• A company limited by shares
• A company limited by guarantees
• A company limited both by shares and guarantee
• An unlimited company

The Companies Act also provides for other ways of classifications, such as exempt private companies, etc.

Companies Limited by Shares

A "company limited by shares" means a company formed on the principle of having the liability of its members limited by the memorandum to the amount (if any) unpaid on the shares respectively held by them. Most companies in Malaysia are companies limited by shares.

In Ooregum Gold Mining Co of India Ltd v Roper (1892) AC 125, Lord Macnaughten described the usefulness of a company being limited by shares:

The provisions of the [Companies] Act are, I think, plain enough if one bears in mind the condition of things which existed before the principle of limited liability was introduced in 1855. Before that time there was no way known in the law by which persons trading in partnership could restrict their liability. They were liable to the uttermost farthing. At last the legislature intervened and authorised persons who proposed to trade in partnership to form themselves into a registered company with a declared capital and shares of a fixed amount, and then limited the liability of the partners as members of the company to the amount unpaid on their shares.

Thus when creditors give creditors to companies limited by shares, they are in theory giving credit to a fund made up of the amounts paid or payable by members for theirs. They do not have recourse against the members to an unlimited extent.

Companies Limited by Guarantee

The meaning of the term "company limited by guarantee" given in section 4 of the Companies Act is:

"a company formed on the principle of having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up."

A company limited by guarantee may be distinguished from a company limited by shares in that in respect of the former, a member is not required to pay in nay any capital while the company is in a going concern. If the company is wound up and its assets are not adequate to meet its liabilities, a member will be liable to pay the amount of the guarantee as specified in the memorandum of association. The amount may be made ascertainable by reference to a state of affairs existing when the company is wound up.

For example, in Re Bangor and North Mutual Marine Protection Association (1899) 2 Ch 593 where the company was formed for mutual insurance of ships belonging to its members, the amount to be contributed was 1 percent of the value of tonnage indemnified for the time being at 15 pounds per ton.

A member of a company limited by guarantee enjoys the limit on liability to the amount fixed. He is therefore in a better legal position than a member of an unlimited company.

Due to the fact that members of a company limited by guarantee are not liable to pay any capital before the commencement of a winding-up, the amount guaranteed is not an asset of the company. It is therefore decided in Re Irish Club Co. (1906) WN (Eng.) 127, that the amount guaranteed cannot be charged as it is not an asset of the company.

Section 14A of the Companies Act prohibits the registration of a company limited by guarantee with a share capital.

Companies Limited by Both Shares and Guarantee

It used to be possible for members to form a guarantee company with share capital. An existing company limited by guarantee could also convert to a company limited both by shares and by guarantee. The effect was that members would be liable to pay the issue price of their shares and to honour their guarantee if the company should be wound up. Guarantee companies with shares were rare. Indeed the Jenkins Committee were of the view that such companies should be abolished. Its rationale was that if a company was formed with the intention of making pro rata distributions of profits to its members, it was inappropriate that it should be able to register as a company limited by guarantee.

The Companies (Amendment) Act 1985 settled the issue by adding a new section 14A to the Companies Act, as /* mentioned above, which reads:

"On or after the coming into operation of this Act, no company may be formed as, or become, a company limited by guarantee with a share capital."

Unlimited Companies

The definition of an "unlimited company" given in section 4 of the Companies Act is:

"A company formed on the principle of having no limit placed on the liability of its members."

In other words, in the event of a winding-up of an unlimited company, its members may be made liable for its debts without limit on their liability.

An unlimited company is similar to other companies in that it is also a corporation. As such, it can hold property, sue and be sued as an entity separate from its members. The unlimited company can create a floating charge on its assets and can deal freely with its assets in the ordinary course of business.

Other Categories of Companies

The Companies Act also uses other different classifications for companies. These include:

1. Company Having a Share Capital

The definition of a company having a share capital is given under section 4 of the Companies Act as including "an unlimited company with a share capital." Thus, both limited and unlimited companies may be companies having a share capital.

2. Private and Public Companies

The term "private company" is defined in section 4 of the Companies Act as meaning:

• Any company which immediately prior to the commencement of this Act was a private company under the repealed written laws
• Any company converted into a private company pursuant to section 15
• Any company converted into a private company pursuant to section 26(1)

being a company which has not ceased to be a private company under section 26 or 27.

Section 15(1) of the Companies Act states that a company having a share capital may be incorporated as a private company if its memorandum or articles:

• restricts the right to transfer its shares
• limits to not more than 50 the number of its members
• prohibits any invitation to the public to subscribe for any share in or debentures of the company
• prohibits any invitation to the public to deposit money with the company for fixed periods or payable at call, whether bearing or not bearing interest

Section 4 of the Companies Act defines a "public company" as "a company other than a private company." Thus, companies which do not fall under the definition of a private company under section 15(1) of the Companies Act are public companies. Private companies greatly outnumber public companies.

3. Exempt Private Company

Section 4 of the Companies Act defines an "exempt private company" 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 20 members, none of whom is a corporation.

Therefore, the main characteristics of an exempt private company are:

• It is a private company
• None of its shareholders are corporations
• Its maximum number of shareholders is 20

The two biggest advantages of being an exempt private company are:

• Secrecy of financial affairs
• It is not prohibited from making loans to directors under section 133A of the Companies Act

4. Foreign Company

Section 4 of the Companies Act defines a "foreign company" as:

• A company, corporation, society, association or other body incorporated outside Malaysia, or
• An incorporated society, association or other body which under the law of its place of origin may sue or be sued, or hold property in the name of the secretary or other officer of the body or association duly appointed for that purpose and which does not have its head office or principal place of business in Malaysia

A body incorporated is identified with the law district in which its separate legal identity was granted. That place is its domicile. According to private international law, it is the law of the domicile of a body corporate which determines the effect of its formation and the rights, powers and duties of its members and directors. Nevertheless, certain provisions of the Companies Act relate to foreign companies, in particular sections 329 and 349.

One would understand the concept of foreign company better by breaking the definition of section 4 into two limbs:

• Any body corporate outside Malaysia
• An incorporated society, association or body duly appointed for that purpose and which does not have its head office or principal place of business in Malaysia

It relates to bodies which, thought not formally incorporated, are treated as legal entities capable of litigating or holding property through a representative.

5. Investment Company

Another type of company is an investment company. Section 319(1) of the Companies Act describes an "investment company" as:

"a corporation (not being a private company) for the time being declared by proclamation of the Yang Dipertuan Agung to be an investment company."

Section 319 to 328 of the Companies Act govern investment companies.

6. Holding, Subsidiary and Related Companies

Companies, like individuals, may be related. They are related if they have a holding-subsidiary relationship or if they share a common holding company. For a company (H) to be the holding company of another (S), one of the following conditions must be met:

• H controls the composition of the board of directors of S, or
• H controls more than half the voting power in S, or
• H holds more than half the voting of shares in S

If S has any subsidiaries of its own, these are also subsidiaries of H. Thus, a company may have several subsidiaries either directly or indirectly. If H is not itself a subsidiary of any other company, it is known as the ultimate holding company of the group.

A company may also be the subsidiary of more than one company. It may have an immediate holding company, which in turn may be the subsidiary of another company. In this case, S would be a subsidiary of its immediate holding company as well as the holding company of its holding company.

The holding-subsidiary relationship and related company status are important, because there are many rules that apply in the case of related companies which do not apply where there is no such relationship. For example, consolidated accounts have to be prepared for a holding company and its subsidiaries.

Legally speaking, a group consists of a holding company and its subsidiaries. In practice, one often refers to a "group" of companies which share a common controller. Such a group has no legal status as such. Similarly, one sometimes comes across "associated companies", i.e., those in which the "parent" has a substantial stake, but not enough to make them subsidiaries. Such associated companies may be significant for business purposes, but again they have no legal relationship.