Business

Overview of Business Incorporation in Malaysia

Ideas on business incorporation in Malaysia? Malaysia is a tourist attraction and has a great upcoming economy for incorporating any business/company. Here is an overview of all the information one might need to know before stepping into business incorporation in Malaysia. As regulated by two laws, few fast-growing businesses have been mentioned here. The different types of business incorporation in Malaysia available to anyone, the pre-incorporation contract, process, and documents required, rules and regulations for the execution of documents, fees for incorporation, Share capital, and corporate taxes required for business incorporation in Malaysia. Post-business incorporation in Malaysia, the necessary steps and requirements that are to be fulfilled. What are the advantages and disadvantages of business incorporation in Malaysia’s free trade zone? This blog covers every aspect of query one can have amidst planning on business incorporation in Malaysia.

Exploring the Process of Business Incorporation in Malaysia

Malaysia has become one of the best places to start a business in the Pacific. Many factors make it ideal to do business incorporation in Malaysia, such as low tax rates for small and medium-sized enterprises (SMEs).

And it’s not just low taxes. Malaysia has a business environment, low cost of living, and connections for international business people. These make Malaysia a great place for investors and anyone looking for business incorporation in Malaysia.

The different types of companies that can be registered in Malaysia are Sole proprietorships or partnerships, incorporated companies, and one can also open branches of a foreign company in Malaysia. One must follow the local rules and legislation while going forward with the same as per the Companies Act, 2016. The applicant must ensure that all the guidelines are followed and all the requirements are fulfilled as per the Companies Act 2016.

Regulatory Body/Agency governing the Business incorporation in Malaysia:

The regulatory agency that governs the registration process of any company or business incorporation in Malaysia is primarily Suruhanjaya Syarikat Malaysia (SSM). This authority is known as the Companies Commission of Malaysia. Apart from this, the Companies Act of 2016 also governs the regulations of registration of companies or businesses in Malaysia.

Fast-growing industries/business incorporation in Malaysia:

• E-Commerce
• Electronics and IT
• Finance & FinTech
• Business Development
• Service Sector
• Agriculture
• Education
• Oil, Petroleum and Natural Gas
• Manufacturing
• Tourism

Pre-incorporation contract

A pre-incorporation contract is well-defined in Section 65(1) of the Companies Act 2016 as a contract made by or on behalf of a company at a time when the Company has not been formed. The person who signs the pre-incorporation contract will be personally liable for operation accordingly. They cannot eliminate their liability. The Company’s situation regarding its liability under the pre-incorporation contract. Authorization of ratification of the contract after the business incorporation in Malaysia is given under Section 65(2). If the Company does sanction the contract, the corporation shall become bound by the contract as if it has been in existence at the date of the contract or transaction and had been a party to the contract or transaction.

Types of companies/ Business incorporation in Malaysia that can be incorporated:

Companies can generally be classified as

1. Limited and unlimited liability companies;
2. Public and private companies
3. Sole proprietorship or partnership

1. Limited and Unlimited liability companies

As per Section 10(1) CA 2016, a company may be incorporated as ‘(a) a company limited by shares; (b) a company limited by guarantee; or (c) an unlimited company.’

If shares limit a company, the member’s accountability is limited to the amount unpaid on their shares, and where the Company is a company limited by guarantee, a member’s liability is limited to the amount they agreed to contribute in the event the Company is wound up. There is no limit placed on the liability of a member of an unlimited enterprise.

As per section 25(1), CA 2016 provides that the name of an unlimited company shall end with the word ‘Sendirian’ or the abbreviation ‘Sdn.’.

2. Private Companies and Public Company

A business incorporation in Malaysia can also be classified as either a private or a public company. Under the CA, 2016, a private company is required to have the following characteristics:

1. a company limited by shares (s42(1))
2. must not have more than 50 shareholders (s42(1))
3. restricts the transferral of shares (s42(2))
4. Cannot compromise its shares or debentures to the public (s43(1)). Under s15(1) of the CA 1965, a private company was barred from engaging the public to subscribe to its shares or debentures.
5. Cannot allot shares or debentures with a view of contributing them to the public (s43(1)). This prevention was not found in the previous act of 1965

As per section 25(1), the name of any private company should end in ‘Sendirian Berhad’ or its abbreviation ‘Sdn. Bhd.’ and if it’s a public company, then the name of the organization should end with  the word ‘Berhad’ or its abbreviation ‘Bhd.’

A public company may have one or more of the abovementioned characteristics. Apart from the name, the other main differences between a private and public company prearranged in the CA 2016 are as follows: First, the constitutional minimum number of resident directors for a private company is only 1, whereas a public company is obligatory to have at least 2 local directors. Second, only a private company may authorize a written resolution (s290). Third, only a public company is mandated to hold its annual general meeting (s390). Fourth, certain categories of private corporations are excused from having their accounts inspected (s255).

3. Sole proprietorship or partnership:

These include any business incorporation in Malaysia, trade, profession, or for-profit activity other than those specified in the Business Registration Schedule 1956 (ROBA 1956) and the ROBA Act 1957. If a business is a sole proprietorship, it is called, in its name, sole proprietorship. A partnership is called a partnership if a business has two or more but not more than 20 employees. Please note that the registration process (for one to five years) can be completed online at the SSM counter or through the Ezbiz portal at ezbiz.ssm.com.my and must be completed within 30 days from the date of Commencement of the Business.

Want to have your Business incorporated in Malaysia?

The company formation or business incorporation in Malaysia process has been simplified according to CA 2016. The law has introduced a type of super form for Businesses for registration through promoters or shareholders. Section 15 deals with the Registrar of Companies (“ROC”), which will allocate a registration number to the Company and issue a registration notice upon compliance with the procedures and payment of the necessary fees. The registration notice is conclusive evidence that the Company has been properly registered (section 19). The Republic of China can issue a company name certificate only after you fill out the Company’s application form and pay the necessary fees.

Simple Steps for Business Incorporation in Malaysia:

Pre-requisite to register a business

• Business incorporation in Malaysia must fulfil Section 2: Interpretation under the Business Registration Act 1956 & Command of Business Registration 1957;
• The business owner should be a Malaysian citizen or permanent resident and must be eighteen (18) years old and above;
• The business must operate in Peninsular Malaysia and the Federal Territory of Labuan.

1. Decide on the business entities. There are six types of business entities

They are;

• Branch office
• Private Limited company
• Representative office
• Sole proprietorship
• Partnership
• Limited liability partnership

2. Choose a business name:

Make sure to complete the name check by filling out a Request for Availability of Name form to the Companies Commission of Malaysia. Each name you apply for costs RM30.

3. Register the name:

After approval from the CCM, you have to get the trade name registered

4. Rent / Buy a business space:

Every business incorporation in Malaysia has a registered local office address.

5. Gather the required documents:

• Article of Association and MoA
• Constitution Statutory Declaration By A Director Or Promoter Before Appointment Declaration of Compliance
• The Trade name’s approval from CCM
• Identity proof of every director and company secretary.

6. Incorporate the company/Business incorporation:

Next, collect the documents and submit them to the CCM within three months from when they sanctioned the trade’s name. Failure to do this means you must apply for a new name search.

7. Pay registration fees:

A sum of RM1,000 must be paid to CCM for registration.

8. Issuance of a Certificate of Registration:

After the fee is deposited, receiving the Business Registration Certificate takes one hour.

Documents required for business incorporation in Malaysia:

• Shareholder:

Any person above the age of 18 years, with a minimum of one shareholder, irrespective of being a foreigner or a resident of Malaysia:

Malaysia resident shareholder/Director:

-Copy of Malaysian IC/Passport

Non-resident shareholders and directors:

-Copy of passport

-Copy of residential address proof, i.e., a recent utility bill, residential phone/ electricity bill, tax bills, or bank statements

If the shareholder is a corporate entity:

-Copy of certificate of registration

-Current extract of the Company’s particulars from the registrar of companies,

-Copy of the constitution of the Business

-A board resolution approving the business incorporation in Malaysia.

• Directors:

At least one resident director who ordinarily resides in Malaysia in the case of a private company and 2 resident directors in the case of a public company who have not been convicted by the law or had any proceedings against them, including but not limited to any form of insolvency or bankruptcy proceedings.

• Resident Company Secretary:

One company secretary is required, as per the law of Malaysia, who can either be a citizen or a permanent resident of Malaysia.

• Minimum Capital requirement

There is no capital charge in Malaysia. A 100 per cent foreign company must pledge 100 per cent of the paid-in capital if it issues work permits to foreign workers. Paid-in capital is determined according to the Company’s field of activity.

Execution of Documents:

• Company Seals
• Official Seal for use abroad
• Official Seals for Share certificates, etc.
• Company Contracts
• Pre-corporation contract
• Execution of documents
• Execution of deeds

How Much Does it Cost for Business Incorporation in Malaysia?

The cost for business incorporation in Malaysia with the SSM is a flat rate of 1,000 ringgit (US$238), although the nominal share capital determines the fee.

Registration Fees for Private Limit Companies in Malaysia	Nominal share capital   Fees
Up to 1 million RM (US$238,380)	5,000 RM (US$1,191)
Exceeding 1 million RM (US$238,380) but not more than 10 million RM (US$2.38 million)	20,000 RM (US$4,767)
Exceeding 10 million (US$2.38 million) but not more than 50 million RM (US$11.9 million)	40,000 RM (US$9,535)
Exceeding 50 million RM (US$11.9 million) but not more than 100 million RM (US$23.8 million)	60,000 RM (US$14,302)
Exceeding 100 million RM (US$23.8 million)	70,000 RM (US$16,686)

The registration fee is charged at a flat rate of 1,000 RM (US$238) if the foreign Company does not require any share capital.

Share capital required for business incorporation in Malaysia:

As of January 31, 2017, all companies with capital have become unregulated. It does not matter whether the Company is incorporated under CA 1965 or an earlier law. CA 2016 Section 74 states, “No distribution shall have par or par value before or when the commencement of this Act comes into force.” However, members whose shares are still outstanding if the shares have not been fully paid up before January 31 2017. Liability for the Company’s outstanding amount in 2017. Section 618(1) (b) also treats the outstanding amount of shares as the difference between the issue price of the shares (excluding fees) and the fees. According to the balance of income from the premium rate as of January 31, 2017, Article 618(2), if the Company does not use the money following articles (3) and (5), the money will become part of the equity capital of the Company.

Section 97 of the Companies Act 2016 provides that the Company is not required to make distributions of share certificates to the shareholders unless the Company’s articles of association require it or the shareholder approaches the Company to issue a certificate of share himself.

Corporate Income tax for any business incorporation in Malaysia:

Malaysia’s corporate income tax is a direct tax imposed by the government and is paid by both resident and non-resident companies that generate income from Malaysia. The corporate tax rate varies depending on the type of Company. 24 per cent is the standard rate of corporate tax that the government of Malaysia levies,

Other corporate tax rates include the following:

Type of Company	Tax rates
Resident Company with a paid-up capital of RM 2.5 million or less and gross revenue from commerce of not more than RM 50 million	17% on the first RM 600,000
A resident company that does not control, directly or indirectly, another company that has paid-up investment of more than RM 2.5 million	24% over RM 600,000
The resident Company that is not controlled, directly or indirectly, by another company that has paid-up capital of more than RM 2.5 million	24% over RM 600,000
Non-resident company	24%

Post Business Incorporation in Malaysia requirements:

After any business incorporation in Malaysia is completed, a company secretary must be appointed within the first thirty days of the Commencement of the same. The company secretary in Malaysia plays an important role in ensuring that post-business incorporation in Malaysia compliance is up to date with the law. Among the many responsibilities performed by a company secretary or company secretary services are passing resolutions of directors and members, determining the end date of the financial year, and keeping accurate and fair records of all matters relating to the Company at its registered office.

1. Publication of the name and registration of the Business incorporated is to be done immediately.
2. Documents to be kept at the registered office (immediately or within 14 days from the day of change)
3. Notice of registration of Business incorporated, which has been issued as per section 15 of the Companies Act 2016.
4. Constitution of Company, if any
5. Certificate issued under the given company law or any other corresponding law
6. All registers, books, records, and documents as per the law of the land at the time of execution
7. Minutes of meetings of all associates and resolutions of members
8. Copies of all transcribed communications to all members or all shareholders of the same class.
9. Copies of all financial declarations and group financial declarations
10. The accounting registers of the Company are required as per section 245
11. Copies of all instruments creating or evidencing charges as required under section 354 and
12. Such other documents are to be provided to the registrar post-business incorporation in Malaysia.
13. Proper Accounting records (within 60 days of completion of the transactions)
14. Annual returns are to be filed within 30 days from the date of business incorporation in Malaysia.
15. Preparing financial statement within 18 months of business incorporation in Malaysia and six months of financial year-end.
16. Duty to circulate copies of the financial statements within 6 months of financial year end for private companies. Every Company shall send a financial statement to each member of the Company.

The Company’s constitution is a non-mandatory option for a company limited by share.

Business Incorporation in Malaysia’s Free Zone:

A Free Trade Zone (FTZ) is a zone in which viable and industrialized activities are carried out under the administration of the MoF. When any company plans to incorporate their business in Malaysia, they must first identify if the mainland business is more beneficial or Malaysia’s free trade zone. A business incorporation in Malaysia’s free trade zone can enjoy duty-free imports of specific raw materials and equipment and exemption from sales tax, excise tax, and GST. Remember that machinery and raw materials not directly used in manufacturing are not qualified for tax exemption. Several business incorporations thrive in the free trade zone. So, one has to check if the business incorporation in Malaysia is profitable in the free trade zone.

Disadvantages of business incorporation in Malaysia’s Free trade Zones:

Even companies operating in free zones can enjoy many advantages, especially in terms of duty/tax exemption on imports of products, goods, or equipment, but there are also some drawbacks or disadvantages of the same. These include 1) compliance with the rules and regulations, for which the customs department has the right to carry out administrative review; 2) high compensation for capital based on the market; 3) special permits or licenses are required; 4) An office should be established in a common area, which may increase operating costs.

GENERAL GUIDE

1. Register the Business not later than thirty (30) days from the date of Commencement of Business.

2. A new business incorporation in Malaysia may be valid for one (1) year and does not exceed five (5) years for each business incorporation in Malaysia.

3. The nature of the business incorporation in Malaysia should not contravene any laws or morals of the land.

4. A Business Registration Certificate can be obtained within one (1) hour of the payment transaction.

5. A person who carries on Business without registering a business commits an offence under the Registration of Business Act, 1956, and, if found guilty, be fined not exceeding RM 50,000.00/- or imprisonment for a term not exceeding two (2) years or both.

6. Even though businesses incorporated in Malaysia have been registered with SSM, business proprietors are accountable for obtaining licenses, permits, or approval letters from other relevant establishments to operate their businesses.

Conclusion:

The flexibility and ease that Malaysia provides to consumers willing to have their Business incorporated has been a hot topic for all business-minded people. The cheap labour and low tax rates attract investments and promote the locals to grow their businesses and move a step forward in expanding or starting up any new business incorporation in Malaysia. Malaysian government encourages its citizens and people all around the world to come and expand their Business in Malaysia as they even have free trade zones, world-class infrastructures, and many other facilities to promote the same.

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