What is the main source of law authorising this entity form?

The Malaysian Companies Act 2016 (“CA 2016”) and the Companies Regulations 2017

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

A Sdn Bhd has a legal personality separate from that of its members.

(Maximum) period of existence

There is no maximum period of existence. A Sdn Bhd has perpetual succession and continues in existence until it is removed from the register.

Governing document(s)

A Sdn Bhd may or may not have a constitution. If a Sdn Bhd adopts a constitution (referred to as Memorandum and Articles of Association under the repealed Companies Act 1965), the Sdn Bhd will be governed by its constitution. The Sdn Bhd adopts a constitution by way of special resolution and the constitution of the Sdn Bhd shall have no effect to the extent that it contravenes or is inconsistent with the provisions of the CA 2016.

Liability of incorporators / shareholders

The liability of the shareholders for the debts of a Sdn Bhd is limited to the amount, if any, unpaid on shares held by the shareholders.

(Governing) bodies

The Companies Commission of Malaysia (“SSM”), a statutory body formed under the Companies Commission of Malaysia Act 2001, is the main governing body which regulates matters relating to companies registered under the CA 2016.

Other particularities

Under the CA 2016, there are statutory and fiduciary duties imposed in the directors of the Sdn Bhd.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Yes. Generally, Malaysian incorporated companies have the legal capacity and ability to participate in cross border mergers, asset acquisitions and equity acquisitions.

Can this type of entity be publicly listed or held?

No, a Sdn Bhd cannot be listed or publicly held. However, a Sdn Bhd may convert to a public company by passing a special resolution of the members. Once the Sdn Bhd has been converted into a public company (“Public Company”), the Public Company can apply to be listed on Bursa Malaysia, the stock exchange of Malaysia. Thereafter, the shares of the Public Company shall be publicly held.

Can this type of entity be used for a non-profit or charitable organization?

No. Generally, for non-profit or charitable organization, the form of entity to be incorporated is a company limited by guarantee (“CLBG”), and not a Sdn Bhd. A CLBG is prohibited from having a share capital. A CLBG is also required to have a constitution.

A CLBG may only hold any land or property if it is issued with a licence by the Ministry of Domestic Trade and Consumer Affairs (Minster).

Give a brief summary of the process of incorporation, formation, or organization, including:

(1) Main documents required; (2) Involvement of notary, company register, governmental authorities; (3) Timing (estimate); (4) Main costs, including registration and similar fees (excluding legal fees); (5) Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

The following are the steps that must be carried out to incorporate as a Sdn Bhd:

These steps are to be carried out on the SSM’s online incorporation and registration portal, known as My Corporate Identity (“MyCoID”).

Pre-incorporation steps:

A name search must be conducted with SSM to ensure the proposed name for the new company is available. Once approved, the approved name will be reserved for an initial period of 30 days for a fee of RM50.00 payable to SSM. The reservation of the proposed name of the new company can be extended by the promoter for a maximum of 150 days, with a fee of RM50.00 payable to SSM for every 30-day extension.

Incorporation steps:

 

1. Lodging the application to incorporate the new company (“NewCo”) with the SSM. This is done by way of the submission of a ‘Super Form’ via the MyCoID portal. The following information needs to be provided:
1. The name of the company
2. The type of company (i.e. private or public company)
3. The nature of business to be conducted by the NewCo
4. The address of registered office
5. The address of the place of business
6. Personal details of director(s) and promoter(s)
7. Declaration from the director(s) and promoter(s) that he/she is not disqualified under the CA 2016.
2. Declaration of Compliance: This duty declaration needs to state that the promoter has complied with all the requirements of the CA 2016.
3. Additional Documents: If the name of the NewCo is similar to that of a related or associated corporation (i.e its member), or is a trademark, a consent letter must be obtained from the said corporation, or owner of the trademark, for the NewCo to use such name.
4. A notice of approval and registration of the NewCo will be issued by the SSM, and a certificate of incorporation will be issued by SSM upon request.
5. The timeline for incorporation is estimated to be 1 working day from the date of submission of the “Super Form” to the SSM provided that there are no further queries by the SSM.
6. The fixed fee for incorporation of a private company limited by shares payable to the SSM is RM1,000.00, regardless of the amount of the issued and paid up capital of the NewCo.

Minimum number of incorporators / shareholders and residency requirements

Minimum 1 shareholder/member which can be either a company or an individual, and there are no residency requirements.

Minimum number of directors (or other applicable officers) and residency requirements

Minimum of 1 resident director at any one time, meaning the director shall ordinarily reside in Malaysia by having a principal place of residence in Malaysia.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

For the purposes of incorporation, the minimum share capital for a private company limited by shares is 1 share, typically at the issue price of RM1.00. However, the NewCo would be required to meet certain applicable minimum paid up share capital requirements imposed by the relevant authorities depending on the type of business to be carried out by the NewCo.

The NewCo will need to open a company bank account with a local bank before the NewCo commences its business and before it increases its paid-up capital, as the share application monies to be received by the NewCo for the issuance and allotment of new shares must be deposited into the NewCo’s bank account.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

There is no requirement under the CA 2016 for the directors to be physically present for the purposes of incorporation.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

Yes, a tax registration number is required. The NewCo must register with the Inland Revenue Board to obtain an income tax registration number. Depending on the nature of NewCo business, the NewCo may be required to register with the Royal Malaysian Customs Department to obtain a Sales and Service Tax (“SST”) registration number.

What is the title of the applicable company registry?

Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia) (“SSM”)

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:

The following company information must be filed with the SSM, and is publicly available:

1. Registered address.
2. Business address.
3. Nature of business.
4. Share capital.
5. Director(s).
6. Principal executive officer(s).
7. Company secretary(ies).
8. Shareholder(s).
9. Company charge(s).
10. Auditor(s).
11. Striking off / receivership / corporate rescue mechanism / judicial management order.

The following documents of the company must be filed with SSM, and they are publicly available:

1. Annual returns.
2. Audited financial statements.
3. Constitution.

Documents to be kept at the registered office of the company and not publicly available (except for documents which must be filed with SSM):

1. Notice of registration issued by the SSM.
2. Constitution.
3. Certificates given under the CA 2016 or corresponding previous written law (if any).
4. All registered books, records and documents as required under the CA 2016.
5. Minutes of all meetings of members and resolutions of members.
6. Minutes of all meetings and resolutions of the Board and committees of the Board.
7. Copies of all written communications all member or all holders of the same class of shares.
8. Copies of all financial statements and group financial statement.
9. The accounting records of the company required under the CA 2016.
10. Copies of all instruments creating or evidencing charges as required under the CA 2016.

 

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The board of Directors (“Board”) has all the powers necessary for managing and for directing and supervising the management of the business and affairs of the company in accordance with the provisions of the CA 2016 and the constitution of the company. The Board must exercise its powers in accordance with the CA 2016 for a proper purpose and in good faith acting in the best interest of the company.

How are the members of the executive body appointed, dismissed and replaced?

Appointment of Director

1. A person can be appointed as director of the company in the following manner:
1. By way of an ordinary resolution passed at the general meeting of the company.
2. Appointed by the Board to fill in a casual vacancy in the board.

Removal of Director

1. Subject to the company’s constitution, a director may be removed before the expiration of the director’s period of office by way of an ordinary resolution at the member’s meeting.
2. The resolution for the removal of a director before the expiration of his term in office cannot be passed as written resolution.

Resignation of Director

1. A director may resign from his office by giving a written notice to the company at its registered office.
2. However, a director cannot resign if he is the sole resident director of the company until that director has called a meeting of members / shareholders to receive the notice of resignation and to appoint a new resident director in his place.

Is it possible to appoint corporate directors or must all directors be natural persons?

In Malaysia, only natural persons can be directors. Corporate directorship is not permitted under the CA 2016.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

There is no requirement for a Sdn Bhd to appoint non-executive directors although it may do so.

The CA 2016 does not make any distinction between an executive director and non-executive director, and they jointly form single, one-tier board. As such, the appointment, dismissal and replacement of non-executive directors would be similar to that of an executive director.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The members / shareholders of a company have two important roles:

1. Funding the company’s business (i.e. in a private company limited by shares, members / shareholders provide the capital by subscribing for shares in a company).
2. Decision making – certain decisions regarding the company, which includes but not limited to alterations to the company’s constitution, changes to the share capital, removal of directors, disposal of substantial assets in company and initiating members’ voluntary winding up, are required to be made by members / shareholders of company.

Under the CA 2016, members / shareholders are entitled to make recommendations to the Board on matters affecting the management of the company.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Generally, the quorum for general meetings will be two members personally present at the meeting, unless a higher quorum is specified in the constitution of the company. But for a single-member company, the quorum is that one member personally present at the meeting.

Resolutions passed at the general meetings would usually be passed as an ordinary resolution (i.e. simple majority of more than half of the members/shareholders), unless the constitution of the company provides otherwise.

Special resolutions (i.e. resolution passed by a majority of not less than 75% of members/shareholders who are entitled to vote and do vote in person or by proxy) shall be passed for matters that require a special resolution. Example includes resolutions to amend the company’s constitution and undertaking a capital reduction exercise.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

The Securities Commission of Malaysia (“SC”) issued the Malaysian Code of Corporate Governance (“MCCG”) which provides a set of corporate governance best practices for public listed companies (“PLC”) in Malaysia.

On 28 April 2021 the SC issued an updated MCCG to strengthen the corporate governance culture of PLC. Some of the notable updates are:

1. The Chairman of the Board of Directors should not be a member of the Audit, Nomination or Remuneration Committees. Previously, the restriction was only for the Audit Committee;
2. Active politicians are discouraged from being appointed as a director of a PLC; and
3. All PLC shall have at least 30% women directors on their board. Previously, only large companies were required to adhere to this requirement.

There are no similar guidelines for a Sdn Bhd.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

Filing of annual returns: All companies incorporated under the SSM are required to lodge with the SSM an annual return for each calendar year, not later than 30 days from the anniversary of its incorporation date.

Filing of financial statements: Companies shall lodge with the SSM for each financial year the financial statements and reports by directors and auditors within 30 days from the date of circulation of the financial statements and reports to its members (note: financial statement must be circulated within 6 months from the financial year end). Financial statements are required for all companies, regardless of size.

Is the entity permitted to determine its own financial year?

Yes. However, it must be noted that every company must prepare its first financial statement within 18 months from its date of incorporation.

Is the entity subject to any statutory (external) auditor obligations?

The CA 2016 requires companies to appoint an auditor for each financial year of the company (regardless of size of the company).

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

Appointment of Company Secretary

1. Under the CA 2016, the Board must appoint a company secretary within 30 days from the date of incorporation of the company.
2. Requirements to be a Company Secretary
   1. The secretary shall be a natural person, above 18 years old and a citizen or permanent resident of Malaysia, who shall ordinarily reside in Malaysia by having a principal place of residence in Malaysia.
   2. The secretary shall be a member of one of the Approved Bodies as set out in the CA 2016 or a person licensed by the SSM.
3. The duties and responsibilities of a company secretary includes maintaining and updating all the registers, records and books kept at the registered office as well as complying with the requirements under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act.

Appointment of Auditor

1. Under the CA 2016, companies shall appoint an auditor for each financial year of the companies.
2. Requirements to be an Auditor:
1. An auditor must be a person who has been approved to act as an auditor by the Minister of Finance.
3. Duties of an auditor includes reporting to the members/shareholders on the financial statements and the company’s accounting records.

 

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

In Malaysia, ‘ownership interest’ is commonly known as interest in voting / equity shares.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Yes, subject to the constitution of a company, shares in a company may be issued in different classes.

The types of shares include ordinary and preference shares.

For purposes of the CA 2016, shares are in the same class if the rights attached to the shares are identical in all aspects.

All shares issued do not have par or nominal value but are to be issued at any price to be decided by the board.

What documentation is required for the transfer of ownership interests?

An instrument of transfer (i.e. Form of Transfer of Securities) is required for the transfer of shares.

An instrument of transfer includes a written application for the transmission of share, debenture or other interest to a personal representative.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

The instrument of transfer must be duly executed by the transferee and transferor and be submitted for adjudication at the stamp office for the assessment of stamp duty payable.

The company has to enter the name of the transferee in the register of members as shareholder or register of debenture holders within 30 days from the receipt of the instrument of transfer in order for the transfer of shares to be effected.

Further, the company has to notify the SSM of the changes in the particulars in the register of members within 14 days from the date of the change of any shareholder contained in the register.

Are there any applicable stamp duties imposed when transferring ownership interests?

Yes, the instrument of transfer on any sale of shares will be subject to stamp duty at the rate of 0.3% (RM 3 for every RM1,000 or fractional part of RM1,000) of the value of the shares.

How are shares issued? (including information on payment obligations, registration requirements)

Upon obtaining prior approval by way of a resolution from the members of a company, the directors of the company may exercise their powers –

1. to allot shares in the company;
2. to grant rights to subscribe for shares in the company;
3. to convert any security into shares in the company; or
4. to allot shares under an agreement or option or offer.

The company shall register an allotment of shares in the register of members within 14 days from the date of allotment.

In addition, the company shall also lodge with the SSM a return of the allotment within 14 days from the date of allotment of shares.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

In the event that a share is issued for a consideration other than cash and such allotment is made under a contract in writing, the company shall lodge together with the return of allotment together with the contract evidencing the entitlement of the allottee or a copy of any such contract certified in a manner as may be determined by the SSM.

If a certified copy of a contract is lodged, the original contract duly stamped shall be produced at the same time to the SSM, if so requested by the SSM.

With effect from 31 January 2017, all shares issued do not have par or nominal value but are to be issued at any price to be decided by the Board. The concept of share premium account has been abolished in Malaysia. As such, issuance of share with a premium or contributions without issuing shares are no longer permissible.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

1. Share repurchase is not permissible for Sdn Bhd.
2. A company may reduce its share capital in either one of the following manners:
1. By way of a special resolution by members, subject to confirmation by the Court.
2. By way of a special resolution by members, after a solvency statement has been made by the directors of the company in accordance with the requirements of the CA 2016.

Any requirements with respect to distributions to shareholders?

A company may only make a distribution to the shareholders out of profits of the company and such distribution must be authorised by the directors of the company.

Distribution is only permitted if company is solvent and the directors must be satisfied that the company will be solvent immediately after distribution is made. For the purposes of this section, a company is regarded as solvent if the company is able to pay its debts as and when the debts become due within 12 months immediately after the distribution is made.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes. Detailed provisions governing the agreement among themselves can be set out in shareholders agreements. The constitution of the company will also be amended to reflect the intention of the shareholders, so that the constitution is consistent with the shareholders agreements.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

1. A company must maintain a registered office in Malaysia where all documents and statutory records are stored and kept as required under the CA 2016. The company must notify the SSM any changes to the business address and/or nature of the business of the company.
2. The company must also lodge its annual returns and financial statements and reports with the SSM manually, in accordance with the timelines as set out in the CA 2016. The lodgement fees for the aforementioned documents is currently as follows:
1. Audited financial statements and reports: RM50
2. Non-audited financial statements and reports: RM20 and excludes Sales and Service Tax, payable to SSM.
3. Annual return: RM150.
3. In addition to the lodgement fees, other annual maintenance costs that the company must bear will include the company secretarial service fees and auditor’s fees, which will vary depending on the charges of the service providers.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The standard corporate tax is 24% for 2022, while the rate for resident small and medium-sized companies (i.e. companies incorporated in Malaysia with paid-up capital of RM2.5 million or less and not part of a group of companies which includes a company having capital that exceeds this capitalization threshold) is 17% on the first RM600,000, with the balance being taxed at the rate of 24%.

Summary of any specific matters, e.g. recent or prospective major legal developments

1. Guidelines for the Reporting Framework For Beneficial Ownership (“BO Guidelines”)

Pursuant to the Companies Commission of Malaysia Act 2001, SSM has issued the BO Guidelines applicable to all entities registered with SSM requiring entities to identify the beneficial owners of a legal entity, keeping the beneficial ownership information accurate and up-to -date and to notify the SSM of the beneficial ownership information and any change thereof in accordance with manner to be prescribed by SSM.

2. Companies Act 2016, Section 466(1)(a)

In exercising his power under section 466(1)(a) of the CA 2016, the Minister of Domestic Trade and Consumer Affairs on 22 March 2021 prescribes that with effect from 1 April 2021, the presumption of inability of a company to pay its debt under the CA 2016 only arise if the amount of indebtedness exceeds RM50,000.