Q&A on Company Law in Malaysia
1. What are the different kinds of legal entities available in Malaysia?
The business entities available in Malaysia are as follows:
i. Sole-proprietorship
- Sole proprietorships are governed by the Registration of Businesses Act 1956
- They are wholly owned by individuals and are registered with the Companies Commission of Malaysia (CCM) using personal or trade names
ii. Partnership
- Partnerships are governed by the Partnership Act 1961
- Owned by two or more persons, not exceeding 20 persons
- Have to be registered with CCM
iii. Limited Liability Partnership (LLP)
- LLPs are governed by the Limited Liability Partnerships Act 2012
iv. Limited Liability Company
- Companies are governed by the Companies Act 2016
- Limited by shares or by guarantee
- May be a private company or public company
2. What are the laws and regulations governing legal companies in Malaysia?
- There are two types of the Limited Liability Company in Malaysia, (i) a company limited by shares; and (ii) a company limited by guarantee. Both are governed by the Companies Act 2016. In a company limited by shares, the member’s liability is limited by the shares he has fully paid. Whereas in a company limited by guarantee, his liability is limited to the amount he agrees to contribute in the event the company is wound up.
- Private Company: Section 15(1) of the Companies Act 2016 sets out that a private company must have (i) a share capital; and (ii) a memorandum or articles of association that:
- Restricts the right to transfer shares in the company
- Limits the number of members to 50
- Prohibits members of the public from subscribing to its shares and debentures
- Prohibits members of the public from depositing money into the company
Hence, only a company limited by shares is qualified to be a private company. A company limited by guarantee does not have a share capital and therefore cannot be a private company.
- Public Company: Section 2(1) of the Companies Act 2016 defines a public company as a company “other than a private company”. As such, the characteristics of a public company are as follows:
- It can be a company limited by shares or guarantee
- It can have more than 50 shareholders
- It can have no restriction on the transfer of shares
- The members of the public can subscribe to its shares and debentures
- It can allot shares or debentures with a view of offering it to the members of the public
- The public can deposit money into the company
3. What are the procedures and requirements for incorporating or registering a company in Malaysia?
The name of the proposed company has to receive the approval of the Companies Commission of Malaysia. A payment of RM50 is required to reserve a name for up to 180 days. Once a name has been chosen and approved, the next step is to fill the application form with information about the company (including the proposed name of the company, the type of company, the proposed business of the company, details of the director/ shareholder/ promoter of the proposed company, and a declaration from the director or promoter that he/she is not an undischarged bankrupt either in or outside of Malaysia, and has not been convicted of any offence whether in or outside of Malaysia).
There must be at least 1 shareholder, which can either be a body corporate or an individual. For private companies, there must be at least 1 director ordinarily residing in Malaysia with a principal place of residence in Malaysia and not disqualified under the Companies Act 2016. For public limited companies, there must be at least 2 directors.
The minimum paid-up capital is RM1.00.
The applicant has to make all the required declarations that the requirements under the Companies Act 2016 have been complied with and to pay the requisite incorporation fee. The incorporation fee for companies limited by shares and unlimited companies is RM1,000. Whereas the incorporation fee for companies limited by guarantee is RM3,000.
After a company has been incorporated, a Notice of Registration will be sent to the applicant. A company secretary has to be appointed within 30 days from the date of incorporation of the company.
The company has to obtain the necessary licence, permit or approval depending on the nature of the business before the start of its operations.
4. What are the reporting requirements for companies in Malaysia?
Companies in Malaysia are required to file the following with the Companies Commision of Malaysia on a yearly basis:
- Financial Statements and Reports (FS)
- Annual Return (AR)
- Exemption Applications (EA) that are related to FS and AR applications.
5. What are the procedures and requirements for foreigners and/or foreign companies to establish a company or business in Malaysia?
Foreigners may either incorporate a local company or register a foreign company in Malaysia in accordance with the Companies Commission of Malaysia’s guidelines.
6. What are some of the challenges that foreign companies should take into consideration prior to entering the industry or market in Malaysia?
Foreign companies may be subject to restrictions by the Government in regards to certain industries such as education, energy, oil and gas, and capital markets.
Procurement of Government contracts by foreign companies may require partnership with locals, particularly the “Bumiputras”, to be competitive in the market.
If a 100% foreign owned company intends to hire expatriates, the minimum paid-up capital requirement is RM500,000.
7. What are the duties, responsibilities and liabilities of directors in Malaysia?
Generally, a director owes a fiduciary duty to the company.
Section 213 of the Companies Act 2016 clearly spells out the duties, responsibilities and liabilities of directors in Malaysia:
- to exercise their powers in accordance with the Companies Act 2016, for a proper purpose and in good faith in the best interest of the company; and
- to exercise reasonable care, skill and diligence.
A director who contravenes Section 213 of the Companies Act commits an offence and shall on conviction, be liable to imprisonment for a term not exceeding 5 years or to a fine not exceeding RM3,000,000 or to both.
8. What are the requirements or criteria to be satisfied for an individual to qualify as a director of a company?
A director has to be at least 18 years of age. He or she must be an undischarged bankrupt under the Insolvency
Act 1967, of sound mind, not disqualified under the Companies Act 2016 or convicted of offence mentioned in the Companies Act 2016, in or outside Malaysia. For private companies, at least one director has to ordinarily reside in Malaysia by having a principal place of residence in Malaysia.
9. What are the requirements or criteria to be satisfied for an individual or a legal entity to qualify and be a shareholder of a company in Malaysia?
There are no specific requirements for an individual to be a shareholder. Unlike a director, there is no age restriction to be a shareholder, but he or she must be of the age of majority and of sound mind to be able to enter into any shareholders agreement. Any validly registered company including limited liability partnership which are not subject to a winding up order can hold shares in another company.
10. How are shares in a company allotted and/or offered in Malaysia?
The directors of a company must obtain approval from the company’s shareholders in a general meeting prior to the issuance of new shares.
Section 85 of the Companies Act 2016 provides that the new shares must first be offered to the holders of the existing shares in a way which would maintain the relative voting and distributions rights of those existing shareholders, unless the company’s
constitutions state otherwise.
11. What are the corporate governance practices in Malaysia?
The Companies Act 2016 governs, among others, directors’ duties and liabilities, conflicts of interest involving directors and indemnification of directors.
The Malaysian Code on Corporate Governance 2017 includes a set of practices and guidelines issued by the Securities Commission of Malaysia for companies to strengthen corporate culture anchored on accountability and transparency.
12. Who are the regulators for corporate governance in Malaysia?
The Companies Commission of Malaysia is responsible for administration and enforcement of the Companies Act 2016. Listed companies are regulated by Bursa Malaysia and the Securities Commission of Malaysia. Financial institutions are further regulated by the Central Bank of Malaysia.
13. What are the taxes which apply to companies in Malaysia?
Corporate taxes apply to all companies registered in Malaysia for chargeable income derived from Malaysia including business profits, dividends, interests, rents, royalties, premiums and all other applicable income.
As part of the employer’s responsibility, a company with employees are obligated to retain a percentage of the employee’s remuneration, including salary, commission, bonus and incentives as Monthly Tax Deduction to the Inland Revenue Board on behalf of the employees who are taxable.
Sales tax is a single-stage tax charged on taxable goods manufactured in or imported into Malaysia by a taxable person and is due when the goods are sold, disposed of, or first used with a total sale value of more than RM500,000 in 12 months.
A company is required to pay for stamp duty when instruments are involved, which are written legal, commercial, and financial documents. Examples of taxable instruments are partnership agreement and mortgage agreement.
Withholding tax is applicable only if a company is paying a non-resident individual or company (known as the payee) for their services where a certain percentage of the payment is deducted and paid as their income taxes to IRB, subject to the provisions of Sections 107A and 109 of the Income Tax Act 1967. Under the Double Taxation Agreements (DTA), a refund of overpaid withholding tax may be applied.
14. Are companies in Malaysia subject to competition laws and regulations?
Yes, companies in Malaysia are governed by the Competition Act 2010 and the Competition Commission Act 2010. In essence, the Competition Act prohibits the following:
- Agreements which have the object or effect of significantly preventing, restricting or distorting competition in Malaysia;
- Conduct which amounts to the abuse of a dominant position in a market in Malaysia.
15. What are the data privacy laws in Malaysia that companies should be aware of?
The Personal Data Protection Act 2010 governs personally identifiable data which is collected in respect of commercial transactions.
16. What are the company insolvency laws and regulations in Malaysia?
These include:
- Companies Act 2016
- Companies (Winding-Up) Rules
1972
17. Have there been any recent reforms or regulatory changes pertaining to the company law in Malaysia?
The Companies Act 2016 had its first set of amendments vide the Companies (Amendment) Act 2019 which came into force on 15 January 2020. The Companies (Company Auditor and Liquidator Fees) Regulations 2020 also come into force on the same date.
Among the key amendments brought by the Companies (Amendment) Act 2019 includes the reintroduction of security for costs and clarification on matters pertaining to the redemption of preference shares and dismissal of application for judicial management order.
18. What are the main changes with company law in Malaysia that differ to company laws in other ASEAN countries?
The company law in Malaysia underwent a major reform when the Companies Act 2016 was enacted to replace the now repealed Companies Act 1965. The Companies Act 2016 brought on many new changes, including the introduction of single member/director companies, abolition of the requirement for annual general meetings for private companies, and increased transparency on Director’s fees.
Similar to the Companies Act 2016, the Singapore Companies (Amendment) Act 2017 introduced new corporate rescue mechanisms in the form of judicial management. Additionally, the execution of documents by way of a Common Seal is now optional. Companies can now execute documents through the signature of two authorized officers.
In Thailand, the Thai Cabinet had recently proposed amendments to the Civil and Commercial Code on 23 June 2020. Similar to the amendments brought by the Companies Act 2016, the number of promoters and shareholders required to form a limited company has been reduced. The current Civil and Commercial Code requires at least three promoters. Under the draft amendments this has been reduced to only two promoters to incorporate a company.
In Brunei, the latest amendments in Companies Act (Amendment) Order, 2016, Companies Act (Amendment) Order, 2017 and the Companies Act (Amendment) (No. 2) Order, 2017 provide for an increase in the protection of minority shareholders. The new amendments introduced the recourse to personal remedies in cases of oppression or injustice and special notice requirements which are already present in Malaysia’s Companies Act 2016.
19. In light of the Covid-19 pandemic and various governmental movement control orders in Malaysia, has the Malaysian government implemented changes or temporary orders to assist companies to cope with financial constraints?
The threshold for the filing of a company winding up petition was increased from RM10,000 to RM50,000 originally effective from 23 April 2020 to 31 March 2021, and subsequently extended indefinitely. The time period of 21 days to respond to a notice of demand under Section 466 of the Companies Act 2016 was temporarily extended to six months between 23 April 2020 and 31 December 2020.
Part II of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 (Covid Act) provides that parties unable to perform any contractual obligation arising from the contracts specified in the Covid Act shall not give rise to the other party exercising his right under the contract. The applicability of this provision has been extended to 31 December 2021.
Given the prolonged movement control orders prohibiting business premises from operating, the Government under the latest stimulus package, PEMULIH, continues to provide financial assistance to ensure business continuity.
This article is reproduced from the Malaysian Chapter in the League of Lawyers’ Country Guide on Foreign Investment. If you’re interested in exploring chapters from other jurisdictions, click here.
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
