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 27%. It will be revised to 26% for the year of assessment 2008 and 25% for the year of assessment 2009 onwards.

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More articles:

Licensing Requirements for Doing Business in Malaysia

Work Permits for Foreign Investors in Malaysia