Forms of Business Organisation

(1) What are the forms of business organisation a person can establish to carry on business in Malaysia?

A number of entities can be used to establish a business presence in Malaysia, namely: (a) sole proprietorship; (b) partnership (conventional or limited liability); (c) locally incorporated company (limited by shares or guarantee or unlimited); (d) branch of foreign corporation; or (e) representative office.

Which entity should be used by a business depends primarily on the nature of the contemplated business activity. Factors to be taken into consideration include issues of liability, capital requirements and regulatory requirements.

(2) If a foreign corporation intends to have a presence in Malaysia to gather and analyse information for investment and business opportunities in Malaysia without carrying on any business, is there any alternative form of organisation available to the foreign corporation?

Yes. The foreign corporation can register with the Malaysian Government via the Malaysian Investment Development Authority (“MIDA”) as a representative office to collect relevant information on investment opportunities in Malaysia especially in the manufacturing and services sectors, enhance bilateral trade relations, promote the export of Malaysian goods and services and carry out research and development (R&D). The representative office is strictly not allowed to carry on any business activities in Malaysia, for e.g. the trading of goods, leasing of warehousing facilities, provision of goods or services for a fee or entry into contract with customers.

(3) Which is the most commonly used form of business organisation for a foreign investor in Malaysia and why?

A locally incorporated company limited by shares. Similar to companies limited by shares in other common law jurisdictions, it has a separate legal personality which is distinct and separate from the foreign investor and accordingly, any liability or contingent liability that may arise from its investment and commercial activities in Malaysia is limited to that of the local company. In other words, the foreign investor will not be personally or directly liable for the liabilities of the local company. In addition, the Malaysian government requires, as a matter of policy, businesses in certain industries (for e.g. distributive trade) to be undertaken by a locally incorporated company.

(4) What is a branch of foreign corporation?

A foreign branch is a branch/office registered by a foreign corporation with the Companies Commission of Malaysia (“CCM”) to carry on business in Malaysia. Unlike a locally incorporated company, it does not have separate legal personality and accordingly, the foreign corporation is responsible for any liability that may arise from its investment and commercial activities in Malaysia. It is easier to administer than a locally incorporated company and the closure of a branch is a simpler process compared to that of a company.

(5) What are the key requirements of incorporating a local company?

Some key requirements of incorporating a local company are as follows:

(a) A minimum of one Malaysian resident director.
(b) A minimum of one Malaysian resident qualified company secretary.
(c) A minimum of one person to be named as first subscribers in the Articles of Association of the company.
(d) The registered office of the local company must be situated in Malaysia.
(e) Each of the subscribers is required to subscribe no less than one share in the company. In practice, the nominal value of the shares in the company is typically RM1 for each share.

(6) Is there any fee payable for registration of share capital of a local company?

Yes. The registration fees (commonly known as capital duty) is payable to CCM. The registration fee is RM1000.

(7) Are there any websites which a prospective investor may look for more detailed information on procedures of establishing a local presence in Malaysia or some useful information on investment in Malaysia?

Yes. Please visit the website of CCM at https://www.ssm.com.my/en for the procedures on establishment of a local presence in Malaysia and the website of MIDA at http://www.mida.gov.my/home/ for further information on investment in the manufacturing and services sectors in Malaysia.