Sunday, 5 February 2017

Posted by Muhammad Adam bin Roslan |
The new Companies Act 2016, which replace the old Companies Act 1965 has been passed in Parliament on 28th April 2016, then gazetted on 15th September 2016. According to the The Star Online (2017), the effective date of the first phase of the implementation of the new act was on 31st January 2016. I believe the readers will want to know what are the major changes may happen after the implementation date.

Here I want to share some of the information that I received during the briefing about Companies Act 2016 organized by my company which is Afrizan Tarimili Khairul Azhar (AFTAAS). Besides that, I have also make further research about the reaction from various parties regarding the implementation of the new act. But before that, I just want to remind that this article will not cover all areas as I just want to convey the messages in a simple way as all readers are not from the accounting background.
The purpose of the introduction of the new act is to facilitate incorporation and reduce cost of doing business, simplify the compliance, enhance internal control, governance and corporate responsibility and to provide flexibility in managing companies.

Areas of Change

        1. AGM for the private companies is optional

For private companies, the Annual Grand Meeting (AGM) will be not a mandatory for them. The financial statements should be circulated to shareholders within 6 months of financial year end and lodged to SSM within 30 days of the circulation. The communication among the members by using electronically form is allowed. However, for Public Companies, the AGM is still a mandatory.

         2.  No Par Value Regime

There will be no par value for the issuance of shares. The company can put any price to issue the shares. Therefore, there will be no share premium and also capital revaluation reserve (CRR). So, for the accounting students, you should aware about this. To report the amount and value of the shares under the new regime, there are two option. The first option is the company can capitalise the share premium and also the credit revaluation reserve. Kindly refer to the image captured below to understand on how the option can work.

    3.   No more authorised share capital

There will be no more authorised share capital. Therefore, the companies may issue unlimited number of shares. Previously, if they want to increase the number of authorised share, they need to pay some amount of money to the authority. The abolishment of authorised share capital will help to reduce their cost to run the business.

     4. Not all companies will be audited

In the previous Companies Act 1965, all companies are compulsory to be audited. However, in the new act, there is exception for the dormant and small companies. According to the Draft Practice Directive 1/2017, the small companies must be a private company and satisfy any two criteria for each two financial years which are:

       a)      Revenue is equal or less than RM300,000
       b)      Total asset is equal or less than RM500,000
       c)      At year end, the total number of employee is equal or less than 5 employees

    However, for small and dormant companies, they still need to lodge their financial statement.
     5.      Dividend

The divided is to be declared out of profits available. The regulation is same with the previous Companies Act 1965. However, under the new act, the dividend can be distributed only if the company is solvent immediately after the distribution. It means, after distribute the dividend, the company should has the ability to settle their obligation such as pay the creditors within 12 months of the distribution. Therefore, the management of the company need to assess the company’s ability carefully before declare the dividend. If the improper distribution happen, the company has the power to recover the dividend from shareholders, director, manager, or accountant (or any officer) who authorised the payment.

It means the creditor can claim their payment from the shareholder, director, manager, accountant or the officer who authorised the payment and they need to pay or settle the obligation by using their personal money. Not only that, the guilty person will be liable to imprisonment of 5 years and/fine for RM3 millions.

According to Nee (2017), the Companies Act 2017 will simplify incorporation procedures for companies and bring significant cost savings for businesses through the creation of a more business-friendly environment. I hope this article can help the readers to understand about the changes that will happen after the implementation of the new act. Please make further research to get more comprehensive information as it is important and gives impact to the education and also to the business sector.

Phase one of Companies Act 2016 comes into effect. (2017, February 1). The Star Online. Retrieved February 5, 2017, from

Nee, E. A. (2017, January 3). Companies Act 2016 – a game changer in 2017? The Sun Daily. Retrieved February 5, 2017, from

The author can be contacted through email: