The Companies Act 2016 received Royal Assent on 31.8.2016 come into effect on 31 January 2017.With the introduction of this New Companies Act, shareholders have now been given a vital role in managing the company’s business despite company having its own directors.Company directors on the other hand are now loaded with heavy load, responsibility and obligation.It has also been announced that the Companies Commission of Malaysia intends to bring the Companies Act 2016 into force in stages. This will start from next year onward. I would imagine that the sections dealing with insolvency and the new corporate rescue mechanisms could be brought into force at the last stage. The priority may be to implement the new provisions on the incorporation of companies.
Where various radical changes has been introduced and crafted. It is another huge shift in how businesses will operation and administered. If you think GST is exciting, wait till you see Company Law. It is a total revamp!
In addition, with this new Act being in its firstly introduced in Malaysia after 13 years of preparation. There are surely various gaps created, this seminar will not only dissect and reveal the essential elements of this new Act in relation to shareholders and directors of companies, but also solutions to issues such as whether shares can now buy back or not to buy back, financing options, dividend issuance challenge, etc. understand also how Tax Efficiency and GST Optimisation can be achieved under this NEW corporate structure.
Single Shareholder and Single Director for Private Company
The current Section 36 of the Companies Act 1965 prohibits any company (other than a company whose issued shares are wholly owned by a holding company) from carrying a business with fewer than two shareholders for more than 6 months and Section 122 requires to have a minimum of 2 resident directors. The Act will allow private companies to have a single director and single shareholder (Section 9 and 196 (1) of the Act respectively). This will reduce business costs in general and will heighten the spirit of entrepreneurship.
Annual General Meeting (AGM) No Longer Required for Private Company
Under the Section 143 (1) of the Companies Act 1965, every company in Malaysia is required to hold an AGM once in every calendar year. The AGM for private companies will be abolished under the Act (Section 340 of the Act). However, appropriate safeguards are in place by allowing (not requiring) members representing at least 5% of the paid up capital of the company carrying the right of voting at meeting of the members of the company to call for meeting of members to be convened if more than 12 months has elapsed since the end of the last meeting of members convened (Section 311 (4) of the Act).
Reforming Share Buy-Back
The Companies Act 1965, Section 67A, currently allows a public company to purchase its own shares if the company is solvent at the date of purchase and will not be insolvent as a result of the buy-back, and the purchase is made in good faith and in the interests of the company. This requirement has been refined by Section 112 (2) of the Act by:
A. Generally, maintaining the existing requirements of Section 67A; and
B. Imposing a solvency test where a majority of the directors must make a solvency statement. This statement will state that the share buy-back would not result in the company being insolvent and its capital being impaired at the date of the solvency statement and the company will remain solvent after the buyback during the period of six months after the date of the declaration is made.
Director’s Fees and Benefits to be Fixed and Approved by Shareholders
The approval of directors’ fees is not covered explicitly under the current Companies Act 1965. Under common law, it is the shareholders of the company who have the authority to approve a directors’ fees. Section 230 of the Act requires a general meeting of shareholders to approve the fees and benefits of directors of a public company or of a listed company and its subsidiary. In the case of private companies, the Board may, subject to the constitution approve the fees of the directors, and any benefits payable to the directors including any compensation for loss of employment of a director or former director. Any such approval must be recorded in the Board minutes and the Board shall notify the shareholders of the approval of such fees within 14 days of the date of approval. Members holding at least 10% of the total voting rights, within 30 days after they have knowledge of such payments, may however require the company to pass a resolution to approve the payment either by way of a written resolution or at a general meeting. In addition, this Act also provides a statutory right to shareholders of public companies to inspect directors’ contracts of service under Section 232. This provision increases oversight and transparency over directors’ remunerations.
The above is a small snapshot of some of the things to look into under the Companies Act 2016. There will still be many more things for us to get used to and to fully understand in the months and even years to come.