Private Limited Company

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Private Limited Company

In Malaysia, the most common type of limited companies is those limited by shares. These companies are incorporated and governed by the Companies Act, 1965. Companies limited by shares will carry “Sdn Bhd”, “Sendirian Berhad” behind their names according to Section 22(4) of the Act.

The meaning of private limited companies is that the liabilities of its members are limited to the amount of shares they hold in the company. For example, if Mr. Tan’s shares in a Sdn Bhd amounted to RM10,000.00, and he has fully paid for the shares, in general, he has no further liability with regards to the Sdn Bhd concerned.

private limited company can only be incorporated if its memorandum and articles:-

Advantages

The most obvious advantage is the liability "protection" to its shareholders, limited their exposures to the amount of share capital that they subscribed for. Any amount of debts beyond their shareholdings, they are not liable but provided there is no fraud or other malpractice.

Another advantage is the simplicity to transfer existing shares or issue additional shares to new investors. Existing member can transfer his shareholding, wholly or partially, through selling of his shares (subject to directors’ approval, which is). Unlike sole proprietors or partnerships, there is no need to wind up the company in the event of death of its shareholders or directors.

Disadvantages

Why are there still so many private limited companies being incorporated given the disadvantages?

As the business grows, revenue and business volume will increase. Customers will request for longer credit term and higher credit limit, hence an increased credit risk. In turn, the company will also request suppliers and bankers to extend their credit facilities, which means higher liabilities.

The limited liability "protection" given to the shareholders clearly outweighs all the operational and financial disadvantages listed above.

 

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