Compliance is a cornerstone of corporate governance that is a crucial aspect of maintaining the integrity and reputation of a company. The Companies Act 2016 (“the Act”) serves as the primary legislation governing companies in Malaysia, it outlines numerous compliance requirements that company must adhere to. Understanding these requirements is essential for company directors and officers, as failure to comply can result in severe penalties and legal repercussions.
This article provides an overview of the general compliance requirements under the Companies Act 2016, highlighting key provisions that every business should be aware of in maintaining legal and regulatory compliance.
Publication of Name
Section 30(2) of the Act requires the company to disclose its registered name and company registration number on its business letters, official publications, websites and various forms of business correspondence and documentation.
The Companies Commission of Malaysia (CCM) in 2019 introduced a new 12-digit company registration number system. Companies incorporated under the Act, as well as those registered prior to the introduction of the new system, are required to adopt this new 12-digit registration number in all official documents, including website. Companies that fail to adopt and use the new 12-digit company registration number may face administrative penalties, fines or other enforcement actions by the CCM.
In 2021, a company was fined RM5,000 by CCM for violating Section 30(1)(b) of the Act due to failure to publish the company registration number on its website.
Section 30(2) of the Act further provides that where a company changed its name, the former name of the company shall appear beneath its present registered name for a period of not less than 12 months from the date of the change. The company and every officer who contravene this section commit an offence.
Annual General Meeting
Section 340 (1) and (2) of the Act provide that every public company (whether listed or unlisted) shall hold an annual general meeting in every calendar year within 6 months of the company’s financial year end and not more than 15 months after the last preceding annual general meeting. The company and every officer who contravene this section commit an offence and shall, on conviction, be liable to a fine not exceeding RM20,000.
Duty to circulate copies of financial statements and reports
Section 257 and 258 of the Act provide that every company shall send a copy of its financial statements and reports for each financial year to every member of the company within 6 months of its financial year end (for a private company) or at least 21 days before the date of its annual general meeting (for a public company).
The company and every officer who contravene this section commit an offence and shall, on conviction, be liable to a fine not exceeding RM50,000 and, in the case of a continuing offence, to a further fine not exceeding RM500 for each day during which the offence continues after conviction.
In 2014, the Sessions Court convicted 3 companies and 8 directors for committing 76 counts of offences under the Companies Act 1965. They were convicted after pleaded guilty for offences relating to failure to hold AGM, failure to table the audited accounts at the AGM within the required period and failure to lodge the Annual Return of the companies. The Sessions Court sentenced them to a total fine of RM42,700.00, in default 3 months imprisonment for the said offences.
Duty to Lodge Financial Statements and Reports
Section 259(1) of the Act provides that a company shall lodge with the Registrar for each financial year the financial statements and reports within 30 days from the financial statements and reports are circulated to its members (in the case of a private company) or within 30 days from its annual general meeting (in the case of a public company).
Every officer who contravenes this section commits an offence and shall, on conviction, be liable to a fine not exceeding RM50,000 and, in the case of a continuing offence, to a further fine not exceeding RM1,000 for each day during which the offence continues after conviction.
In 2021, a shareholder initiated an action to strike off the company from the register under Section 551(1) of the Companies Act 2016 primarily due to the failure of the company to lodge its annual returns and audited financial statements. The company and its directors have failed to execute their responsibilities as officers of the company and failed to practise good corporate governance, the company was struck off from the register. The directors of the company were fined RM5,000 by the CCM due to the failure of the company to lodge its financial statements.
The Companies Act 2016 serves as the legal framework for the directors and officers to ensure corporate governance. By understanding and adhering to these requirements, companies can mitigate legal risks and foster a culture of transparency and accountability which are critical elements in fostering sustainable growth and maintaining stakeholder confidence.
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