Start Up Business in Malaysia- Matters to Consider

Do we need to set up a company to start up business in Malaysia?

Businesses in Malaysia are required to be carried out by either these two types of business organisations:

1. Business firms (governed under Registrar of Business Act 1956)
2. Registered companies (governed under Companies Act 1965)

Start up Business in Malaysia - What is a business firm?

Business firms can be either of these two types:

1. Sole proprietor/ Sole trader - Sole proprietor is a business carried out in the name of an individual.
2. Partnerships (governed by Partnership Act 1961) - Partnership is a business owned by two or more individuals.

Both these types of business firms have no separate legal existence apart from the persons who owns the business and properties cannot be held under the name of the business firms. All contracts are signed in the name of the individuals who own the business and their liability is unlimited.

Start up Business in Malaysia - What is a registered company?

A registered company is an artificial person created by the law. It is legally independent of the owners. The most common type of registered company in Malaysia is a company limited by shares or known as "SDN BHD" (translated as - private limited).

We can recognise that a company is a registered company limited by shares if the name of the company ends with "SDN BHD". For example a company with name - ABC Sdn Bhd, is a company limited by shares.

A sole proprietor or a partnership is not entitled to end with "SDN BHD" as it is not a registered company. Most often, sole proprietor or partnership is named ABC Enterprise or ABC & Co. A company has its own legal rights similar to a natural person under the law.

Start up Business in Malaysia - Is a company legally independent from the owners?

The law provides that a registered company is legally independant from it's owners. A company can perform these activities using the name of the company:

1. buy or sell property
2. may sign contracts by using its common seal
3. can sue or be sued in its own name

Start up Business in Malaysia - Some statistics:

• There are more than 600,000 registered companies in Malaysia and approximately 4000 foreign companies, majority of them are companies limited by shares. (Source: Data obtained from the Companies Commission of Malaysia)
• These companies range from small family business where the directors and shareholders are family members, SMEs as well as large businesses with high business volumes and assets.
• There are over 1,000 companies listed on Bursa Malaysia Securities Berhad. The companies are publicly traded and public investors can buy and sell shares on the Malaysia stock exchange.

Start up Business in Malaysia - What is the difference between a business firm and a company limited by shares?

To consider which one is better, you may have to consider the following before deciding on the most appropriate business form to start up business in Malaysia:

		Business firm	Company limited by shares
1.	Legal standing	- Not separated from individual/ individuals who own the business	- Legally separated from owners and individuals who run business
2.	Liability	- Not limited	- Limited to remaining unpaid amount on the members' shares
3.	Succession	- Once identity of individual participants change (eg partners die, resign or new partners or sole proprietor dies or become bankrupt) the sole proprietor is dissolved or the partnership is dissolved	- There is perpetual succession - Company continues to exist unless it is liquidated or deregistered - Can transfer interest to other parties by executing share transfer forms
4.	Formation	- Register with Registrar of Business - Some partnerships may have partnership agreements Fee: less than RM100	- Incorporate under the Companies Act 1965 - Lodge statutory forms and memorandum of association and articles of association with the Companies Commission of Malaysia ("CCM") otherwise known as Suruhanjaya Malaysia Fee: RM2,600-2,800 or more
5.	Owner	- 1 for sole proprietor - 2 to 20 max for partnership	- 2 to 50 max (no limit for PLCs)
6.	Ownership of properties	- Jointly owned by the individual/ individuals who owns business	- Owned by the company not the shareholders
7.	Management	- Managed by individual/ individuals who owns business. - All partners are entitled to participate in management of partnership	- Managed by the Board of Directors. Every company must have at least 2 directors who are principally residing in Malaysia. Directors may or may not be a shareholder of the company. - There must be at least 1 company secretary.
8.	Annual returns	- Not required to submit any report to the Registrar of Business	- Lodge with Companies Commission of Malaysia returns - Lodge annually an Annual Return and audited accounts
9.	Taxation	- Profits made are added to the individual/ individuals personal income and are individually liable for the profit under personal income tax.	- Company is subject to income tax at the rate applicable. - The corporate tax rate is currently 25%.

Please contact me via email comsecretarial@gmail.com if you need professional assistance on this topic. I am more than willing to assist you!

Start Up Business in Malaysia- Forming a Company

1. ESTABLISHING A SOLE PROPRIETORSHIP OR PARTNERSHIP FIRMS
(MALAYSIAN CITIZENS ONLY)

The law permits the establishment of a sole proprietorship and partnership (for 2 or more persons but not more than 20 persons) for Malaysian citizens only.
The individual who wishes to practice a business activity may apply to the Companies Commission of Malaysia on the specified form (PNA.42) with the following documents and information:

a. Photocopy of Identity Card
b. Address of individual (to be filled in specified form)
c. Type of business (to be filled in specified form)
d. Partnership agreement (if any)

Estimated charges by management companies/ company secretarial firms:

Sole Proprietorship	: RM200-300
Partnership	: RM200-300

2. ESTABLISHING BRANCH OFFICE OF FOREIGN FIRMS.
The foreign company that chooses to open a branch in Malaysia to carry on business within Malaysia shall register with the Companies Commission of Malaysia.
The reason foreign companies are required to register with the Companies Commission of Malaysia is to exert some degree of control over the affairs of the foreign company in Malaysia. The foreign company that is registered has power to hold immovable property in Malaysia.
The application shall be submitted to the Companies Commission of Malaysia (applications can be submitted via management companies that offer incorporation and company secretarial services) and should include the following:

A. Name search

Lodge Form 13A for approval to use the foreign company's name. Filing fee of RM30 and a copy of the Certificate of Incorporation (or document of a similar effect) must be included.

B. Registration documents

If the name of the foreign company is available for registration, the company must lodge with the Companies Commission of Malaysia the following documents within a period of 3 months from the date of approval:

i. A certified copy of the certificate of incorporation or registration in its place of origin or a document of a similar effect.
ii. A certified copy of the company's Charter, Statute or Memorandum and Articles of Association (or any documents defining constitution).

Certified copy means a copy of document that has been certified within a period of 3 months by:

- a Notary Public
- Registrar of Companies of the place of origin
- Director, manager or secretary of the foreign company by affidavit or, in the case of foreign company formed in a Commonwealth company, by statutory declaration.

If the Certificate of Incorporation and the company's Charter are not in English, a translation in English must be done. The translation must be duly certified by:

If translation is performed outside Malaysia:
- notary public
- registrar of companies of the place of origin
- a Malaysian consular officer in the place of origin of the foreign company

If translation is performed within Malaysia:
- a person approved by Companies Commission of Malaysia

iii. A list of directors of the foreign company and their particulars (Form 79).

iv. A Memorandum of Appointment or Power of Attorney (under seal of foreign company or executed in a manner binding on the company) authorizing one or more persons resident in Malaysia to accept on behalf of the company, service of process and any notices require to be served on the company.

v. A statutory declaration by agent of foreign company (Form 80).

vi. Fees payable (in the form of a bankers cheque) to the Companies Commission of Malaysia, depending of the authorized share capital of the foreign company.

The following is the scale of fees payable:

Amount of nominal authorized share capital (RM)	Registration Fees (RM)
Not exceeding 100,000	1,000
100,001-500,000	3,000
500,001 - 1.0million	5,000
1,000,001 - 5.0 million	8,000
5,000,001 - 10.0 million	10,000
10,000,001 - 25.0 million	20,000
25,000,001 - 50.0 million	40,000
50,000,001 - 100.0 million	50,000
Exceeding RM100.0 million	70,000

Estimated charges by management companies/ company secretarial firms:
- RM1600-1,800 for services rendered (Not including fees paid to the companies commission of Malaysia 5% service tax)

Example of charges if authorized share capital is less than RM100,000:

	RM
Payment to Companies Commission of Malaysia	1,000
Payment to Management Firms for services rendered	1,800
Total fees	2,800

C. Approval of registration

The Companies Commission of Malaysia upon receipt of the above information and payment shall issue an approval of registration document - Form 83.

The foreign company must establish a registered office within Malaysia after it established a place of business or commences to carry on business.


D. Other obligations

i. File a copy of the annual return each year within one month of the foreign company's annual general meeting.

ii. File a copy of the balance sheet of the head office, a duly audited statement of assets used and liabilities arising out of its operations in Malaysia, and a duly audited profit and loss account within two months of its annual general meeting.

3. INCORPORATING COMPANIES LIMITED BY SHARES
Companies limited by shares (Sendirian Berhad or Sdn. Bhd) is the most common company structure in Malaysia. A company limited by shares is formed on the principle that the members' liability is limited to the amount of unpaid on the shares taken up by members.
This form of company can have foreign directors but at least 2 of the directors need to be principally residing in Malaysia; and it can be 100% foreign owned for industries such as the manufacturing, trading, and information technology sector.
The application shall be submitted to the Companies Commission of Malaysia (applications can be submitted via management companies that offer incorporation and company secretarial services) and should include the following:

A. Name search

Lodge form 13A together with a payment of RM30 for approval to use the proposed name of the intended company. If the application is approved, the proposed name will be reserved for the applicant for 3 months.

B. Incorporation documents

Lodge the following documents with the CCM within the three months to secure the use of the proposed name:

i. Memorandum and Articles of Association. The Memorandum of Association documents the company's name, objects, amount of authorized capital proposed for registration and its division into shares of a fixed amount. The Articles of Association describes the regulations governing the internal management of the affairs of the company and the conduct of its business.
ii. Declaration of Compliance Form (Form 6)
iii. Statutory Declaration by a person before appointment as a director




C. Estimated fees

Fees payable (in the form of a bankers cheque) to the Companies Commission of Malaysia is depending of the proposed authorized share capital of the company.

The following is the scale of fees payable:

Amount of nominal authorized share capital (RM)	Registration Fees (RM)
Not exceeding 100,000	1,000
100,001-500,000	3,000
500,001 - 1.0million	5,000
1,000,001 - 5.0 million	8,000
5,000,001 - 10.0 million	10,000
10,000,001 - 25.0 million	20,000
25,000,001 - 50.0 million	40,000
50,000,001 - 100.0 million	50,000
Exceeding RM100.0 million	70,000

Estimated charges by management companies/ company secretarial firms:
- RM 1600 - 1800 for services rendered (not including fees paid to the companies commission of Malaysia and 5% service tax)
An example of the charges if the company's authorized share capital is less than RM100,000 is as follows:
Example of charges if authorized share capital is less than RM100,000:

	RM
Payment to Companies Commission of Malaysia	1,000
Payment to Management Firms for services rendered	1,800
Total fees	1,800

D. Certificate of Incorporation

A Certificate of Incorporation will be issued by the CCM as proof of registration.

Information on Doing Business in Malaysia

Doing business in Malaysia today comes with many challenges. In today's increasingly complex business environment, business owners are faced with not only the operational aspects but also the non-operational factors such as:

1. tax compliance and planning
2. company regulations
3. licensing requirements
4. compliance to local authorities' requirements
5. financial and cash flow management
6. budgeting
7. risk management and controls
8. strategic planning
9. technology and innovation
10. business process outsourcing
11. and much much more......

Hence, finding good advisors to assist you will save you time and money. We as a group of professional accountants, tax specialists, business advisors and consultants from Kuala Lumpur are able to offer you valuable advice and assistance.

Through contacts with business owners in Malaysia, we realized that many do not have adequate access to information on doing business in Malaysia. To address this gap, we have put up plenty of information on this blog that will be useful to your business.