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Understanding the Differences Between the Companies Act 1965 and Companies Act 2016

Introduction

In Malaysia, the Companies Act 2016 (CA 2016) represents a significant overhaul from the Companies Act 1965 (CA 1965). The new CA 2016, which came into effect on January 31, 2017, introduces modern regulatory practices and aims to simplify and enhance the ease of doing business.

This article highlights the key differences of CA 2016 compared to CA 1965.

Key Differences at a Glance

AspectCompanies Act 1965Companies Act 2016
Incorporation requirementsMinimum 2 shareholders and 2 directorsSingle shareholder and single director allowed
Company’s ConstitutionRequired Memorandum and Articles of Association (M&A)Constitution optional
Common SealMandatoryOptional
Share CertificatesMandatoryOptional
Annual General Meeting
(AGM)
Mandatory for all companiesOptional for Sdn. Bhd.
Business ActivitiesMust be specified in M&ANo need to specify, any lawful business allowed
Authorised Share CapitalRequiredAbolished
Par Value of SharesRequiredAbolished
Company’s Statutory DocumentsTedious and numerousSimplified and streamlined

5 Key Differences

1. Introduction of Single Shareholder/Director Company

The CA 2016 allows for the incorporation of a company with just one shareholder and one director. This is a major simplification compared to the CA 1965, which required a minimum of two shareholders and two directors. This change makes it easier for sole proprietors to transition to a corporate structure, promoting entrepreneurship and business formation.

2. Optional Compliance: Adoption of Constitution, Common Seal, Share Certificate and AGM

Under the CA 2016, companies are no longer required to adopt a Memorandum and Articles of Association (M&A), now referred to as the company’s constitution. Additionally, the use of a common seal share certificate is optional, and private companies is not required to hold Annual General Meetings (AGMs). These optional compliance measures reduce administrative burdens and provide companies with greater flexibility in their operations.

3. Flexibility to Carry On Any Business or Activity

The CA 2016 removes the requirement for companies to specify their business activities in their constitutions. This grants companies the flexibility to engage in any lawful business activity without the need to amend their constitutional documents, facilitating easier business expansion and adaptation to market changes.

4. Abolition of Authorised Share Capital and Par Value of Shares

The concept of authorised share capital and par value of shares has been abolished under the CA 2016. Companies can now issue shares without the constraints of a predetermined share capital amount, simplifying share issuance and allowing for greater financial flexibility.

5. Simplified Statutory Documents for Companies

The CA 2016 introduces simplified statutory documents, streamlining the incorporation process and ongoing compliance requirements. For example, instead of Form 24, 44 and 49 at the point of incorporation, under CA 2016, the 3 Forms will be summarised under one document with the name of section 14, Superform.

This simplification helps reduce administrative costs and makes it easier for businesses to maintain regulatory compliance.

For details on SSM forms changes, visit our article on SSM Form Name Change.

Conclusion

The Companies Act 2016 brings numerous benefits that streamline company formation, reduce administrative burdens, and provide greater flexibility for businesses in Malaysia. By understanding these key benefits, business owners, professionals, and investors can better navigate the corporate regulatory landscape and leverage the advantages offered by the new Act.

By incorporating these changes, the CA 2016 fosters a more dynamic and business-friendly environment, contributing to Malaysia’s economic growth and development.