October 2016
by Karen Cheah Yee Lynn, Dayrion Yeoh, Jessie Cheong
A. Unlimited company to limited company
Under the current Companies Act 1965 (“1965 Act”) an unlimited company may convert to a limited company by passing a special resolution. This process continues to be maintained in the Companies Act 2016 (“2016 Act”).
- Conversion process
Unlimited companies are required to lodge a notice for conversion1 with the Registrar under the 2016 Act, instead of a copy of resolution pertaining to such conversion. The Registrar will then make endorsements in or alterations to the register to record the conversion and issue the company a notice of conversion2 as opposed to a certificate of incorporation. The conversion will take effect upon issuance of the notice of conversion3 and the constitution (if any) may be altered accordingly with the terms of the resolution4.
- Conversion not to affect a company
Consistent with the 1965 Act, the effect of conversion such as the identity of the company, will not be affected nor will any legal proceedings by or against the company be rendered defective but shall continue to subsist under the 2016 Act.
B. Private company to Public company by Registrar
The 2016 Act retains the requirement that private limited companies shall have no more than fifty shareholders5 and restricts the transfer of its shares6. However, the prohibitions on the offering of shares or debentures to the public and invitation to the public to deposit money with the company has been fine-tuned7, in that it specifies what constitutes an ‘offer to the public’ or otherwise.8
The Registrar is conferred the power to convert a private company to a public company if it determines that a company has ceased to be a private company. A company ceases to be a private company vis-à-vis when a private company ceases to restrict the transfer of its shares or ceases to have a share capital or has more than fifty shareholders9. The company will then be converted into a public company10. The conversion takes effect upon issuance of a notice of conversion by the Registrar. Consequently, this now public company can only re-convert to a private company with leave of Court.
It is a positive and encouraging trend to confer such powers on the Registrar as it allows for an efficient and smooth transition from a private company to a public company; otherwise such a process can be lengthier as a private company is required to pass a special resolution to this effect.
C. Public company to Private company
The conversion from a public company to a private company or vice versa also requires the passing of a special resolution11 and the lodgement of a notice for conversion12 with the Registrar rather than a copy of the special resolution. The 2016 Act retains two other obligations – to lodge a statement in lieu of prospectus and to lodge a prescribed statutory declaration with the Registrar for the conversion of private company to a public company.13 The conversion from public companies to private companies or vice versa, will take effect on the issuance of the notice of conversion14.
This material is for general information only and is not intended to provide legal advice. If you have any queries regarding the above, please feel free to contact us at insights@chooi.com.my.
1 Section 40(1) of the Companies Act 2016
2 Section 40(2) of the Companies Act 2016
3 Section 40(4) of the Companies Act 2016
4 Ibid
5 Section 42(1) of the Companies Act 2016
6 Section 42(2) of the Companies Act 2016
7 Section 43 of the Companies Act 2016
8 Section 44 of the Companies Act 2016
9 Section 42(4) of the Companies Act 2016
10 Section 42(5) of the Companies Act 2016
11 Section 41(1) and 41(2) of the Companies Act 2016
12 Ibid
13 Section 41(2)of the Companies Act 2016
14 Section 41(4) of the Companies ACT 2016