the promoters and director of their
consent and they are not disqualified to act.
 Fees of registration (REGULATION 8 OF COMPANIES
REGULATION 2017)
NAME APPROVAL PROCESS

• Name approval process or name search must be undertaken by persons desiring to incorporate a
company. As stipulates in Section 27(1) CA 2016, a person (promoter) shall apply to the Registrar to
confirm the availability of a proposed name. the company need to pay RM 50 for every 30 days or part
thereof with a maximum of 180 days (REGULATION 8(3) Companies Regulation 2017.

• Section 26(2) CA 2016. The search is undertaken so as to ensure that the proposed name that is to be
used by the prospective company is not one that is being currently used by another. Where the same
name is used the original user of that name can sue the company for the tort of passing off. It is
preventing companies from using names that are calculated to mislead the public or from using names of
obscene nature or names that might offend a section of the public.
 Revertex Ltd & Anor v Slim Rivertex Sdn Bhd

Issue: Whether Slim Rivertex Sdn Bhd was liable for the tort of passing off.

The court held yes as its name could mislead the public in believing that it was Revertex.

• The availability of the name is subject to confirmation of the Registrar regarding the availability of the
name. As stated in Section 26(1) CA 2016, a name is available if it is not:

• Undesirable or unacceptable

• Identical to an existing company, corporation or business.

• Identical to a name that is being reserved under this Act

• A name of kind that the Minister has directed the Registrar not to accept for registration

• It is under the power and discretionary of the Registrar to determine whether a name referred to
paragraph 1(a), (b) or ( c) is undesirable, unacceptable or identical.
• There are certain names gazetted by the Minister of Domestic Trade, Co-operatives and Consumerism are not to be used for an
intended company unless prior approval by him. The names are:

• Name suggesting connection with crown member of the Royal family or royal patronage such as King, Queen.

• Name suggesting connection with a state or federal Government department, statutory body, authority or government agencies or
local authority including Federal and national.

• Names suggesting connection with any ASEAN, Commonwealth or foreign government such as ASEAN, UNESCO, NATO.

• Names suggesting connection with any police, party, society trade union, cooperative society or building society.

• Names including the following words, bank, banker, import, banking, Bumiputra, bureau, association, congress, club, duty free,
chamber of commerce and industry, chamber of manufacturer, chartered, college, consumer, council, credit, exchange, executor, fair
price, finance, foundation, fund, guarantee, institute, insurance, investment, international, leasing, Made in Malaysia, Pioneer, Registry,
treasure, trust, unit trust and university.
• Name including proper name which is not the name of a director.

• Names that are misleading as to identity, nature, objects or purpose of the company or in other manner.

• Names that are blasphemous or likely to be offensive to members of the public.

• Name which:
• Are translation of a name of a company or foreign company registered under the Companies Act or
• May resemble or mistaken for a name of any other company or foreign company registered under the Companies
Act
• May resemble or mistaken for a name that been reserved for a purpose of incorporation of a new company or
registration of a foreign company or for the purpose of a change of name of the company.

• Once the name is approved by the Registrar, it will automatically been reserved for three months, In the meantime, the
company need to submit the necessary documents required for incorporation process.
APPLICATION FOR INCORPORATION

The requirement for incorporation process stated in Section 14 of Companies Act 2016.

• A person who desires to form a company shall apply for incorporation to the Registrar.

• A company shall not be formed for any unlawful purpose.

• The application for incorporation under this section shall include a statement by every person who desires to form a company
containing the following particulars:

• the name of the proposed company;

• the status of whether the company is private or public;

• the nature of business of the proposed company;

• the proposed address of the registered office of the proposed company;

• the name, identification, nationality and the ordinary place of residence of every person who is to be a member of the company
and, where any of these persons is a body corporate, the corporate name, place of incorporation, registration number and the
registered office of the body corporate;
• the name, identification, nationality and the principal place of residence of every person who is to be a director;

• the name, identification, nationality and the principal place of residence of the secretary, if any;

• in the case of a company limited by shares, the details of class and number of shares to be taken by a member;

• in the case of a company limited by guarantee, the amount up to which the member undertakes to contribute to the assets of the
company in the event of its being wound up; and

• any other information as the Registrar may require.

The application for incorporation shall be accompanied by a statement from each promoter or
director confirming—

• his consent to act as a promoter or to his appointment as a director, as the case may be;
and

• that he is not disqualified under this Act to act as a promoter or a director, as the case
may be.
EFFECTS OF INCORPORATION

Under Section 18 CA 2016 also explain the effects of incorporation to the company are as follows:

• there shall be a company by name and registration number

• Every person whose name is as a member in the application shall be entered as members in the
register of members.
• In case of company having share capital, the person whose name is stated in application shall become
the shareholders/members of the company from time to time.
• The details of registered office
• The appointment of director/ secretary whose name is in the statement shall be deemed to be
appointed in the office.

In addition, once a company is incorporated under the CA 2016, Section 20 CA 2016 stipulates that it is a
body corporate and it has legal
• legal personality separate from that of its members; and
• Continue in existence until it is removed from the register.
This means that the members may come and go, but the company continue to exist unless the
name is removed from the Registrar through a process of winding up or its deregistered by the
Registrar.

Further, Section 21 CA 2016 discuss the unlimited capacity of the company. With this provision
available, the corporate body has full capacity to act and exercise powers like natural person,
despite being an artificially created person. The company has full capacity to undertake any
business activities as long as it is not contravening with section 14(2) CA 2016 which is
company shall not form for any unlawful purpose.

The legal concept of unlimited capacity by a separate legal personality has been introduced into
Malaysian companies’ legislation and going to court to determine the validity of acts by a
company in relation to its object clause is no longer required.

The company is not limited by any object clause and this new position of the law
obviates(remove) the need of external party to verify whether the company has capacity to enter
into a particular transaction.
NOTICE OF REGISTRATION (NOR)

Section 15 CA 2016 If the Registrar is satisfied that the requirements of this Act as to the application for
incorporation are complied with and upon payment of the prescribed fee, the Registrar shall—
• enter the particulars of the company in the register;
• assign a registration number to the company as its company registration number; and
• issue a notice of registration in the form and manner as the Registrar may determine.

In addition, Section 19 CA 2016 also stated that Notice of registration is a conclusive evidence that company
has complied with all requirements needed by this Act and is duly registered under this Act.

 COMMENCEMENT OF BUSINESS

A private company now can begin with its business from the first date of its existence as stated in the notice
of registration. A company now can make borrowing to continue the business operations.
CONVERSION OF STATUS OF COMPANY

A. CONVERSION FROM AN UNLIMITED COMPANY TO A LIMITED COMPANY

An unlimited company may be converted to a limited company. The necessary requirements for such conversion as
stipulated under Section 40 CA 2016 are :

(1) unlimited company may convert to a limited company by acquiring members’ approval on a *special resolution duly
passed at a general meeting. Then a notice for conversion and an appropriate alteration of its name duly specified shall
be lodged with the Registrar within the statutory period (sec 28(2) and sec 609). .
 * special resolution requires 21 days of notice and passed by majority of not less 3/4 or 75% of members who attend and
vote at the meeting (sec 292)
#appropriate alteration means the name could add the word `limited’ by shares

(2) upon the lodgement of the notice of conversion, the Registrar shall:
• make such endorsement in or alterations to the register to record the conversion.
• issue to the company a notice of conversion and cancel the previous notice of registration or certificate of
incorporation, as the case may be.

(3) The conversion of the company shall take effect on the issue of the notice of conversion as stated in section 40(4) CA
2016.
EFFECT OF CONVERSION-Section 40(5) & (6) CA 2016

The conversion of the company shall not affect the identity of the company or any rights or obligations of
the company.

Render defective any legal proceedings by or against the company.

Any legal proceeding that could have been continued or commenced by or against the company prior the
conversion be continued or commenced by or against the company after conversion.

The company now becomes a limited company by which the liability of its member is limited by the amount
of shares subscribed/issued or allotted.
B. CONVERSION FROM PUBLIC COMPANY TO PRIVATE COMPANY

 A public company may convert to a private company. The necessary requirements for such conversion as
stipulated under Section 41 CA 2016 are:.

(1) a company may convert to a private company by first getting members’ approval on a special resolution
duly passed at the company’s general meeting. Then a notice of conversion and an appropriate alteration
to its name duly specified shall be lodged with the Registrar within the statutory period (sec 28(2) and sec
609).

 Section 41(3)-upon lodgement of the notice for conversion, the Registrar shall:
• make such endorsement in or alteration to the register to record such conversion
• Issue to the company the notice of conversion and cancel the previous notice of registration.

 The conversion shall take effect on the issue of the notice of conversion as stipulated under Section
41(4).
EFFECT OF CONVERSION-Section 41(5) & (6)

Section 41(5)-A conversion of a company under this section shall not:

• affect the identity of the company or any rights or obligations of the company.
• Render defective any legal proceeding by/against company.

Section 41(6)-Any legal proceeding that could have been continued or commenced by or against the company prior to
the conversion may, notwithstanding any change in the company’s name or capacity in consequences of the conversion,
be continued or commenced by or against the company after conversion.
• The following restrictions and prohibitions shall be applied to to the private company limited by shares after
conversion: The maximum number of shareholders/members is fifty (50)-Section 42(1) CA 2016
• Restriction to transfer Shares-Section 42(2) CA 2016
• Prohibition to offer to the public any shares or debentures of the Company-Section 43(1) (a) CA 2016
• Allot or agree to allot any shares or debenture of the company with a view to offer such securities to the Public-
Section 43(1) (b) CA 2016
• Invite public to deposit money with the company for fixed periods or payable at call, whether bearing or not
bearing interest. -Section 43(1) (c) CA 2016
C. CONVERSION FROM PRIVATE COMPANY TO PUBLIC COMPANY

A private company may convert to public company. The necessary requirements for such conversion as stipulated under
Section 41 CA 2016 are by getting company’s approval on a special resolution duly passed at a meeting of members.

Then, the following shall be lodged with the Registrar within statutory period (sec 609)

• a notice for conversion and specifying an appropriate alteration to its name

• A statement in lieu prospectus
• A statutory declaration verifying that paragraph *190(2) (b) has been complied with.

* Section 190(2) (b) stated that a public company having share capital has not issued a prospectus inviting the public to
subscribe for its shares or has not issued prospectus under the Capital Market and Service Act 2007, the company shall be
entitled to commence any business or exercise any borrowing power if every director of the company has paid to the
company on each of shares taken.
Section 41(3)-upon lodgement of the notice for conversion, the Registrar shall:

• make such endorsement in or alteration to the register to record such conversion

• Issue to the company the notice of conversion and cancel the previous notice of registration.

The conversion shall take effect on the issue of the notice of conversion as stipulated under Section 41(4).
EFFECT OF CONVERSION-Section 41(5) & (6)

 Section 41(5)-A conversion of a company under this section shall not-

• affect the identity of the company or any rights or obligations of the company.

• Render defective any legal proceeding by/against company.

Section 41(6)-Any legal proceeding that could have been continued or commenced by or against the
company prior to the conversion may, notwithstanding any change in the company’s name or capacity in
consequences of the conversion, be continued or commenced by or against the company after conversion.
THANK YOU