Sdn Bhd: An Overview under Malaysian Law

Sdn Bhd stands for Sendirian Berhad, a private limited company in Malaysia. Here are key points to understand about Sdn Bhd under the Companies Act 2016 (CA 2016):

1. Definition and Characteristics:

- Private Company: As per Section 2 of the CA 2016, a Sdn Bhd is defined as a private company.

- Limited Liability: The shareholders' liability is limited to the amount unpaid on their shares.

- Shareholder Restrictions: It restricts the right to transfer its shares and limits the number of shareholders to fifty (Section 42).

2. Formation and Incorporation:

- Essential Requirements: To incorporate a Sdn Bhd, it must have at least one director and one shareholder who can be the same person (Section 196).

- Incorporation Process: The process involves submitting an application to the Companies Commission of Malaysia (CCM) along with the company's constitution if it chooses to have one (Sections 14-15).

3. Company Constitution:

- Adoption: A Sdn Bhd may adopt a constitution, but it is not mandatory (Section 32).

- Contents: If adopted, the constitution can outline the company’s objects, powers, share structures, governance, and other internal regulations (Section 35).

- Modification: The constitution can be altered or amended by a special resolution of the shareholders (Section 36)【6†source】【7†source】.

4. Corporate Governance:

- Directors and Officers: A Sdn Bhd must have at least one director who ordinarily resides in Malaysia (Section 196). The board's proceedings and directors' duties are outlined in Divisions 2 and 3 of Part III.

- Meetings: The CA 2016 allows flexibility in holding meetings using modern communication technology, which can be specified in the constitution (Section 327).

5. Shares and Share Capital:

- Types of Shares: Sdn Bhd can issue different classes of shares, including preference shares if specified in the constitution (Sections 69-72).

- Share Transfers: Transfer of shares is typically restricted and must be done in accordance with the company's constitution or shareholders' agreement (Section 105).

6. Protection of Minority Shareholders:

- Rights and Remedies: Minority shareholders have specific rights and remedies under the CA 2016, including the right to apply to the court for relief in cases of oppression (Section 346).

7. Compliance and Reporting:

- Annual Returns and Financial Statements: Sdn Bhd must file annual returns and financial statements with the CCM (Sections 68 and 259).

- Auditors: Appointment of auditors is mandatory unless the company qualifies for audit exemption (Sections 267-271).

Importance of a Company Constitution

While not mandatory, having a well-drafted constitution offers several benefits:

- Customization: Tailors internal governance to the company's specific needs.

- Clarity: Clearly defines roles, responsibilities, and decision-making processes.

- Flexibility: Provides mechanisms for managing share classes, shareholder rights, and board procedures.

- Credibility: Enhances the company's credibility with external stakeholders by demonstrating commitment to good governance practices.

In conclusion, incorporating a Sdn Bhd provides limited liability protection and allows for flexibility in governance and operations. Adopting a constitution, though optional, can provide significant benefits by clearly outlining the company’s internal rules and procedures.