Corporate Law in Malaysia

Updated on Sunday 13th October 2019

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The Corporate Law in Malaysia is included in the Companies Act, the most important legislative document to govern the formation, administration, and management of a company. The tax, accounting, and audit requirements are also stipulated in this document. A special division of the Companies Act is assigned to foreign companies in Malaysia.

Our lawyers in Malaysia handle business and corporate matters, including company formation, liquidation or corporate litigation. They can help investors with useful information about the legal provisions included in the Act as well as complete assistance for the formation of companies in complete compliance with the ongoing provisions of the Act.

Below, we list the main parts or chapters of the Companies Act, so that entrepreneurs can better understand the issues that are being regulated by this important document. Part I includes the important definitions, thus, we shall list the chapters starting with part II which starts to include important information about the management of companies:
 
  1. part II, Administration of the Act: information about the Registrar of Companies, the powers of the Minister to conduct inspections, investigations, and examinations.
  2. part III, the Constitution of Companies: this section is divided into multiple parts, including the actual incorporation of the company as well as its powers.
  3. part IV, Shares, debentures, and charges: includes information about the types of shares, restrictions on the allotment, titles, and transfers, etc.
  4. part V, Management and administration: the office and name of the company, the company directors and officers, etc.
  5. part VI, Account and audit: compliance with the existing auditing standards, types of accounts, penalties, etc.

The other parts of the Act include information about arrangements and reconstructions, investigations, the winding up of the company (through court or voluntary). One of the final parts of the Act defines the various types of companies. Included here is information about investment companies as well as foreign companies.

The team of experts at our law firm in Malaysia is able to provide investors with detailed information about any of these chapters that may be of interest before commencing the incorporation procedure.
 

Company formation and liquidation in Malaysia


According to the Companies Act, two or more individuals may form a company if they intend to use the legal entity for lawful purposes and if they meet the requirements for registration. Companies in Malaysia can take the form of a company limited by shares or guarantee, a company limited both by shares and guarantee or an unlimited company. Partnerships and sole proprietorships can also be incorporated.
 
Some of the conditions for a private company, as per the Act, include the following: a company with share capital can be incorporated as a private company when its Articles:
 
  • contain a restriction: this applies to the transfer of the shares; these may not be transferred.
  • limit the number of members: as per the Articles, the number of company members is limited to fifty.
  • prohibit public invitations: the Articles prohibit the invitation for the public to subscribe to the company shares or debentures.
  • prohibit other public invitations: such as for the public to deposit money with the company.
 
As per the Companies Act, there are conditions for incorporated companies and these refer, among others, to the name of the business. Our attorneys in Malaysia list some of the conditions below:
 
  • the limited company shall have the abbreviation “Bhd.” at the end of the chosen name.
  • the private company will include the abbreviation “Sdn.” as part of its name.
  • reserve the company name for a period of three months with the Registrar.
  • the company may change its name through a special resolution and under certain conditions.
 
The law allows for conversions between business types. For example, a public company can be changed to private and vice versa. This can be accomplished through a special resolution lodged with the Registrar. Investors may be interested in this process once the business evolves (and it is time to change from a private company to a public one). If this is the case, we recommend that they reach out to our team of lawyers in Malaysia for complete assistance during the process.

The Malaysian Corporate Law applies to foreign companies only if they have a place of business in the country. These foreign legal entities are allowed to hold immovable property in the country. Our lawyers in Malaysia can give you further details on the provisions for foreign companies, including the mandatory existence of a bank account or that of special permits and licenses issued by the relevant Malaysian authorities. 
 

Company management and control in Malaysia


Companies are required to set up their registered office within two weeks from their incorporation or on the day the commence their commercial activities. failure to comply with this provision will mean that the company and all of its officers are guilty of an offense against the Companies Act and the penalty will be one of one thousand ringgit. We recommend consulting with our lawyers for complete and updated information about the penalties that may apply for non-compliance with the Act. 

The registered office will be used for correspondence, as all correspondence is to be sent to this office. It must be open to the general public within the predetermined work hours. 

The management and control of a company, as far as its directors, shareholders, and managers are concerned, is also described in the Companies Act. Malaysian companies must appoint at least two directors who are residents or have their main place of residence in the country. The appointed individual must be over 18 years of age and the one that occupies the position of the first director will be named in the company’s Articles of Association and/or the Memorandum.

Companies in Malaysia must comply with the Financial Reporting Act and appoint their auditors before the first annual general meeting. Company liquidation and winding up is also regulated by the Companies Law. This step can be voluntary or mandatory and it involves the appointment of liquidators by the Official Receiver (or otherwise).

Our lawyers are able to help you with more information about the Companies Act, its interpretations, and subsequent amendments.
 
The Companies Commission, or SSM, is an agency functioning under the Ministry of Domestic Trade and Consumer Affairs.
 
Small and medium-sized companies are often the preferred manner in which investors choose to do business in the country. according to the Economic Census of 2016, by the Department of Statistics Malaysia, their prevalence was as follows:
 
  • 907,065 - the total number of SME establishments;
  • 19.8% of these companies were in Selangor;
  • out of the total number, 14.7% of companies were in Kuala Lumpur;
  • 10.8% of the total SMEs were in Johor;
 
According to the same Economic Census, out of the total number of SMEs analyzed, 89.2% (or 809,123 companies) were in the services sector, followed by 5.3% (47,698 companies) in the manufacturing sector. 
 
Company formation in any of these business sectors has to take place as per the Companies Law and the other Acts, as relevant to the chosen business form.
 
You can contact our law firm in Malaysia if you have any questions about company incorporation as per the Companies Act and/or the Registration of Businesses Act and any other Acts, rules, and regulations.