Malaysia's Industrial Co-ordination Act 1975 (ICA) was introduced with the aim to maintain an orderly development and growth in the country's manufacturing sector.
The ICA requires manufacturing companies with shareholders' funds of RM2.5 million and above or engaging 75 or more full-time paid employees to apply for a manufacturing licence for approval by the Ministry of International Trade and Industry (MITI).
Applications for manufacturing licences are to be submitted to the Malaysian Investment Development Authority (MIDA), an agency under MITI in charge of the promotion and coordination of industrial development in Malaysia.The ICA defines:
- "Manufacturing activity" as the making, altering, blending, ornamenting, finishing or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal; and includes the assembly of parts and ship repairing but shall not include any activity normally associated with retail or wholesale trade.
- "Shareholders' funds" as the aggregate amount of a company's paid-up capital, reserves, balance of share premium account and balance of profit and loss appropriation account, where:
- Paid-up capital shall be in respect of preference shares and ordinary shares and not including any amount in respect of bonus shares to the extent they were issued out of capital reserve created by revaluation of fixed assets
- Reserves shall be reserves other than any capital reserve created by revaluation of fixed assets and provisions for depreciation, renewals or replacements and diminution in value of assets.
- Balance of share premium account shall not include any amount credited therein at the instance of issuing bonus shares at premium out of capital reserve by revaluation of fixed assets.
- "Full-time paid employees" as all persons normally working in the establishment for at least six hours a day and at least 20 days a month for 12 months during the year and who receive a salary.
This includes traveling sales, engineering, maintenance and repair personnel who are paid by and are under the control of the establishment.
It also includes directors of incorporated enterprises except those paid solely for their attendance at board of directors meetings. The definition encompasses family workers who receive regular salaries or allowances and who contribute to the Employees Provident Fund (EPF) or other superannuation funds.
The government's guidelines for approval of industrial projects in Malaysia are based on the following criteria:
- Projects must have Capital Investment Per Employee (CIPE) of at least RM140,000.00; and
- Total full-time workforce of the company must comprise at least 80% of Malaysians. Employment of foreign workers including outsourced workers is subjected to current policies; and
- Total number of staff at managerial, technical and supervisory levels (MTS) is at least 25% of total employment or having a value added (VA) of at least 40%.
A licensed company which desires to expand its production capacity or diversify its product range by manufacturing additional products will need to apply to MIDA.
In Malaysia, a business may be conducted:
- By an individual operating as sole proprietor
- By two or more (but not more than 20) persons in partnership, or
- By a limited liability partnership (LLP), or
- By a locally incorporated company or by a foreign company registered under the provisions of the CA 1965
All sole proprietorships and partnerships in Malaysia must be registered with the Companies Commission of Malaysia (SSM) under the Registration of Businesses Act 1956. In the case of partnerships, partners are both jointly and severally liable for the debts and obligations of the partnership should its assets be insufficient. Formal partnership deeds may be drawn up governing the rights and obligations of each partner but this is not obligatory.
The CA 1965 governs all companies in Malaysia. The Act stipulates that a a company must be registered with the SSM in order to engage in any business activity.
There are three (3) types of companies that can be incorporated under the CA 1965:
- A company limited by shares is a company formed on the principle that the members' liability is limited by the memorandum of association to the amount, if any, unpaid on the shares taken up by them
- In a company limited by guarantee the liability of the members is limited by the Memorandum and Articles of Association to the amount which the members have undertaken to contribute to the assets of the company in the event the company is wound up.
- An unlimited company is a company formed on the principle of having no limit placed on the liability of its members
Company Limited by Shares
The most common company structure in Malaysia is a company limited by shares. Such limited companies may be incorporated either as a Private Limited Company (identified through the words "Sendirian Berhad" or "Sdn Bhd" as part of the company's name) or a Public Limited Company (identified through the words "Berhad" or "Bhd" as part of the company's name).
A company having a share capital may be incorporated as a private company if its Memorandum and Articles of Association:
- Restricts the right to transfer its shares
- Limits the number of its members to 50, excluding employees in the employment of the company or its subsidiary and some former employees of the company or its subsidiary.
- Prohibits any invitation to the public to subscribe for its shares and debentures
- Prohibits any invitationto the public to deposit money with the company for fixed periods of payable at call, whether interest-bearing or interest-free.
A public company can be formed or, alternatively, a private company can be converted into a public company subject to Section 26 of the Companies Act 1965. Such a company can offer shares to the public provided:
- It has registered a prospectus with the Securities Commission
- It has lodged a copy of the prospectus with the SSM on or before the date of its issue.
A public company can apply to have its shares quoted on the Bursa Malaysia subject to compliance with the requirements laid down by the exchange. Any subsequent issue of securities (e.g. issue by way of rights or bonus, or issue arising from an acquisition, etc.) requires the approval of the Securities Commission.
To incorporate a company, an application must be made to the SSM using Form 13A together with a payment of RM30(for each name applied) in order to determine if the proposed name of the intended company is available. The application will be approved if name is available and the proposed name will be reserved for the applicant for three months.
The following incorporation documents are to be submitted to the SSM within the three months from the date of the approval of the company's name:
- Memorandum and Articles of Association
- Declaration of Compliance (Form 6)
- Statutory Declaration by a person before appointment as a director, or by a promoter before incorporation of a company (Form 48A)
- Additional documents which would include:
- The original Form 13A
- A copy of the letter from SSM approving the name of the company
- A copy of the identity card of each director and company secretary or a copy of the passport where a foreign director is appointed.
The Memorandum of Association documents the company's name, the objectives, the amount of its authorised capital (if any) proposed for registration and its division into shares of a fixed amount. The Articles of Association describes the regulations governing the internal management of the affairs of the company and the conduct of its business.
Once the Certificate of Incorporation is issued, the company shall be a body corporate, capable of exercising the functions of an incorporated company and of suing and being sued. It has a perpetual succession under common seal with power to hold land, but with such liability on the part of the members to contribute to its assets in the event of it being wound up, as provided for in the CA 1965.
At present, the incorporation of local companies can be completed within one (1) day through the introduction of the single interaction counter which was introduced since 1 April 2010. SSM undertakes to process, approve and register a complete application in a speedy and efficient manner within the time period stated as follows:
|SSM's Client Charter|
|Company Registration Activity||Time|
|Incorporation of a company||1 day|
|Conversion of status||1 day|
|Change of company name||1 day|
|Commencement of business for public companies||1 day|
|Registration of charge||2 days|
|Approval of a trust deed||5 days|
|Registration of prospectus||3 days|
|Uncertified copy of company documents||30 mins|
|Certified copy of company documents||1 hour|
* Application for the approval of company name only, may be made without incorporating the company.
** Time taken begins from the moment payment is received until the certificate is issued.
Requirements of a Locally Incorporated Company
A company must maintain a registered office in Malaysia where all books and documents required under the provisions of the Act are kept. The name of the company shall appear in legible romanised letters, together with the company number, on its seal and documents.
A company cannot deal with its own shares or hold shares in its holding company. Each equity share of a public company carries only one vote at a poll at any general meeting of the company. A private company may, however, provide for varying voting rights for its shareholders.
The secretary of a company must be a natural person of full age who has his principal or only place of residence in Malaysia. He must be a member of a prescribed body or is licensed by the Registrar of Companies. The company must also appoint an approved company auditor to be the company auditor in Malaysia.
In addition, the company shall have at least two directors who each has his principal or only place of residence within Malaysia. Directors of public companies or subsidiaries of public companies normally must not exceed 70 years of age. A director of the company need not necessarily be a shareholder of the company.
A foreign company may carry on business in Malaysia by either:
- incorporating a local company; or
- registering a branch in Malaysia.
Foreign company is defined under the CA 1965 as:
- a company, corporation, society, association or other body incorporated outside Malaysia; or
- an unincorporated society, association, or other body which under the law of its place of origin may sue or be sued, or hold property in the name of the secretary or other officer of the body or association duly appointed for that purpose and which does not have its head office or principal place of business in Malaysia.
- Applicant must first conduct a name search in order to determine if the proposed name for the intended company is available. The name to be used to register the foreign company should be the same as registered in its country of origin. Applications should be submitted to the SSM using Form 13A with a payment of RM30 for each name applied. When the proposed company's name is approved by SSM, it shall be valid for three months from the date of approval.
- Upon approval, applicants must submit the following registration documents to the SSM within three months from the date of approval:
- A certified copy of the certificate of incorporation or registration of the foreign company;
- A certified copy of the foreign company's charter, statute or Memorandum and Articles of Association or other instrument defining its constitution;
- Form 79 (Return by Foreign Company Giving Particulars of Directors and Change of Particulars) If the list includes directors residing in Malaysia who are members of the local board of directors of the foreign company, a memorandum stating their powers that are executed by or on behalf of the foreign company, should be submitted to SSM.
- A memorandum of appointment or power of attorney authorising the person(s) residing in Malaysia, to accept on behalf of the foreign company any notices required to be served on such foreign company;
- Form 80 (Statutory Declaration by Agent of Foreign Company); and additional documents consisting of the original Form 13A as well as a copy of the letter from SSM approving the name of the foreign company.
Note: If any of the described registration documents are in languages other than Bahasa Malaysia or English, a certified translation of such documents in Bahasa Malaysia or English shall be required.
|Authorised Share Capital (RM)||Fees Payable (RM)|
|Up to 100,000||1,000|
|100,001 - 500,000||3,000|
|500,001 - 1,000,000||5,000|
|1,000,001 - 5,000,000||8,000|
|5,000,001 - 10,000,000||10,000|
|10,000,001 - 25,000,000||20,000|
|25,000,001 - 50,000,000||40,000|
|50,000,001 - 100,000,000||50,000|
In determining the amount of registration fees, the nominal share capital of the foreign company should first be converted to the Malaysian currency (Ringgit Malaysia) at the prevailing exchange rate. In the event a foreign company does not prescribe any share capital, a flat rate of RM1,000 shall be paid to SSM.
E-Services were introduced as an alternative to the traditional method of conducting business with SSM i.e. via counter services. It allows for the lodgement of documents (e-Lodgment Service) and the procurement of corporate and business information (e-Info Service). Payments can be made via credit card, direct debit or prepaid accounts.
E-lodgment or also known as e-filing would enable companies, business or their authorised personnel to lodge selected statutory required documents over the Internet through the myGovernment portal/Public Service Portal (PSP). Whereas e-Info service enables for the online purchase of corporate and business information.
Malaysia has always welcomed investments in its manufacturing sector. Desirous of increasing local participation in this activity, the government encourages joint-ventures between Malaysian and foreign investors.
Equity policy for New, Expansion, or Diversification Projects
Since June 2003, foreign investors could hold 100% of the equity in all investments in new projects, as well as investments in expansion/diversification projects by existing companies, irrespective of the level of exports and without excluding any product or activity.
The equity policy also applies to:
- Companies previously exempted from obtaining a manufacturing licence but whose shareholders' funds have now reached RM2.5 million or have now engaged 75 or more full-time employees and are thus required to be licensed.
- Existing licensed companies previously exempted from complying with equity conditions, but are now required to comply due to their shareholders' funds having reached RM2.5 million.
Equity Policy Applicable for Existing Companies
Equity and export conditions imposed on companies prior to 17 June 2003 will be maintained. However, companies can request for these conditions to be removed and approval will be given based on the merits of each case.
Malaysia's commitment in creating a safe investment environment has attracted more than 8,000 international companies from over 40 countries to make Malaysia their offshore base.
A company whose equity participation has been approved will not be required to restructure its equity at any time as long as the company continues to comply with the original conditions of approval and retain the original features of the project.
Investment Guarantee Agreements
Malaysia's readiness to conclude Investment Guarantee Agreements (IGAs) is a testimony of the government's desire to increase foreign investor confidence in Malaysia. IGAs will:
- Protect against nationalisation and expropriation
- Ensure prompt and adequate compensation in the event of nationalisation or expropriation
- Provide free transfer of profits, capital and other fees
- Ensure settlement of investment disputes under the Convention on the Settlement of Investment Disputes of which Malaysia has been a member since 1966.
Malaysia has concluded IGAs with the following groupings and countries (in alphabetical order):
- Association of South-East Asian Nations (ASEAN)
- Organisation of Islamic Countries (OIC)
|Bangladesh||Iran||Slovak, Republic of|
|Bosnia Herzegovina||Jordan||Sri Lanka|
|Bostwana||Kazakstan||Sudan, Republic of|
|Burkina Faso||Korea, North||Sweden|
|Canada||Kuwait||Syarian Arab Republic|
|Chile, Republic of||Kyrgyz, Republic of||Taiwan|
|China, People's Republic of||Laos||Turkey|
|Cuba||Macedonia||United Arab Emirates|
|Czech Republic||Malawi||United States of America|
|Djibouti, Republic of||Morocco||Uruguay|
|Ethiopia, Republic of||Netherlands||Vietnam|
|Germany||Papua New Guinea|
Convention on the Settlement of Investment Disputes
In the interest of promoting and protecting foreign investment, the Malaysian government ratified the provisions of the Convention on the Settlement of Investment Disputes in 1966. The Convention, established under the auspices of the International Bank for Reconstruction and Development (IBRD), provides international conciliation or arbitration through the International Centre for Settlement of Investment Disputes located at IBRD's principal office in Washington.
Kuala Lumpur Regional Centre of Arbitration
The Kuala Lumpur Regional Centre for Arbitration was established in 1978 under the auspices of the Asian-African Legal Consultative Organisation (AALCO) - an inter-governmental organisation cooperating with and assisted by the Malaysian government.
A non-profit organisation, the Centre serves the Asia Pacific region. It aims to provide a system to settle disputes for the benefit of parties engaged in trade, commerce and investments with and within the region.
Any dispute, controversy or claim arising out of or relating to a contract, or the breach, termination or invalidity shall be decided by arbitration in accordance with the Rules for Arbitration of the Kuala Lumpur Regional Centre for Arbitration.
Read more on Arbitration Act 2005