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Business Regulations in Malaysia
Printable version

Registration of Businesses and Companies
 .  Types of Business Entities
 .  Sole Proprietorship
 .  Partnership
 .  Limited Company
 .  Licencing Requirements
Foreign Companies
 .  Registration of foreign companies
 .  Registration of private companies by foreigners
 .  Registration of manufacturing companies
Foreign Exchange Controls
 .  Remittance
 .  Export Proceeds

Types Of Business Entities

Business operations may be carried out in several legal forms. This section describes the different types of business organisations and the associated legal requirements. They are as follows:
 .  Sole Proprietorship
 .  Partnership
 .  Limited Company

Sole Proprietorship

This form of business is solely owned by one person. Management rests on that one person and his liability is unlimited.

It is an easy procedure to register a sole proprietorship. There is no requirement for a sole trader to maintain accounts for auditing purposes. For tax purposes, a balance sheet or statement of affairs as at the end of the year and a detailed profit and loss account must be submitted to the tax authorities.

If such a business fails or is declared bankrupt, the creditors can sue the proprietor for all debts incurred. A legal claim can be made against the personal assets of the proprietor.

One of the advantages of this form of business is that there are fewer formalities in terms of its formation and registration.


Persons carrying on a business in partnership are required to register the partnership with the Registrar of Business as does a sole trader or proprietor. A partnership is not a legal entity such that the partnership has to sue or be sued in the names of the partners. The liability of each partner is unlimited.

A partnership consisting of foreign individuals or persons will not be registered by the Registrar unless there are special circumstances warranting its registration.

A partnership must comprise of at least two members. The maximum number allowed is twenty.

Partnerships are governed by the Partnership Act 1961. If the partners do not make their own agreement, or if their own agreement does not cover any particular matter specified in the Partnership Act, provisions of the Partnership Act dealing with that particular matter will become applicable.

The advantage of operating a sole proprietorship or partnership is that disclosure of financial statements to the general public are not required.

Losses incurred by such businesses can be set off against other personal income such as interest, rental and dividend as well as employment income (if any).


Limited Company

A limited company is incorporated and governed under the Companies Act, 1965. It can be categorised as follows:
 .  A company limited by shares;
 .  A company limited by guarantee;
 .  An unlimited company with or without a share capital
 .  Company Limited By Shares
  The liability of a member's contribution to the company's assets is limited to the amount specified, unpaid on his shares, if any. Once the shares are fully paid up, there is, in general, no further liability, i.e. if the company becomes insolvent, or falls into liquidation, the members are not required to make any further contribution to discharge its debts. Thus, the total liability of a shareholder in a company limited by shares is his portion of the share capital.

In other words, the personal assets of a shareholder would not be available to the creditors of the company unless a personal guarantee had been given by the shareholder.

A company limited by shares can be:
 .  A private limited company (Sendirian Berhad)
 .  A public limited company (Berhad)
 .  A private limited company
  A private limited company is one which by its articles-
 . Restricts the right to transfer its shares (the transfer may be subject to the approval of the directors);
 . Limits the number of its members to fifty (the minimum being two);
 . Prohibits any invitation to the public to subscribe for any shares in or debentures of the company; and
 . Prohibits any invitation to the public to deposit money with the company for fixed periods or payable at call.
 .  Public Limited Company
  A public limited company is any company other than a private company whose shares may be offered to the public for subscription. Such shares are freely transferable. The company may apply to the Stock Exchange for permission for its shares to be listed, thus, providing an effective market for such shares.
 .  Advantages of a Limited Company
  One of the major advantages of a limited company is that the shareholders are not liable for the company's debts beyond the amount of share capital they have subscribed, provided there has been no deceit, fraud or malpractice.

Another advantage of such a company is that it is easy to transfer the ownership, either wholly or partially, through the selling of all or part of its total shares, or through the issue of new shares to additional investors. There is no need to wind up the company in the event of deaths, or changes amongst the shareholders or directors.

 .  Regulatory requirements of a Limited Company
 . The company has to comply with the requirements of the Companies Act, 1965.
 . The company has to appoint an Auditor to verify and report the financial statements of the company on a yearly basis.
 . Every limited company must appoint a Company Secretary to take charge of its statutory returns as well as board and shareholders' meetings.
 . The company would be encouraged to appoint a Tax Agent to handle all taxation related affairs of the company.
 . There are yearly fixed costs involved in maintaining a limited company. These include the cost of maintaining a Company Secretary, Tax Agent and Auditor.
 . There are costs involved in forming a limited company. These include incorporation fees payable to the relevant regulatory bodies (based on authorised share capital), formation expenses, professional fees, filing fees, printing of memorandum and articles of association, share certificates and common seal.
 .  Exempt Private Company
  An exempt private company is a private limited company, of which all shares are not held directly or indirectly by any corporation (i.e. another limited company), and which has not more than 20 members. An exempt private company need not file its annual accounts with the Companies Commission of Malaysia (CCM) for the information of the public as long as the company files a certificate, signed by a director of the company, the secretary and the auditor of the company, that the company is able to meet its liabilities as and when they fall due.

 .  Companies Limited By Guarantee
  The liability of members is limited to such amount as they undertake to contribute to the assets on winding-up. That amount is specified in its memorandum of association, which forms part of a company's constitution. If the company is wound-up, each person who is a member at that time or has been a member within one year of winding up, may be required to contribute up to the amount of his guarantee towards payment of the debts incurred while he was a member. Past members are liable only if the present members default. Such companies are invariably non-profit-making concerns. They include professional bodies, trade societies, clubs etc.
 .  Unlimited Companies
  There is no limit to the liability of the members. Such undertakings do not materially differ from partnerships or individual traders. A past member is liable only if he ceases to be a member within one year of the winding up. Unlimited companies must have special articles of association and are free to return capital to their members.

Licencing Requirements

Most businesses in Malaysia are required to obtain a licence in one form or another. The main licencing requirements are discussed below.
 .  Manufacturing
 .  Oil and Gas Industry
 .  Wholesale and Retail Trade
 .  Building and Construction
 .  Other
 .  Manufacturing
  Under the Industrial Coordination Act, 1975, any person engaging in any manufacturing activity in Malaysia must obtain a manufacturing licence from MITI. This only applies to manufacturing companies with shareholders' funds of RM2.5 million and above, or those engaging 75 or more full time employees. It is normal for conditions such as local participation, restriction of employment of expatriates and transfer of technology to be imposed. Concessions that are required should be negotiated with the authorities at the time of application for the licence.

It should be noted by existing licenced manufacturing companies that if they diversify into the manufacture of related products for export or for the domestic market, or expand their production capacity, MITI and the Malaysian Industrial Development Authority (MIDA) should be informed

 .  Oil and Gas Industry
  The entire ownership and the exclusive rights, powers and privileges of exploring, winning and obtaining oil and gas, whether onshore or offshore in Malaysia, are vested in the national oil corporation, namely, Petroliam Nasional Bhd. (PETRONAS). Oil companies wishing to explore, obtain and win any oil and gas contracts in Malaysia have to enter into a production sharing contract with PETRONAS. Any person wishing to conduct or carry on any business related to upstream petroleum activities is required to be licenced by PETRONAS. Licencing power of downstream petroleum activities is vested with MITI.
 .  Wholesale and Retail Trade
  Under the policy on foreign participation in wholesale and retail trade, all proposals for foreign involvement in wholesale and retail trade must obtain the approval of the Committee on Wholesale and Retail Trade (CWRT). This includes the opening of new branches and relocation.

The objectives of the policy are:

 . to ensure a fair and orderly development of the industry, including the interest of local traders;
 . to streamline the industry with the national objective of increasing Bumiputera (indigenous people) participation in the economic sector, in line with the National Development Policy; and
 . to encourage modernisation and to increase the efficiency of the industry and its continued contribution to the growth of the economy
  Foreign involvement in wholesale and retail trade is subject to the following rules and conditions:
  Local incorporation - Wholesale and retail businesses must be registered under the Companies Act, 1965.
  Equity structure - Foreign equity of 30% is allowed with the balance of 70% to be held by Malaysians, of which at least 30% is to be reserved for Bumiputeras.
  Minimum capital requirement
  Minimum paid-up capital required:
 .  RM10 million for departmental stores
 .  RM5 million for supermarkets
 .  RM1 million for specialty outlets
 .  RM500,000 for direct selling businesses
  For other types of businesses, the requirement is based on merit and contribution to the socio-economic development of Malaysia.
  Managerial/technical posts for expatriates - One key post per company, on the condition that the person applying for the post must hold or has held a managerial position in the company's wholesale and retail business outside Malaysia for a period of not less than three years preceeding the date of application for the work permit; and

A maximum of 10 posts per company, approved for a period of two to three years and a maximum of five years for executives or experts who possess the necessary qualification and practical experience, including holding an equivalent or related position in the company's business for not less than three years. Approval for such posts are granted on the condition that Malaysians are trained to eventually take over the posts.

 .  Building and Construction
  All persons, whether local or foreign, must register with the Construction Industry Development Board (CIDB) before they can undertake to carry out and complete any construction works in Malaysia.

Construction works by virtue of the CIDB Act, 1994, covers not only activities directly referring to building and construction but also activities that form an integral part of it, such as extension, installation, repair, maintenance, renewal, removal, renovation, alteration, dismantling and demolition. The CIDB Act has not limited the activities to those relating to the building and its construction. They may also include the following:

 . road, harbour works, railway, cableway, canal or aerodrome;
 . drainage, irrigation or river control works;
 . any electrical, mechanical, water, gas, petrochemical or telecommunication works; or
 . any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, culvert, drive, shaft, tunnel or reclamation works.
  Registration is prescribed by the law to include payment of fee and submission of forms to the CIDB.
 .  Others
  Most professions are required to be licenced and are governed by regulatory bodies. These include the accounting, legal, appraisal, medical, architectural, teaching and engineering professions. Radio and TV broadcasting, transportation services and mining industries are also regulated by government authorities.

Foreign Companies

Companies incorporated outside Malaysia but which set up places of business within Malaysia, or carry on businesses in Malaysia, are referred to in the Malaysian Companies Act as "foreign companies".

A "foreign company" is required to apply for registration with the Companies Commission of Malaysia (CCM), subject to approval from the Ministry of Domestic Trade and Consumer Affairs. When the application for registration is approved, the company must submit the following documents to the CCM: -
 .  A certified copy of its incorporation, or documents to similar effect;
 .  A certified copy of its charter statute or memorandum and articles, or other instruments constituting or defining its constitution;
 .  A list of its directors and secretary containing similar particulars to those in the prescribed form submitted by a Malaysian company;
 .  Where the list includes local directors, a memorandum stating the powers of these directors;
 .  A memorandum of appointment or power of attorney, authorising one or more persons resident in Malaysia to accept, on behalf of the company,  notices required to be served on the company; and
 .  A statutory declaration in the prescribed form made by the agent(s) of the company
 .  Agent of Foreign Companies
  The agent of the company responsible for all acts the company is required to perform under the Malaysian Companies Act, 1965. The CCM must be notified of any change in the appointment of the agent.
 .  Registered Offices of Foreign Companies
  A "foreign company" is required within one month of its establishment of a place of business, or commencement of business in Malaysia, to lodge with the CCM for registration, notice of situation of its registered office in Malaysia in the prescribed form.
 .  Annual Return and Financial Statements of Foreign Companies
  A "foreign company" incorporated in Malaysia is required to file within 30 days of its Annual General Meeting (AGM), a copy of the duly completed "Annual Return." Within 60 days of its AGM, it must also file a copy of the Balance Sheet of its Head Office; a duly audited statement of assets used in and liabilities arising out of its operations within Malaysia, and a statement of a duly audited profit and loss accounts of its Malaysian operations.

Registration of Private Companies by Foreigners

Foreigners are allowed to register a private limited company in Malaysia, provided that at least two of the company's directors are ordinary residents in Malaysia, i.e. the principal or the only place of residence being within Malaysia.

Foreign companies can also set up a Malaysian subsidiary by way of incorporating a locally registered Malaysian company.

Registration of Manufacturing Companies

A foreign company wishing to set up a manufacturing or assembly plant in Malaysia must first apply for a manufacturing licence from the Ministry of International Trade and Industry.
The conditions, laid down for any new investment in the manufacturing sector, are as follows:
 .  Foreign investors are permitted to hold up to 100% equity of a company if the company exports 80% or more of its production;
 .  Foreign equity ownership is permitted up to 100% if the company exports 51% to 79% of its production and meets the following criteria :
 .  It invests RM50 million, or more in fixed assets; or
 .  It implements projects which have at least 50% value added, provided that the company's products do not compete with products presently being produced locally or the domestic market;
 .  Foreign equity participation of between 30% and 51% is also allowed if the company exports between 20% and 50% of its production;
 .  Foreign equity ownership is allowed up to a maximum of 30% if the company exports less than 20% of its production; and
 .  Foreign equity ownership of up to 51% is permitted only if the company's products are either of high technology, or of high priority to the domestic market.

Remittance Procedures

Any remittance to an overseas destination, of an amount of RM10,000 and above, or its equivalent in foreign currency, for any purpose such as a child's education, opening of a savings account overseas, repatriation of capital or profits are freely permitted subject only to the completion of a statistical form which is available from any commercial bank. Banks are authorised to approve such remittances, irrespective of the amount. However, the following types of remittances are required to be referred to the Controller of Foreign Exchange for approval.
 .  For purpose of investing in securities or immovable property abroad
 .  For extending credit to or placement of deposits with non-residents, whenever such transactions are financed by any credit facility in Malaysia

Export Proceeds

Any person in Malaysia who exports goods of any class or description to any territory outside Malaysia must comply with the following: -
 .  A Form KPWX is completed for each export, of which the value as declared in the relevant export declaration form of the Customs/Free Trade Zone exceeds RM100,000 f.o.b. per shipment and the form is delivered to the proper officers of the Customs or the Free Trade Zone at the time of export.
 .  Payments for the export shall be received in Malaysia by the exporter in full and in the prescribed manner when contractually due, but in any case not later than six months from the date of export.
 .  Partial payment for the export may be made:-
 .  Only when the exporter does not own the goods but is charging the non-resident consignee and owner the fees due for services rendered on the goods; or
 .  When the export item is timber, and partial payment is the result of a deduction for commission payable to the buyer's agent and such commission amounts to not more than 5% of the f.o.b. value of the timber; and
 .  In the prescribed manner and when contractually due, which in any case should not be later than six months from the date of export and the exporter completes and submits a Form A to the Controller; or
 .  Non-payment for the export of goods is permitted for further processing, re-import, business samples, testing and as personal effects.
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