This is now replaced by the implementation of a constitution. Section 31
of the new Companies Act 2016 provides
that a company, other than a company
limited by guarantee, may or may not
have a constitution.
Thus, a private company in Malaysia
has an option whether to have a
constitution or not. Having said that,
however, once the company decides to
have a constitution, the company, each
of the directors and each of the members
shall be bound by the said constitution as
provided by Section 33( 1) of the new act.
On the other hand, in the event the
company does not have a constitution,
Section 33( 3) of the new act provides
that the company, each of the directors
and each of the members of the company
shall have the rights, power, duties and
obligations as set out in the new act.
Section 35( 1) further provides that
the contents of the constitution may
either be the objects of the company, the
right and powers of the company and
any other matter the company wishes to
include in the constitution.
It is important to note that, if the
company sets out the objects in its
constitution, by virtue of Section 35( 2)
(a) of the new act, the company will be
restricted from carrying on any business
or activity that is not within the objects
stipulated in the constitution.
Company Seal is Optional
Companies registered in Malaysia
can now choose whether to have their
common seals by virtue of Section 61 of
the new act. Besides, Section 66( 1) of
the new act states that a company may
execute any document either by affixing
its common seal or by way of signature.
Section 66( 2)(a) of the new act further
provides that the signature must be at
least by two authorized officers, one of
whom shall be a director.
By virtue of Section 66( 5) of the new
act, the term “authorized officers” means
a director of the company, a secretary
of the company or any other person
approved by the board of directors.
In the case of a sole director, Section
66( 2)(b) of the new act provides that the
director needs to execute the documents
in the presence of a witness who could
attest the signature.
Although it was announced that the new
Companies Act 2016 will come into
force in stages, it is just a matter of time
before it is fully enforced and effective.
Any existing company and the local
and foreign investors who might want
to incorporate a local company must be
prepared for the dawn of the new company
regulation regime in Malaysia.
1 Prof. Brian Broughman, Corporations Class, Maurer
School of Law, Indiana University Fall 2015.
2 Dennis J. Block, Nancy E. Barton and Stephen A.
Radin, The Business Judgment Rule: Fiduciary Duties
of Corporate Directors, FIFTH. ED. VOLUME II, 1380
(1998) (quoting Kamen v. Kemper Fin. Servs., Inc., 500
U.S. 90, 95 (1991), and Hawes v. City of Oakland, 104
U.S. 450, 453 (1881)).
3 ACT 222 OF 1995. ARTICLE 25. SOCIAL LIABILITY
4 Also known in comparative legal systems as direct
5 BILL PROJECT NO. 70 OF 2015. ARTICLE 32.
INDIVIDUAL LIABILITY ACTION. In those cases
in which it is aimed to correct the damages directly
suffered by an shareholders, partner or a third party by
reason of the manager’s actions, the affected persons
may demand their personal liability pursuant to article
16 of this law, through an individual action, provided
that said damages do not correspond to those that can
be requested through the derived action.
6 Also referred to as social or corporate action.
7 BILL PROJECT NO. 70 OF 2015. ARTICLE 26.
COLLECTIVE ACTION. In case of correcting the
harm suffered by the company as a consequence of the
managers’ actions, the company may demand, through
a collective action, their responsibility pursuant to the
provisions of article 16 of this law. In order to initiate
the collective action of responsibility, the authorization
of the general assembly of shareholders or partners
shall be obtained.
8 BILL PROJECT NO. 70 OF 2015. ARTICLE 27.
DERIVATIVE ACTION. Provided that the collective
action of responsibility has not been initiated, any
associate may petition for the derived action in order
to correct the damages suffered by the company as a
consequence of the managers’ actions. In these cases,
the action will be filed by the plaintiff in the name of
9 BILL PROJECT NO. 70 OF 2015. ARTICLE 28.
LEGITIMACY FOR FILING THE DERIVATIVE
ACTION. The plaintiff must have had the capacity as
associate when the facts or omissions that give rise
to the liability occurred or must have acquired said
capacity subsequently, by operation of the law, (…).
10 An example of these exemptions are: divorces,
bequests, inheritances, devise, legacy, among others.
11 BILL PROJECT NO. 70 OF 2015. ARTICLE 27.
DERIVATIVE ACTION. (…) The associates may file
the same action in case of avoiding the occurrence of
an imminent damage to the company.
12 BILL PROJECT NO. 70 OF 2015. ARTICLE 30.
LITIGATION COSTS IN DERIVATIVE ACTIONS.