The Corporate Laws Series . 21 Feb 2023
I. Introduction to Setting Up a Business in Malaysia
Malaysia has been consistently ranked as among Asia's best countries for starting new businesses. However, one should also be aware of the range of policies and regulations that must be followed in Malaysia to ensure the company is able to benefit from the business friendly policies and pitfalls. This guide will provide an in-depth overview of the key procedures involved in setting up a business, the current state of small business legislation and regulations, their impact on entrepreneurship in Malaysia, business categories.
II. Steps in Setting Up a Business in Malaysia 1. Determine Business Structure: Business in Malaysia must be registered within three months of their establishment either as a company, partnership, sole proprietorship, limited liability partnership, statutory body, foreign company or branch office. 2. Register Your Business: Business registration is done online through the Companies Commission of Malaysia (SSM) portal. This process includes company name approval, registration of the company, and payment of registration fees. 3. Secure Licenses and Permits: Depending on the type of business, certain licenses and/or permits may be required for operation in Malaysia. 4. Tax Registration: All businesses in Malaysia must register for tax purposes with the Inland Revenue Board of Malaysia (LHDN). Companies are required to use the e-Filing online platform for filing taxes. 5. Open a Bank Account: The opening of a corporate bank account is required for company operations in Malaysia. 6. Register Company Employees: All employees must be registered with the Social Security Organisation (SOCSO), and employees earning more than RM 5000/month will be required to contribute a portion of their salary to the Employees Provident Fund. III. Small Business Legislation and Regulations The Companies Act 2016 is the main law governing incorporation and operation of companies in Malaysia. It requires all companies to register with SSM, disclose information about the company, appoint auditors, file annual returns, and make payment of taxation. The Competition Act 2010 regulates competition in Malaysia and creates transparency by preventing companies from forming monopolies. The Marketing of Goods and Services Act 2017 is also in place to regulate consumer rights and prevent false and misleading advertising. The Labor Act 1955 governs the employer-employee relationship in Malaysia and provides rules relating to working hours, wages, health and safety, and other important aspects of employment. IV. Impact on Entrepreneurship The small business legislation and regulations in Malaysia have had a significant impact on entrepreneurship in the country. Business registration is now simpler and more transparent through the online portal, and this has encouraged the establishment of more businesses. The Competition Act has also helped promote competition within the economy and level the playing field for small businesses. The labor laws have also improved workers’ rights and made it easier for entrepreneurs to access talent. Additionally, these regulations have encouraged foreign investment in the Malaysian economy and led to an increase in economic growth.
V. Types of Businesses Categories in Malaysia
1. Sole Proprietorship: This is the most basic, simplest and most common type of business organization in Malaysia. In this type of business, the owner is responsible for all aspects of the business and liable for any debts the business may incur.
2. Partnership: A partnership is an association of two or more individuals who join together to conduct business. The partners agree to share the profits and losses of the business and are jointly liable for the debts of the business. Partnerships must be registered with the Companies Commission of Malaysia, where details of all partners must be disclosed.
3. Limited Liability Partnership: A limited liability partnership is essentially a partnership, but with some additional protection for the partners. In contrast to a standard partnership, in a limited liability partnership all partners are liable only so far as their agreed contribution to the business and not for any losses or debts the business may incur.
4. Private Limited Company: A private limited company is the most popular type of business organization in Malaysia. It has limited liability and is considered a separate entity from its owners, meaning that its owners’ personal assets cannot be used to satisfy the company’s debts. It is also distinct from a partnership in that it must have a minimum of two shareholders and a maximum of fifty.
5. Public Limited Company: A public limited company is any company that is listed on the stock exchange, either in Malaysia or overseas. The owners of public limited companies are not liable for any debts the company may incur and ownership interests are freely transferable. Public limited companies are often large businesses and must comply with all regulations applicable to listed companies.
6. Professional Association: Professional associations are organizations that are made up of professionals, such as lawyers, engineers, and other skilled professionals. These associations are primarily established to promote, advance and maintain ethical standards among members and the profession in general.
7. Religious, Charitable and Educational Institution: Religious, charitable and educational organizations may be formed for the purpose of carrying out religious, educational or charitable activities. Such organizations are usually established as companies limited by guarantee with the specific purpose of running and managing certain activities for the benefit of the public.
In our next post, I will provide a guide at forming the new generation of businesses ie blockchain and fintech businesses in Malaysia.