Companies Commission of Malaysia issues new Guidelines on Company Limited by Guarantee

The Companies Commission of Malaysia (‘CCM’) issued a set of new Guidelines on Company Limited by Guarantee dated 27 September 2021 (‘2021 Guidelines’) that took effect on the same day.
We highlight the main changes introduced by the 2021 Guidelines.
Paragraph 38 of the 2021 Guidelines states that the Guidelines on Company Limited by Guarantee issued on 31 January 2017 (‘2017 Guidelines’) are revoked. In our respectful opinion, the CCM has erred in referring to the 2017 Guidelines as the 2017 Guidelines had already been revoked when the Guidelines on Company Limited by Guarantee were issued on 8 January 2019 (‘2019 Guidelines’).1
In the circumstances, we will compare the 2021 Guidelines to the 2019 Guidelines rather than the 2017 Guidelines.2
Foreign companies
A foreign company limited by guarantee or any foreign company that carries out any of the objects set out in paragraph 5 of the 2021 Guidelines (‘prescribed objects’) must be incorporated as a new company limited by guarantee (‘CLBG’) under the Companies Act 2016 (‘the Act’). Based on this policy decision, the Registrar of Companies (‘Registrar’) will no longer allow a foreign CLBG or a foreign company that carries out any of the prescribed objects to be registered under the Act.
The prescribed objects are: (a) providing recreation or amusement; or (b) promoting any of the following activities, namely commerce and industry, art, science, religion, charity, pension or superannuation schemes, or other objects useful for the community or country such as environment, health, education, research, social or sports.
According to the 2021 Guidelines, the rationale for this decision is two-fold. First, it ensures that all entities carrying out any of the prescribed objects will be subjected to the same requirements and procedures as set out in the 2021 Guidelines. Second, that “[t]his is also in view of the vulnerability faced by such sector relating to the potential risks on money laundering and terrorism financing activities.”
Services of company secretary
The CCM has advised that the incorporation of a CLBG be carried out through a company secretary.
Requirements relating to founder/promoter
The expression ‘founder’ in the 2019 Guidelines has been replaced by ‘promoter (founder member)’ in the 2021 Guidelines.
Paragraph 9 of the 2019 Guidelines sets out three items to be considered by the Registrar in determining whether a person is fit and proper to be a founder (now referred to as promoter under the 2021 Guidelines) or director of a CLBG. The 2021 Guidelines clarify in paragraph 11 that these three items do not limit the discretion conferred on the Registrar for the purposes of making such a determination.
Constitution of CLBG upon incorporation 
For the purposes of incorporation, the 2021 Guidelines impose a mandatory obligation on a CLBG to adopt Part A of the model constitution prepared by the Registrar for a CLBG.
Part A of the model constitution, among others, sets out: (a) the objects and powers of a CLBG; (b) the requirement for a board of trustees or directors or members of a council to manage the affairs of a CLBG; (c) the restrictions on use of the profits, income and property of a CLBG; (d) the restrictions against amendments to the constitution and appointment of a trustee, director or council member of a CLBG; (e) the consequences of winding up of a CLBG; and (f) the obligations to maintain true accounts, appoint approved auditors to examine the accounts at least once in every calendar year, and the right and limitations imposed on members to inspect the same.
Segmental Reporting
The provisions relating to segmental reporting have been clarified in the following respects: 

  1. Any doubt on whether the obligation of a CLBG to maintain details of funds, donations and contributions given to, or received from, any party is mandatory has been removed with the substitution of the phrase ‘should’ in paragraph 16 of the 2019 Guidelines with ‘must’ in paragraph 18 of the 2021 Guidelines; and 

  2. The Registrar’s right under paragraph 20 of the 2021 Guidelines to require a CLBG to submit the Financial Information Form (Borang Maklumat Kewangan – BMK) to the CCM is exercisable any time during a year and not only on an annual basis as suggested in paragraph 18 of the 2019 Guidelines. 
General requirements
The 2019 Guidelines required a CLBG to ensure that its members or directors do not use the CLBG or its financial resources to conduct any form of political or unlawful activities. This has been replaced under the 2021 Guidelines with a wider requirement that a CLBG must ensure that its financial resources are utilised solely for the purposes of carrying out its objects.
General prohibitions
A new provision is introduced in the 2021 Guidelines to prohibit a CLBG from paying any fees, salaries and fixed allowances to its directors that relate to prior financial years unless: 

  1. the prior approval of the Registrar is obtained; 

  2. the CLBG has been incorporated for at least three years; 

  3. the fees, salaries and fixed allowances payable must have been provided for in those financial years and do not relate to the initial three financial years from the incorporation date; 

  4. the total amount payable must not exceed 30% of the total assets of the CLBG before the payment is made; and 

  5. the CLBG will be solvent3 immediately after the payment is made.                       
 The prohibition against a CLBG (other than a CLBG with the word ‘Berhad’ or ‘Bhd’ incorporated prior to 31 January 2017 where its existing constitution does not contain similar restrictions) incorporating or holding any subsidiary without prior approval of the Registrar, has been relaxed to allow a CLBG without the word ‘Berhad’ or ‘Bhd’ to incorporate or hold a subsidiary where the terms and conditions of its licence does not impose such restriction.
Licence to omit the word ‘Berhad’ or ‘Bhd’ under section 45(3) of the Act
New incorporation
The 2021 Guidelines make it clear that a newly incorporated CLBG may apply to omit the word ‘Berhad’ or ‘Bhd’ from its name.4 For this purpose, a CLBG must have an initial fund of RM1 million. According to the 2021 Guidelines, this amount is to ensure that the CLBG is able to carry out its objectives as soon as it is incorporated.5 The 2021 Guidelines also contain a provision that expressly prohibits any exemption being granted to the RM1 million requirement.
As in the 2019 Guidelines, a CLBG is required to obtain the contribution in cash which has been pledged by potential contributors within six months after its incorporation.
Existing CLBG
An existing CLBG which has been incorporated for at least two years may apply to omit the word ‘Berhad’ or ‘Bhd’ from its name provided it has cash of RM1 million in the bank account of the latest financial statement. The time frame has been reduced from three years under the 2019 Guidelines.
Use of checklists
Whereas the 2019 Guidelines suggest that Checklists 1 to 8 are provided for ‘ease of reference’, the 2021 Guidelines state that the said checklists form part of the application documents when lodging an application under the Guidelines.
A statement in the 2019 Guidelines that the Registrar may, where necessary, liaise with the Inland Revenue Board when processing any application has been omitted from the 2021 Guidelines. 
Although several of the changes introduced by the 2021 Guidelines have eased certain requirements applicable to a CLBG or clarified the provisions of the 2019 Guidelines, the majority of the changes appear to have tightened the regulatory regime to which a CLBG is subject.
Article by Kok Chee Kheong (Partner) and Vanessa Ho (Associate) of the Corporate Practice of Skrine.

1 Refer to paragraph 36 of the 2019 Guidelines.
2 Based on an informal enquiry, an officer of the CLBG Division of the CCM advised that they take the view that both the 2017 Guidelines and the 2019 Guidelines have been revoked by the 2021 Guidelines.
3 The 2021 Guidelines provide that the CLBG is regarded as solvent if it is able to pay its debts as and when the debts become due within 12 months immediately after the payment is made.
4 Though by no means clear, the 2019 Guidelines appear to suggest that a CLBG may only apply to omit the word ‘Berhad’ or ‘Bhd’ after it has been incorporated for three years.
5 According to the 2021 Guidelines, the RM1 million fund is expected to sustain a CLBG’s operations for the first two years without the threat of the CLBG being wound up at its early stage of formation.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact