What Is a Company Limited by Shares?
A company limited by shares is a business whose capital is divided into small units called shares. A person who buys shares becomes a shareholder and part-owner of the company. The company is registered with the Companies Commission of Malaysia (SSM) under the Companies Act 2016 and exists as a separate legal entity from its owners.
Main Features
- Limited liability — a shareholder is liable only up to the amount of shares subscribed.
- Separate legal entity — the company can own property, sign contracts and be sued in its own name.
- Perpetual succession — the death or withdrawal of a shareholder does not end the company.
- Managed by a Board of Directors appointed by the shareholders.
Key idea
Shareholders own the company, but their liability is limited to the value of shares held. Their personal assets cannot be taken to settle the company's debts.
Sdn. Bhd. Versus Bhd.
A Sendirian Berhad (Sdn. Bhd.) is a private company: membership is limited to between 1 and 50 people, share transfers are restricted, and it cannot invite the public to buy shares. A Berhad (Bhd.) is a public company that may invite the public to subscribe for shares and can be listed on Bursa Malaysia.
| Feature | Sdn. Bhd. | Bhd. |
| Members | 1 – 50 | Minimum 1 |
| Invite public | Not allowed | Allowed |
| Share transfer | Restricted | Free |
Example
Ms Aisyah and three friends form Delima Sdn. Bhd. by registering with SSM. When the company owes RM80,000 but can only pay RM50,000, the shareholders need not pay the remaining RM30,000 from their own pockets because their liability is limited.
The advantages of a limited company are that capital is easy to raise and liability is limited, but it is closely regulated by law and its profit is taxed as corporate tax by LHDN.
Difference from a Sole Proprietorship
Unlike a sole proprietorship or a partnership, the owners of a limited company do not manage the business day to day. Ownership and management are separate: shareholders own the company while directors run it. Shares are also transferable, so a person can become an owner simply by buying shares without joining the management. Because it exists as a separate entity, the company must follow the Companies Act 2016, keep proper accounting records and file annual financial statements with SSM. This strict regulation protects both the shareholders and the public who deal with the company.
Remember
A Sdn. Bhd. cannot invite the public to buy shares; only a Bhd. (public) company may do so and be listed on Bursa Malaysia.