This article is first in a series entitled A New Corporate Landscape: Key Changes under the Companies Bill 2015 that our clients should know about.
Background to the Companies Bill 2015
CCLC’s clients have no doubt seen the headlines and heard much spoken of the impending changes under the Companies Bill 2015. The Bill has been passed by both houses of parliament and it is only a matter of time before it comes into force on a date to be notified in the Gazette.
The Companies Bill 2015 intends to reform the Malaysian corporate legal framework by replacing the outdated Companies Act 1965. Amongst the key aims of the Bill are to increase the ease of doing business, and to increase legal and corporate governance.
Yes, the new Bill is a big deal and the changes significant – but what exactly are the changes sought to be made and what does it mean for you? We break it down for you in this series of articles, and what better place to start then at the very beginning – Incorporating a Company.
Key Change 1: Only a single director/ shareholder now needed for incorporation
Under the present provisions of the Companies Act 1965, two or more shareholders, and two or more directors who are resident, are required to incorporate a company. This requirement is reduced under the new Act (note: “new Act” refers to the Companies Act once the Bill comes into force and replaces the existing Companies Act), to just one shareholder and one resident director required for incorporation.
Key Change 2: Memorandum and Articles of Association replaced by an optional Constitution
Under the new Act, there will no longer be a Memorandum and Articles of Association (MAA) for a company, but instead, this is replaced by a Constitution. Unlike the MAA, the Constitution is optional (except for a company limited by guarantee which shall have a constitution) and a company may choose to have a Constitution that sets out its objects, capacity, rights, powers and privileges of its directors and members. The provisions of the new Act continue to govern companies who do not adopt a Constitution. The Constitution can be amended, and any contravention of the new Act will not be effective to that extent.
Key Change 3: Companies can now choose to have unlimited capacity
The present Companies Act does not allow companies to carry out businesses that are beyond the scope of its object clauses as stated in its MAA. Under the new Act as amended by the Bill, a company upon incorporation has the full capacity to carry on or undertake any business or activity or do any lawful act or enter into transactions. If the Company chooses not to adopt the Constitution, it would continue to have such full capacity. However if it adopts a Constitution and sets out there the objects of the company, it can likely only carry out activities within that scope.
What do the Incorporation Key Changes mean for you?
The changes to the requirements relating to incorporation by the Bill makes it much easier for you to start a company as a vehicle to carry out your business. Just a sole person can form a company and be both director and member. Not decided yet the extent or scope of business your new company will take on, or there is a real possibility of expanding into other lines of business in future? You can choose not to adopt the Constitution or specify the objects, and to remain flexible. This is more convenient than having to amend inconsistent object clauses. Note though that for existing companies at the time the new Act comes into force, the existing MAA will be deemed to be the Constitution.
As can be seen, the key changes to the process of incorporation are in line with the Bill’s objective of encouraging and easing the conduct of business.
In the next issue of The Legal Link, we commence discussion on the Key Changes relating to the running and operation of a company.
CCLC Corporate and Commercial advises and supports clients on an extensive range of matters including in mergers and acquisitions, takeovers, security dealings, capital and fund raising, restructuring, joint ventures, financial instruments, and general regulatory issues and compliance.