Private companies limited by shares are frequently encountered legal entities in M&A transactions, whether as sellers, buyers or targets.

Understanding the requirements governing private limited companies is necessary when drafting shareholders’ agreements.

Some of the key requirements governing private limited companies:

1. The Companies Act 2016 (“CA”) mandates that a private limited company to have at least one director, one member and one company secretary.

2. A private limited company must have at least one resident director i.e. the director ordinarily resides in Malaysia by having a principal place of residence in Malaysia.

3. All directors must be natural persons and at least 18 years of age.

4. Save for a company having only one member, two members personally present at a general meeting or by proxy shall be a quorum unless a higher number is specified in the constitution (Section 328, CA).

In the case of a company with two members, a member may frustrate a general meeting by not attending the meeting personally or by proxy. There would be no quorum for the general meeting to proceed to business. In such instance, the member holding majority of voting shares can only pass resolutions by way of written resolution (save for reserved matters as agreed between the two members and the matters set out in paragraph 6 below).

5. The main venue of a meeting of members must be in Malaysia and the chairperson must be present at that main venue of the meeting (Section 327, CA).

This requirement may pose challenges for companies where all their members are non-residents, necessitating the use of written resolutions for passing members’ resolutions, unless restricted by the CA.

6. A resolution to remove a director or an auditor before expiration of his term of office cannot be passed through members’ written resolution and require a physical general meeting instead (Section 297(2), CA).

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This post first appeared on LinkedIn on 1 June 2023.