Companies in Malaysia are governed by the provisions of the Companies Act 2016. Under Division 1 of Part V of the Companies Act 2016, a foreign company is prohibited from carrying on business in Malaysia unless it is registered as a foreign company. Alternatively, a foreign company may carry on its business by incorporating a local subsidiary company with the Companies Commission of Malaysia. It is important for a foreign company to understand the available options and choose the most suitable option to achieve its objectives in the context of its nature of business and industry.
This article will focus on the options available to a foreign company intending to expand its business reach and develop its market presence in Malaysia.
The term “foreign company” is defined under the Companies Act 2016 as either of the following:
(a) a company, corporation, society, association or other body incorporated outside Malaysia; or
(b) an unincorporated society, association or other body which under the law of its place of origin may sue or be sued, or hold property in the name of the secretary or other officer of the body or association duly appointed for that purpose and which does not have its head office or principal place of business in Malaysia.
Under Section 561(3) of the Companies Act 2016, the term “carrying on business” includes establishing or using a share transfer or share registration office or administering, managing or otherwise dealing with property situated in Malaysia as an agent, legal personal representative or trustee, whether by servants or agents or otherwise.
Registration of the Foreign Company as a Branch Office
Any foreign parent company intending to carry on business in Malaysia is required to register itself as a foreign company with the Companies Commission of Malaysia. A branch office is not a separate legal entity as it is an extension of the foreign parent company and must conduct the same business activities as the foreign parent company.
The following steps are a summary of the procedure to register a foreign company with the Companies Commission of Malaysia:
- A name search needs to be conducted at the Companies Commission of Malaysia to determine the availability of the proposed company name. In the case of a foreign company, the name should be the same as the name of the foreign parent company registered in its country of origin;
- Registration documents must be submitted to the Companies Commission of Malaysia within three months from the date on which the name search application was approved by the Companies Commission of Malaysia. Registration documents include:
- The particulars of every shareholder in Malaysia and, if any of these persons is a body corporate, the particulars of the body corporate;
- The particulars of every person who is appointed as a director of the foreign company in Malaysia;
- The list of its shareholders or members at the foreign parent company’s country of origin;
- In the case of a foreign parent company with share capital at its country of origin, the details of class and number of shares in the foreign parent company;
- In the case of a foreign parent company limited without share capital at its country of origin, the amount up to which the member undertakes to contribute to the assets of the foreign parent company in the event of winding up;
- A memorandum of appointment or power of attorney specifying the particulars of the person who is a resident in Malaysia to act as its agent together with a statement by the agent confirming his consent for such an appointment;
- A certified copy of the certificate of incorporation or registration of the foreign parent company;
- A certified copy of the foreign parent company’s memorandum and articles of association or other instrument defining its constitution;
- A copy of the application and reservation for the availability of the company name;
- A copy of the letter or email specifying the approval notification for the reservation of the company name; and
- Any other information and/or documents that the Registrar of Companies may require;
- There are registration fees payable towards each category of the authorised share capital of a foreign company, which are as follows:
- Upon compliance with the registration procedures of the Companies Act 2016 and the submission of the registration documents, the Companies Commission of Malaysia will issue the foreign company with a certificate of registration.
Establishing a Representative Office
A representative office is a non-trading entity that allows foreign parent companies within the manufacturing and services industry sector to explore business and market opportunities in Malaysia. A representative office helps the foreign parent company to determine whether Malaysia is suitable for the foreign parent company to establish its business. As it is a non-trading entity, a representative office is permitted to carry on research and development, business, promotional and liaison activities and must not carry on any form of activity that will result in actual commercial transactions.
In comparison to the registration documents for a branch office, the establishment of a representative office is not required to be incorporated under the Companies Act 2016 but requires prior approval by the Government of Malaysia.
Depending on the industry sector, the application and supporting documents are required to be submitted to either the (i) Malaysian Investment Development Authority (general application excluding banking, financial and tourism services), (ii) Bank Negara Malaysia (banking and financial services) or (iii) Ministry of Tourism, Malaysia (tourism services). The following are documents required to be submitted to the appropriate governing body:
- A duly completed application form specifying the purpose of establishment, activities of proposed office, benefits to Malaysia from the establishment of the proposed office, estimated cash flow of the proposed office, and the human resources arrangement for the proposed office;
- A certified copy of the foreign parent company’s certificate of incorporation;
- A certified copy of the foreign parent company’s business profile;
- A certified copy of the foreign parent company’s latest annual report and audited accounts of two years;
- A certified copy of the expatriate’s passport, educational certificates, resume and past employment testimonials or letters of appointment (if available);
- A certified copy of the applicant’s tenancy agreement for its business operations in Malaysia and
- A certified copy of the document setting out the detailed description of the duties to be performed by the applicant and activities and/or products of the foreign parent company.
Incorporation of a Local Subsidiary Company
A local subsidiary company of the foreign parent company can be incorporated in the form of a private limited company by shares, otherwise known as Sendirian Berhad (in short, “Sdn Bhd”) in Malaysia. A Sendirian Berhad is a separate legal entity from the foreign parent company and can conduct or carry on any and all business activities. As a separate legal entity, the Sendirian Berhad will be responsible for its own debts and liabilities incurred during the course of its business operations.
Shares in a Sendirian Berhad can be issued to individuals and bodies corporate. Although a Sendirian Berhad allows for 100% foreign ownership, the foreign parent company must be aware of regulations or requirements in certain strategic industries for a Sendirian Berhad to have a minimum local or Bumiputera equity, such as the oil and gas, telecommunications, water and electricity industries.
The requirements and procedure under the Companies Act 2016 to incorporate a Sendirian Berhad are as follows:
- A Sendirian Berhad shall have a minimum of one shareholder and one local director;
- A Sendirian Berhad shall have a minimum of a local qualified company secretary who is either a member of a professional body or licensed by the Companies Commission of Malaysia;
- A name search needs to be conducted at the Companies Commission of Malaysia to determine the availability of the proposed company name;
- Incorporation documents must be submitted to the Companies Commission of Malaysia within 30 days from the date on which the name search application was approved by the Companies Commission of Malaysia. Incorporation documents include a statement by every person who desires to incorporate the company with the following particulars
- The approved name of the proposed company;
- The private limited status of the proposed company;
- The nature of business of the proposed company;
- The proposed address of the registered office of the proposed company;
- The particulars of every shareholder of the proposed company and, if any of these persons is a body corporate, the particulars of the body corporate;
- The particulars of every person who is intended to be a director of the proposed company
- The details of class and number of shares to be taken by each shareholder;
- A statement from each director confirming his consent to his appointment as a director of the proposed company and that he is not disqualified under the Companies Act 2016 to act as a director; and
- Any other information and/or document that the Registrar of Companies may require; and
- Upon compliance with the incorporation procedure of the Companies Act 2016 and the submission of the incorporation documents, the Companies Commission of Malaysia will issue the Sendirian Berhad with a certificate of incorporation.
It must be highlighted that each and every company is advised to obtain any and all licences, permits or approvals from the relevant authorities that are required to commence business operations.
The Malaysian Government has traditionally been open to foreign direct investments, which have been, and will always be, an integral component of the country’s economic development. The manner in which a foreign parent company wants to establish its presence in Malaysia should take into account the various factors for its business expansion strategies, including its nature of business and the industry in which it intends to carry on business activities.
The registration of a foreign company as a branch office, the establishment of a representative office and the incorporation of a Sendirian Berhad all have their respective procedures and requirements, and it is important to comply with such procedures and requirements. Additionally, there are other regulatory equity requirements or prohibitions for certain industries.
Given these various procedures, requirements and prohibitions, we regularly advise foreign parent companies in their corporate expansion and structuring into Malaysia accordingly. Please reach out to us for a complimentary consultation if you wish to explore these options further.
By Tommy Wong