Starting a business in Malaysia has quite the benefit. It may come in the form of grants, policies to protect the business or sectors that support the businesses. As much help as there is for a business to take advantage of, the fundamentals are still vital, especially in the process of company creation.
This is especially important for a foreign company as there is quite a handful of business types you can register in Malaysia. Besides knowing what type of company are there, the rules of ownership for certain types of companies are pretty unique and require extra note and attention.
Types of Businesses in Malaysia
A sole proprietorship requires only one owner to set up. The person is to be fully responsible for all the business’s assets, and the owner’s assets would not be protected should the business suffer any losses or even declare bankruptcy.
This type of business is only eligible for Malaysia citizens or permanent residents.
An annual fee is to be paid to the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia or SSM in short) to keep the business renewed.
This type of ownership does not need to submit for auditing nor do they need to carry out annual filing.
A partnership business requires at least 2 owners and a maximum of 20 owners to run.
The partnering owners will combine their resources throughout the business and generate profit from it. This type of business is more commonly seen in the form of professional firms such as auditing firms or lawyer firms.
This type of business is only eligible for Malaysia citizens or permanent residents.
Similar to sole proprietorships, the partnering owners do not have a limit in their business liability. There is a difference, however, of which the responsibilities and liabilities of each partner or owners are to be outlined in an agreement. The business itself is not subjected to taxation but the partners or owners will be taxed as individuals and have to report their respective profit and losses.
Private Limited Company (Sendirian Berhad or Sdn Bhd)
A private limited company (Sdn Bhd) is a separate entity entirely from its owners. This type of company can purchase or sell a property under its name and the responsibility would be under the company as an owner. The company can also enter legal contracts and sur or get sued in courts.
As the company is considered a separate entity, its owners will only take responsibility for the amount that they have contributed to the company. Their personal assets or property will remain untouched if something were to happen to the company.
Only one member is required to set up a private limited company, and the member has a limit of 50 personnel. The shares of this type of company are issued to individuals or corporate bodies.
A private limited company is the most common type of entity that attracts foreign investors. Foreigners are permitted to own up to a full 100% of the company. However, under certain sectors, a private limited company will require at least 50% Malaysian ownership. Meaning that if a company falls under the category of agriculture, banking, education, oil and gas, at least 50% of the company’s ownership must be held by a Malaysia citizen or permanent resident.
Public Limited Company (Berhad or Bhd)
A public limited company (Bhd) has an underlying fundamental similar to that of a private limited company (Sdn Bhd). The difference is in the distribution and monitoring of its shares. The shares of a public limited company can be offered to the public. These types of companies are usually listed on the stock exchange and will be governed under the Securities Commission of Malaysia.
There are TWO types of limited companies in Malaysia which are:
- Limited by Shares
- Limited by Guarantee
The main difference between a company limited by shares and by guarantee is that the liability of the members fall under the ownership of their shares in the company. If the company is to go into debt or liquidation, the members do not have to pay for the company.
Whereas in a company limited by guarantee, the profit gained will not be distributed to the members of the company. They would instead be rolled back or reinvested into the company. This type of ownership is more commonly seen in non-profit companies (NPO) or charity organizations. If you form a charity organization with more than 20 people, you must register the organization with the SSM.
Unlimited Company (Sdn)
An unlimited company provides unlimited liability to its members and shareholders.
This type of company requires at least one owner to set up.
Should the unlimited company (Sdn) suffer any loss or debt, the owners must be responsible for it.
Unlimited companies can be converted into limited companies if they pass a special resolution and lodge a notice with the SSM.
a. Representative Office
A foreign company that seeks to expand their market into Malaysia can opt to set up a representative office. This is most commonly used by foreign companies that are trying to increase or understand the Malaysian business environment.
The representative office does not have its own legal standing in Malaysia, and therefore everything regarding its liability or debts will fall under the responsibility of its parent company. Furthermore, a representative office cannot engage in any business activities that will generate profit, business transactions, cannot sign or enter any contracts, nor can they sign deals or undertake any trading activities.
This type of company is only limited to gathering, analyzing and studying information they gather regarding business opportunities in the Malaysian market. They are also allowed to plan business activities, conduct research and product development and act as a coordination centre for the corporation’s agent within the region.
b. Foreign Branch Office
The branch office cannot act as a separate legal entity. It is but an extension of the foreign parent company. Hence, the foreign parent company is liable and responsible for all the debts of all the branches in Malaysia.
The activity or business of a branch office must be similar to its foreign parent company. This is most commonly seen in companies that want to expand their business into the Malaysian market for a shorter period of time.
To set up a foreign branch office, there must be at least one authorized agent in the form of a Malaysian resident and it is to be registered under SSM before being incorporated in Malaysia.
Limited Liability Partnership
A limited liability partnership is the combination of a partnership and a company. It is a separate legal entity from the partnering owners, but the business itself is a corporate body.
Should a limited liability partnership goes into debt, it will provide asset protection to the partners. It is also more affordable and has fewer compliance requirements compared to other business entities.
This type of company is more commonly seen as a startup or small company.
What classify as a Foreign Company?
Defined by the Companies Act 2016, a foreign company means:
- A company, corporation, society, association or other body incorporated outside Malaysia
- 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 office of business in Malaysia.
A foreign parent company may set up entities in Malaysia if they want to explore a new market and carry on their business activities in Malaysia.
In contrast, a local company is a company registered under Malaysian law and can benefit from the tax exemptions available under the free trade agreements signed by the country with the ASEAN countries. Depending on your intended business activity, 100% ownership restrictions may apply.
What are the requirements for a foreign company to register in Malaysia?
To register a foreign company in Malaysia, you must prepare the following documents:
- The certificate of incorporation
- The company’s memorandum and articles of association
- A list of all foreign and local directors and a list of their powers
- A memorandum of appointment or power of attorney under the seal of the foreign company wanting to incorporate in Malaysia
- A copy of the application and reservation of the company names
- A copy of the email for approval of the reservation of the company name
- A statutory declaration made by the agent of a company
- Registration fees
What are the registration processes for a foreign company?
Step 1: Company name search and approval
- The name of the company is to be submitted through the Companies Commission of Malaysia’s online system with a fee of RM 50
- After the name is approved, there will be a 30 days reservation for that name from the date of approval
- Should you want to extend the period of name reservation, an RM 50 fee must be paid every 30 days
Step 2: Registering a foreign company in Malaysia
- Within the reservation of the company name (30 days after approval) the following documents must be submitted to the Companies Commission of Malaysia (SSM):
- Within 30 days after the name is approved, you must submit the following information to the Companies Commission of Malaysia:
a. Name, identification, nationality and the place of residence of every shareholder in Malaysia. For body corporates, the corporate name, place of incorporation, registration number and registered office
b. Name, identification, nationality, place of residence of every director of the foreign company in Malaysia
c. List of the shareholders or members
d. Foreign company with share capital – details of class and number of shares
e. Foreign company limited without share capital – the amount up to which the member undertakes to contribute to the assets of the foreign company
f. Name and address of the person who is a Malaysian resident who is appointed as the company’s agent
g. Any other information the registrar may request
- The application for registration of foreign company under Section 562 together with a statement from the agent of the foreign company verifying his/her consent for the appointment.
- If the documents are not in Bahasa Malaysia or English, a certified translation of the documents is required.
Below is a table showing the figure of foreign company registration fee as per share capital:
|Not more than RM 1 million||RM 5,000|
|Exceeds RM 1 million but not exceeding RM 10 million||RM 20,000|
|Exceeds RM 10 million but not exceeding RM 50 million||RM 40,000|
|Exceeds RM 50 million but not exceeding RM 100 million||RM 60,000|
|Exceeds RM 100 million||RM 70,000|
Once the registration is complete, the notice of registration will be issued within one working day by the Companies Commission of Malaysia.
In conclusion, starting a business in Malaysia for both local and foreign owners require at least some form of knowledge of the local businesses. The above information is but the basics for anyone that seeks to expand their business into the Malaysia market and it is certainly better if more information and data can be obtained beforehand.
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