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Topic 1: MEMBERSHIP AND MEMBERS RIGHTS

(Part 1)

1.1. OVERVIEW

• It is crucial to determine who the member of the company is.

• Only members shall have rights to vote at the meetings or receive
dividends.
• In cases of unlimited company, company limited by guarantee or
members having unpaid share in a company limited by share, if the
company is wound up, members shall be liable to contribute towards
payment of the company’s debts.
• Who is a member? – S. 2(1) CA 2016

“member” means—
(a) in the case of a company limited by shares, a person whose name is
entered in the register of members as the holder for the time being of one or
more shares in the company; or
(b) in the case of a company limited by guarantee, a person whose name is
entered in the register of members;

• Generally, members of company refers to: Those person, including

corporations, if any, who collectively constitute the company : Re
Barned’s Banking, ex p Contract Corp [1867] 3 Ch 105
• Who can become member? - S. 14(3)(e) CA 2016 : Natural person & a
body corporate
• What is a ‘body corporate’? – S. 3 CA 2016

1.2. MEMBERS OF A COMPANY

1.2.1. What makes a person become member of a company?

• S. 50(1) CA 2016 : requirement of a company to keep a register of its

members and record in the register.
• S 50(3) CA 2016 : prima facie evidence of being a member
• S 50(4) CA 2016 : effect of contravention
• Whether shareholder = company member?

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• Cases:
o Ming Yueh Holdings S/B v Kong Ming Bank Bhd [1990] 1 MLJ
374
o Raja Kamarulzaman Shah v Zaman Indah s/B [1979] 2 MLJ181

1.2.2. Who cannot be a member?

• S 123(1) CA 2016: Only a public listed company may purchase its own
share, but it will be subject to several conditions.
• S 22(1) CA 2016: a subsidiary cannot become member of its holding
company.
• S 22(4) CA 2016: cases where the subsidiary is a member if its holding
company prior to it become a subsidiary.

1.2.3. How to become a member of a company?

• Basically, there are 4 ways of becoming a company member:

a. upon the company’s incorporation
b. via allotment of shares
c. purchase & transfer of shares
d. transmission of shares

a. upon the company’s incorporation

• S 18(2) CA 2016:
Every person whose name is stated as a member in the application for
incorporation and on the incorporation of the company shall be entered
as members in the register of members, together with such other persons
who may become members of the company from time to time, are a body
corporate by the name stated in the notice of registration.

b. via allotment of shares

• Shares in a company are allotted when a person acquires the

unconditional right to be included in the register of members in respect
of those shares. The subsequent issue of those shares is when the name
of the person to whom the shares have been allotted is entered on the

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PREPARED BY DARINA JOHARI, FOL, MMU, MELAKA© TRI 2, 1718
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register of members of the company in respect of them. Allotment creates

a right for a person to be registered as a member of a company, but only
once a share has been issued can that person exercise his rights as a
member.
• S 77 CA 2016 : Registration of allotment in the register of members

c. purchase & transfer of shares

• A person may purchase the company’s share from an allottee of the

shares or any person who is holding those shares.
• Transfer of shares is a transaction resulting in a change of share
ownership. A shareholder, whether in public or private company, has a
property in his share which he has a right to dispose of, subject only to
any express restriction which may be found in the company’s
constitution.
• S 105(1), (3) CA 2016 : Requirement for instrument of transfer
• S 106(1) CA 2016 : Registration / refusal of transfer

d. transmission of shares

• Transmission is an automatic process; when a shareholder dies, his

shares immediately pass to the personal representatives or, if a member
is declared bankrupt, their shares will be transmitted to the Director
General of Insolvency.
• Transmission completes when the name of the representative (in case of
death) or the name of the DG of Insolvency (in case of bankruptcy) is
entered in the company’s register of members.
• S 109 CA 2016 : procedure

CONCLUSION:
• All the above means to become member of a company requires the name
of such person to be entered into the register of members : s 101 CA
2016
• S 97 CA 2016 : Issuance of share certificate is no more a prima facie
evidence on the person’s membership of the company as what was the
principle under the previous 1965 Act.

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• The company secretary has the duty to ensure that the register of
members is properly kept and maintained regularly, and all the
particulars of issuance and transfer of shares are entered into the
register accordingly. : S 102 CA 2016

1.3. REGISTERS

• There are 2 important registers pertaining to members:

o Register of members
o Register of substantial shareholders.

1.3.1. Register of members

• S 50 CA 2016 : requirement of a company to have register of members

• Ways of becoming members of a company : [refer to 1.2.3 above]
• S 52 CA 2016 : companies having >50 members shall keep an index of
its registration of members.
• S 42 CA 2016 : Private companies shall have ≤50 members
• S 2(1) CA 2016 : Exempt private company shall have ≤20 members
• S 53 CA 2016 : A company may keep branch register of members in a
place outside Malaysia provided that notice is given to the ROC notifying
address of such place. Any change of such address must also be notified.
• S 51 CA 2016 : Any changes to the particulars in the register of members
shall be notified to the ROC (not applicable for listed companies).

1.3.2. Register of substantial shareholders

(Subdivision 7 of Division 1 Part III of the CA 2016 :
Ss 134 – 145 CA 2016)

• Who is a substantial shareholder?

o S 136(1) CA 2016 : a person who has …
▪ Interest in >5% of the voting shares of the company; or
▪ Interest in >5% of the voting shares in a class of shares (if
the company’s share capital is divided into two /more
classes of shares)
• Application of the subdivision: S 134 CA 2016
• The word ‘company’ in the subdivision refers only to those specified in S
134(2)(a-d) CA 2016

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• Obligation to comply with the subdivision : S 135(1) CA 2016

• Company’s obligation to keep and maintain the register of substantial
shareholders : S 144 CA 2016

• Substantial Shareholders’ Rules of Disclosure : Substantial shareholders

in a company shall give a written notice to the company in the following
situations:-

Substantial shareholder: Rule of Disclosure

Timeframe Other
Notice Section public
Other require- Forms
listed
company
company ment
Notice to notify the company of his 137 Copy of
notice to
interest be Form 29A
Notice to notify the company of any 138 extended of
3 days 5 days Companies
change in his interest to the
ROC Act 1965
Notice to notify the company if ceased 139 (S 141
to be a substantial shareholder CA 2016)

1.4. RIGHTS OF MEMBERS UNDER COMPANIES ACT

• One of the aims of the Companies Act 2016 is to strengthen

shareholders’ rights.
• Followings are the members’ rights enshrined under new CA 2016:

o a. Written resolution procedure for private companies

o b. Easier amendment to the constitution
o c. Easier convening of a shareholders’ meeting
o d. Directors’ fees and benefits payable, and service contracts
o e. Shareholders’ right to management review
o f. The demise of the common law derivative action

Thank You
UCL/UCO3622
PREPARED BY DARINA JOHARI, FOL, MMU, MELAKA© TRI 2, 1718