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

Registration of Businesses Act 1956 (“ROBA 1956”).

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

No, a sole proprietorship does not have a separate legal personality from its owner.

(Maximum) period of existence

The sole proprietorship will cease to exist upon the death of the owner or when the owner chooses to terminate the business.

Governing document(s)

Not applicable for a sole proprietorship.

Liability of incorporators / shareholders

Unlimited liability. The owner is fully responsible for all of the liabilities of the business.

(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 sole proprietorships.

Other particularities

The owner of the sole proprietorship must be a Malaysian citizen or a permanent resident in Malaysia and must be at least 18 years old.

A sole proprietorship cannot undertake any charitable / welfare activities or any business specified in the Schedule of the ROBA 1956.

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

A sole proprietorship is not legally prohibited from being involved in international transactions and restructurings. However, its ability to do so is limited by the nature of the business structure, as it lacks separate legal personality and has restricted capacity for formal corporate restructuring.

Can this type of entity be publicly listed or held, or its securities be issued to members of the public?

No, a sole proprietorship cannot be publicly listed or held, nor can it issue its securities to members of the public.

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

No. Generally, for non-profit or charitable organisation, the form of entity to be incorporated is a company limited by guarantee (“CLBG”), and not a sole proprietorship. 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.

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

Main documents required

(a) To incorporate a sole proprietorship, the applicant will have to fill in the Business Registration Form (Form A), which can be obtained at the SSM branch or through the Ezbiz Online services on SSM’s website. The application shall state the following information:

• The name of the business.
• The nature of the business.
• The date of commencement of the business.
• The address of the place of business, and in the case of a business having more than one place of business, the address of the branches.

Involvement of notary, company register, governmental authorities

The registration of the business must be done no later than 30 days from commencement of business.

Timing (estimate)

The applicant can register the sole proprietorship under a trade name or the applicant’s personal name. The SSM office will conduct a name search to ascertain if the proposed name of the sole proprietorship is available.

Main costs, including registration and similar fees (excluding legal fees)

The registration fee is RM60 per year (if the sole proprietorship uses a trade name) or RM30 per year (if the sole proprietorship uses the applicant’s personal name). If the business has branches, the registration fee is RM5 per branch.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

The business will be registered for up to 5 years and will have to be renewed before the expiration date.

Minimum number of incorporators / shareholders and residency requirements

Not applicable for a sole proprietorship, as it is not a separate legal entity from its owner.

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

Not applicable for a sole proprietorship, as it is not a separate legal entity from its owner.

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

A share capital is not applicable for a sole proprietorship, as it is not a separate legal entity and does not issue shares. All capital is contributed directly by the owner as personal funds. The sole proprietorship will be required to open a bank account.

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

Yes, the owner must be a Malaysian citizen or a permanent resident in Malaysia.

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

Sole proprietors are taxes on their personal income. As such, the owner of the sole proprietorship must register for income tax to obtain the tax identification number.

What is the title of the applicable company registry?

Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia) (“SSM”). SSM is a statutory body formed under the Companies Commission of Malaysia Act 2001 and is an agency under the Ministry of Domestic Trade and Cost of Living.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles or other formation document, Articles or other formation document, Group structure, Share capital, Directors, Accounts, Insolvency, good-standing, liquidation, Liens and encumbrances on the shares, Liens and encumbrances on assets of the entity, Other (e.g. litigation, tax matters)

Not applicable for a sole proprietorship, but where a change is made to the particulars registered in respect of the business, the owner shall within 30 days from when the change is made, submit to the registrar of SSM (“Registrar”) the particulars of the change in the prescribed form. The Registrar shall them make the necessary amendments to the register.

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

Not applicable for a sole proprietorship.

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

Not applicable for a sole proprietorship.

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

Not applicable for a sole proprietorship.

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?

Not applicable for a sole proprietorship.

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

Not applicable for a sole proprietorship.

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

Not applicable for a sole proprietorship.

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:

• 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;
• Active politicians are discouraged from being appointed as a director of a PLC; and
• 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 sole proprietorship.

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

A sole proprietorship is not legally required to have its financial statements audited annually but shall keep proper and sufficient records / books of accounts for purposes of income tax.

Is the entity permitted to determine its own financial year?

Not applicable for a sole proprietorship.

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

No, a sole proprietorship is not required to appoint an auditor.

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

No, a sole proprietorship is not required to appoint a company secretary or auditors.

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.

A share capital is not applicable for a sole proprietorship, as it is not a separate legal entity and does not issue shares.

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

Not applicable for a sole proprietorship.

What documentation is required for the transfer of ownership interests?

Not applicable for a sole proprietorship.

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

Not applicable for a sole proprietorship.

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

Not applicable for a sole proprietorship.

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

Not applicable for a sole proprietorship.

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?

Not applicable for a sole proprietorship.

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

Not applicable for a sole proprietorship.

Any requirements with respect to distributions to shareholders?

Not applicable for a sole proprietorship, as it is not a separate legal entity. The owner is fully entitled to the profits generated by the business.

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

Not applicable for a sole proprietorship.

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

A sole proprietorship must maintain a place of business in Malaysia.

A sole proprietorship must renew its business registration certificate upon expiry of the business registration certificate. The renewal fee is RM60 per year (if the sole proprietorship uses a trade name) or RM30 per year (if the sole proprietorship uses the applicant’s personal name). If the business has branches, the renewal fee is RM5 per branch.

Where a change is made to the particulars registered in respect of the business, the owner shall within 30 days from when the change is made, submit to the Registrar the particulars of the change in the prescribed form at the fee of RM10.

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

Sole proprietorships are subject to income tax. No separate corporate tax filing in required.

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

There are none.