Starting a company in Malaysia as a foreigner is not as straightforward as it is for Malaysians because one important criterion for directors in private limited companies is for them to be residing in the country. While you can incorporate your company online, you are required to provide proof of residence in Malaysia to be eligible as a director for your company. Since you are only able to obtain a work visa through your company, in theory, this creates an endless cycle of not being able to obtain a visa due to not being able to incorporate your company. There are 3 ways you can go about obtaining a visa; thus allowing you to run your business in Malaysia as a foreigner.

Apply for Malaysia Tech Entrepreneur Program (MTEP)

In 2017, MDEC introduced the MTEP together with Malaysia Digital Hub (MDH) with the mission to facilitate the country's tech startup ecosystem by providing work visas for foreign tech entrepreneurs who want to establish businesses in the ASEAN market from Malaysia. There are two types of work visas under this program — Professional Visit Pass (PVP-MTE) which is valid for 1 year, and Residence Pass (RP-MTE), which is valid for up to 5 years for new foreign entrepreneurs and established foreign entrepreneurs respectively. This is the only program that provides you with a visa before incorporating a company. However, it only applies to entrepreneurs who run tech businesses.

Eligibility of new foreign entrepreneurs for MTEP application

• Is non-Malaysian with no criminal record in their residing country.
• Is self-employed with an innovative digital business idea and a strong digital proposition.
• Has a minimum amount of RM50,000 in their personal bank account for at least 3 months before the application.
• Has a recognised sponsoring organisation registered under MDH or MaGIC who is able to vouch for your presence in Malaysia and also be responsible for your stay, maintenance and repatriation while you reside in Malaysia. MDEC shall be your sponsoring organisation if you are not able to find one.
• Has signed up with one of the MDHs (It is wise to check with the MDHs if they can refund the tenancy payment in case the work visa application is rejected).

Eligibility of established foreign entrepreneurs for MTEP application

• Is non-Malaysian with no criminal record in their residing country.
• Is self-employed with a strong digital proposition and a proven track record (more than 3 years established with the latest 2-year financial records).
• Has a minimum amount of RM50,000 in their personal bank account.
• Has proof of business performance.
• Has a Malaysian individual above the age of 21 years old as your sponsor who is able to vouch for your presence in Malaysia and also be responsible for your stay, maintenance and repatriation while you reside in Malaysia.
• (for venture capital) Founder, co-founder, or the Malaysian Venture Partner with minimum funds of RM10mil and registered as a Venture Capital Management Corporations (VCMC) with Securities Commission Malaysia.

Hire a country manager

If you are running an existing business in your home country and do not have plans to relocate to Malaysia immediately, you can employ a country manager in Malaysia through an Employer on Record (EoR) to lay the foundation before you officially expand your business to Malaysia. Once trust is established between you and the country manager, you can incorporate your company by appointing the country manager as one of the directors. To ensure more flexibility in the company's governance, you can adopt a constitution and state that signatures from a majority of directors can pass a board resolution without the signatures of all directors.

Once you're ready to apply for a visa which would allow you to enter Malaysia under the Employment Pass, you are required to inject a minimum amount of paid-up capital in order for your company to be eligible to apply for a work visa for you. There are 2 types of visas for foreigners, Employment Pass (Category II) Expatriate, which is valid for 2 years, and Employment Pass (Category I) Expatriate, which is valid for 5 years.

Minimum paid-up capital requirement of your company for Employment Pass application

• RM350,000 for a joint venture with minimum foreign equity of 30%.
• RM500,000 for a 100% foreign-owned company.
• RM1,000,000 for a foreign-owned company (foreign equity at 51% and above) operating in the Wholesale and Retail Trade (WRT) sector or involved in the subsectors on non-regulated services.

Your eligibility for Employment Pass application

• Has a basic monthly salary between RM5,000 and RM9,999 for Employment Pass (Category II) or more than RM10,000 for Employment Pass (Category I).
• Has an employment contract up to 2 years for Employment Pass (Category II) or up to 5 years for Employment Pass (Category I).
• Has minimum equity of 30% in the company.
• Must be a company director or hold a key position in the company.

Get employed under an Employer on Record (EoR)

In order to establish your residency in Malaysia so that you are eligible to incorporate a company here, you can get in touch with a EoR to get employed as a country manager of your business. The EoR will apply for an employment pass for you to work under their company. Once you have settled down in Malaysia, you can incorporate a company as a director since you have fulfilled the requirement of residing in the country.

After running the company for several months and having proved that your company has good financial records, your company can apply for an Employment Pass as an employer for you. As mentioned above, there is a minimum paid-up capital requirement to meet and you are required to be employed under your own company. When your application is approved, you can switch your visa from the EoR over to your own company's visa.

It is not recommended to appoint a nominee director who has no stake in your business just to set up a company in Malaysia for the following reason — according to the Companies Commission of Malaysia (SSM)'s regulations, a nominee director is no different compared to an actual director for your company. It can pose a risk to yourself and your business in any case of misconduct. Hence, it is advisable to find a trustworthy business partner who resides in Malaysia to start the company together if you are not able to relocate to this country.

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Special thanks to Tejvinder from Great Pyramid for this content collaboration! Great Pyramid is a HR and immigration solutions provider based in Malaysia. They provide assistance to businesses as an Employer on Record (EoR) and also in staff recruitment, besides assisting in Employment Pass application.

Starting a business with no prior experience and funding can be stressful, especially when you are still testing out the market for your minimum viable product (MVP). The stakes are high, so it makes sense to keep the cost of starting out as low as possible until you are confident that there is a demand for your product and you are ready to go all out for the business. Here are 7 ways you can save the cost of starting a business in Malaysia.

Register a sole proprietorship / partnership instead of a Sdn Bhd

It is illegal to carry out any business without registering with the Companies Commission of Malaysia (SSM). There is a total of 8 business entities in Malaysia that you can register with the SSM. If you are starting small with little concern over personal liabilities and taxes, it is recommended to register a sole proprietorship alone or a partnership with other business partners. Unlike Sdn Bhd which is stricter in terms of compliance, sole proprietorships or partnerships are cheap to register and are sufficiently compliant with the regulations of the SSM. You can always make a transition from a Sole Proprietorship or Partnership to a Sdn Bhd later on.

Comparison of costs between sole proprietorship / partnership and Sdn Bhd

Sole proprietorship and partnership fall under Registration of Business (ROB) while Sdn Bhd falls under Registration of Company (ROC) which is governed by different laws. Here's a table for the comparison of costs between sole proprietorship / partnership and Sdn Bhd.

Business Entities	Registration Fee	Yearly/Monthly Fee
Sole proprietorship/partnership	- RM60 for registration using a trade name - RM30 for registration using your personal name as stated on the IC	It is required to renew your business annually. - RM60 / year for businesses using a trade name - RM30 / year for businesses using personal names
Sdn Bhd	RM1,000 for company incorporation	It is required to appoint a company secretary for your company which requires a monthly retainer fee. The cost of a company secretary varies from firm to firm. It can range between RM60 - RM200 / month. Besides, other mandatory compliance, such as annual returns lodgement, financial report auditing, and share transfer, may induce additional costs on top of the company secretary's monthly retainer fee.

Use a self-managed accounting software instead of outsourcing accounting services

Having proper bookkeeping and accounting records is essential in keeping track of your business's cash flow and makes tax filling easy to manage later on. Accounting services can be expensive in Malaysia; hence, doing it yourself when you've just started might be the better choice. It might seem intimidating to do bookkeeping and accounting on your own if you have no experience, but with accounting software, you can easily record your income by issuing invoices through the software and recording your expenses by taking a snapshot of the receipts.

 

Comparison of costs between self-managed accounting software and accounting services

Accounting software is designed to reduce the workload of accounting and bookkeeping work. Most accountants who provide you with accounting services use the software as well. Here's a table for the comparison of costs between self-managed accounting software and accounting services.

	Cost
Self-managed accounting software	Around RM100 / month for unlimited transactions.
Accounting services	Starting from RM300 / month and increases based on the number of transactions each month.

*Special thanks to Jye Eng from Bukku for providing insights on this subject matter. Bukku provides online accounting software & cloud-based accounting services for small businesses in Malaysia.

Work from a coworking space instead of renting an office

While many people choose to work from a home office when they have just started, your home might not be the best place to work from, especially if you have a family. Getting a desk or designated area to work at a coworking space which is designed specifically for productivity might be a good idea compared to renting an entire office. There are no worries on the maintenance of the office, receiving mails, paying utility bills, and most importantly, you don't have to pay an initial huge amount of money in setting up the office which usually comes with a minimum of 3-year lease term.

Illustration of how cash flow can be saved by working from a coworking space instead of renting an office

Up to 40% of your cash flow can be saved and to be utilised for other crucial business operations by working from a coworking space instead of renting an office. Here's how.

*Special thanks to Camilla from WORQ for providing insights on this subject matter. WORQ is a productivity community that believes in improving the productivity of entrepreneurs, freelancers and businesses can have a significant impact on the economy.

Hire freelancers instead of employing full-time staffs

When you are at the stage of testing out the market, you might need to get several things that are out of your expertise done, or you are just too busy to handle these tasks on your own. Whether it's designing a promotional banner, setting up a Facebook advertisement, or handling online enquiries regarding your business, it is cheaper to engage with freelancers who are paid on per-project or per-hour basis. Not only things are done as needed, but you also don't have to add on a recurring cost by hiring full-time staff, at least not in the early stages of your business.

Comparison of time taken and costs between hiring a full-time and freelance web developer

Hiring a freelancer through a specialised platform allows you to get a suitable candidate within 48 hours and to save up to 55% in manpower cost. This efficiency allows startups to make it through the first stages as soon as possible. Here's an example of hiring a full-time or freelance web developer.

	Time taken for the hiring process	Cost
Full-time web developer	Around 2 - 3 months	Average salary of RM5,500
Freelance web developer	Within 1 week	Starting cost of RM 2,500 per project

Focus on marketing efforts that lead to organic growth

While it seems more straightforward to spend money on paid marketing, such as Google Ads, Facebook ads, and influencer marketing, to gain attention for your business, the visibility of your business drops as soon as you stop spending. Hence, it is better to place more emphasis in creating valuable content that can benefit your customers and to improve your products based on customers' feedback so that your business is developed based on a strong foundation of trust and loyalty from your customers.

Examples of organic growth strategies

Gaining traction based on organic growth strategies is a marathon that takes time but it is sustainable in the long run. Here are some examples of organic growth strategies:

• Content marketing
  Create informative articles and infographics that are useful for your potential customers and customers.
• Search engine optimisation (SEO)
  Make sure your website and blog articles follow the best practice of SEO to rank better so that potential customers discover your business on Google search.
• Social media marketing
  Maintain a social media presence and provide insights based on the latest trends on the internet to stay on top of followers' mind.
• Customer experience
  Assist your customers the best you can to leave a good impression because word-of-mouth is a very powerful organic growth strategy.

Develop a commission-based sales / referral programme

At the early stage of your business, sales volume would be the most important criteria that determine whether your business is worth pursuing. Setting up a commission-based sales programme where eager salespersons get paid based on actual conversions reduces the risk of selling at a loss and motivates the salespersons to close as many sales as possible. On the other hand, a referral programme allows bloggers or other businesses to promote your business and get a cut based on each successful conversion.

Examples of sales commission structures

At the early stage of your business, you might need to experiment on various sales commission structures before deciding on a suitable one.

Sales commission structures	How it works
Basic salary + commission	A fixed salary with commission at a ratio of 60:40.
Straight commission	No basic salary. Only commission.
Basic salary + relative commission	A fixed salary with a commission where a percentage from the total fixed commission is earned based on the percentage of sales target hit.
Basic salary + absolute commission	A fixed salary with a commission where a fixed amount of commission is paid for each conversion instead of a percentage.
Basic salary + straight-line commission	A fixed salary with commission where a percentage from the total fixed commission is earned. However, if the sales target is exceeded, the commission increases.
Basic salary + tiered commission	A fixed salary with commission which increases as sales milestones are hit.
Basic salary + territory volume commission	A fixed salary with commission which is paid to the team of salespersons in clearly defined regions.

*Information taken from Hubspot's article on sales commission.

Potential referrers who can refer customers to your business

Besides monetary referral fee for each new customers referred to your business, you can offer other incentives such as discounts, free gifts, a free month of subscription, etc. to your referrers. Your potential referrers can consist of:

• Existing customers
• Bloggers who write about topics in your industry
• Affiliate marketers

Utilise free versions of software to better manage your business

From staying on track with your daily to-dos to managing paperwork of your business, spreadsheets might not be the most efficient way to make sure everything is in order due to its various limitations. There are many software in the market that comes with a free tier for you to try out before upgrading to a higher tier once your business grows. You have limited time and resources on your hands. Utilising the right tools can reduce your workload so that you don't have to hire an assistant to sort things out on your behalf.

The software suggestions listed below are for reference only, there are lots of software available in the market. Do check out their features to decide the ones that suit your business needs the most.

Project management software

To keep track of the progress of each important department of your business such as product development, marketing, and governance.

• Trello
• Asana
• Monday.com

Customer relationship management software

To manage leads that come in so that you can understand where they come from and reach out to them accordingly.

• EngageBay
• Bitrix24
• Flowlu

Electronic signature software

To sign legally binding documents so that you do not have to do it in-person or dispatch physical documents. It is recommended to adopt electronic signature for your business.

• HelloSign
• EverSign
• PandaDoc

Marketing analytics software

To understand your website traffics quantitatively and qualitatively so that you can identify your target audience and make adjustments to your website for better conversion.

• Google Analytics
• Matomo
• Heap

The practise of good financial management begins with streamlining costs and making sustainable changes tailored to your business' needs. Regardless of the stage your business is currently at, it is always wise to plan ahead with the purpose of reducing business expenses in the long run. Get started by implementing these ideas today!

After incorporating a company in Malaysia, the next step would be to appoint a company secretary within 30 days to fulfil the requirement as stated in the Companies Act 2016. While it is common to appoint a company secretary recommended to you through word-of-mouth, digital company secretarial firms have emerged in recent years as the choice for entrepreneurs who prefer efficient online processes over traditional ways of dealing with paperwork. Here are 4 reasons why opting for a digital company secretarial firm could be better for your company.

 

Legal in Malaysia

One of the most common concerns regarding the appointment of a company secretary from a digital company secretarial firm in Malaysia is its legality. Although there are not many players in the market at the moment, digital company secretarial firms are gradually gaining traction in Malaysia for their efficient services. Much like a traditional company secretary, a company secretary from a digital company secretarial firm requires a practising certificate that should be renewed every 3 years with the Companies Commission of Malaysia (SSM). The SSM even encourages online processes by introducing e-service platforms such as the MyCoID portal and MBRS portal. Hence, as long as the company secretary holds a valid practising certificate, it is legal for them to carry out their business operations online.

 

Efficient services

As the digital company secretarial firm has digitalised many traditionally offline processes such as company incorporation and signing board resolutions, these company secretarial tasks can be done quickly without the need to print, sign, scan, and make in-person appointments. Without the hassle of paperwork, a process that would usually take more than 7 working days (e.g. company incorporation) may be done in just 2 working days by adopting e-signatures and e-KYC processes. Some digital company secretarial firms may even provide a web or mobile application that allows you to access important company documents and request for company secretarial services by logging into your account.

 

Transparent pricing

It is common for a traditional company secretary to charge a very low monthly retainer fee (RM50 - RM150), excluding fees for other company secretarial services and disbursements for each service provided. You may need to pay to request for the notice of registration, certified-true-copies (CTCs), board resolutions, and even printing. Digital company secretarial firms, on the other hand, generally charge like other software-as-a-service (SaaS) providers. They typically offer several packages with a list of mandatory company secretarial services included for a one-time or recurring subscription fee. Hence, there would be no surprise each time the invoice is issued.

 

Reliable communication

Digital company secretarial firms utilise technology in their day-to-day operations to ensure efficiency in serving the clients. Since they don't have to sort through stacks of paperwork, the turnaround time for them to get back to your request or enquiry is shorter. Besides, many processes like invoicing and setting up reminders for important deadlines are automated, giving them more time to talk to you about your concerns on statutory compliance of your company. An online meeting can be arranged, too, instead of an in-person meeting, to sort things out quickly and accurately.

 

The company secretarial industry in Malaysia has been operating using manual processes for the past few decades. Since the digital company secretarial firm is still a relatively new concept in this country, each digital company secretarial firm may offer different features in their services. One of the most basic features is to provide an online dashboard where you can view your company documents. Other digital company secretarial firms may allow for the process of company incorporation to be done fully online, from submitting the company incorporation form and making payment, to verifying the identity of its directors and shareholders. Hence, it is important to evaluate the type of company secretarial services you would prefer to have before engaging with a digital company secretarial firm.

A constitution is a contract between the company, its directors, and its shareholders that set the company in the right direction for operation and growth. It lays out the company's main business objectives, responsibilities of the directors and shareholders, and how the company is governed in terms of shares allotment, dividend payments, the appointment of directors, etc. Unless stated otherwise, the operation and governance of the company must follow rules and regulations as stated in the constitution. These are 5 situations when it is advisable to adopt a constitution for your company.

 

When there is an even number of directors or/and shareholders

Many decisions in a board or shareholder meeting are made through the casting of majority votes. If there is an even number of voters, a 'deadlock' situation might happen when exactly half of the directors or shareholders have voted for a different decision. This situation can be avoided when some voting rules are laid out. For example:

• The chairperson of the meeting will have a casting vote if there is a tie in voting.
• The representative of a shareholder cannot be the chairperson of any meeting.
• All directors shall be present in order to hold the board meeting.

 

When you want to protect the rights of shareholders beyond what's stated in the Act

The liability and rights of shareholders are stated under Part III, Division II, Subdivision I of the Companies Act 2016 where the shareholders are liable based on the amount of paid-up capital they contributed and they can hold management reviews from time to time to make recommendations to the board of directors. Additional rules can be included in the constitution to protect the rights of shareholders. For example:

• A shareholder who is unable to attend the meeting physically as required may appoint a representative to vote on behalf.
• A written resolution is considered to be rejected if it is not passed by majority votes within 14 days from the date of circulation.
• No voting should be done if less than 80% of shareholders attend the shareholder meetings.

 

When it is a joint venture between 2 or more companies

A joint venture consists of 2 or more companies who act as corporate shareholders. As corporate shareholders are not individuals, additional rules can be laid out in the constitution to protect the rights of the companies. For example:

• The number of directors should be appointed from each of the corporate shareholders in the joint venture.
• If one of the companies is struck off or wound up, the shares of its corporate shareholder will be redeemed by the joint venture.
• The joint venture can only carry out businesses as stated in the constitution.

 

When your company plans to raise funds from investors

Without a constitution, your company can only issue ordinary shares which give shareholders ownership in the company as stated in Part III, Division I, Subdivision I of the Companies Act 2016. Ordinary shareholders have the right to share profits, vote in shareholder meetings, and appoint or dismiss directors. If your company wants to raise funds through the issuance of preference shares where the shareholders usually have no voting rights, a constitution is needed to outline how the shares work. For example:

• 40% of the total shares shall be preference shares.
• Preference shares are redeemable or non-redeemable by the company.
• How frequent and how much dividends should be distributed to shareholders.
• Shareholders with preference shares have voting rights just like those with ordinary shares.

 

When you want to regulate how the Board works

Default proceedings of the board are stated under the Third Schedule (Section 212) of the Companies Act 2016; this includes voting rights of directors, how a board resolution can be passed, the appointment of committees and managing directors, etc. As the proceedings listed are general, you can establish more specific rules on how the Board works through a constitution based on the needs of your company. For examples:

• A board resolution can be passed with majority votes from directors.
• A specific director is appointed permanently as the chairperson of board meetings unless he is removed from the board.

 

 

Since the key updates of the Companies Act 2016 came into effect, it is not mandatory for a Sdn Bhd company to adopt a constitution as the Act has set out rights, powers, duties, and obligations of a company's directors and shareholders which can be used even in the absence of a constitution. Even so, since every company has different needs in terms of governance, it is advisable to adopt a constitution to ensure that the company has greater flexibility when it comes to making sure all directors and shareholders are on the same page.

There is a common misconception towards hiring corporate lawyers in Malaysia when it comes to the legal compliance needs of your entrepreneurial journey — corporate lawyers are often deemed expensive as they charge you for every hour you talk to them. Business owners are often reluctant to spend on legal fees unless it turns out to be absolutely necessary, usually when things have gone down the drain. You might think that it is sufficient to 'consult' Google for your normal business legal needs but it is advisable to hire a good corporate lawyer as early as possible, especially when your business falls under the following situations.

 

When your business is in a regulated industry

In order to legally carry out a business in one of the regulated industries, you need to apply for licences from the respective government authority and be compliant with the regulations in place. A corporate lawyer can advise you on the laws you should be aware of, besides navigating the legal landscape of the particular industry.

Examples of regulated industries in Malaysia are - manufacturing sector, construction sector, medical sector, finance sector, telecommunication sector, etc. Even if you are starting a tech company, if your business model involves any of the regulated industries, chances are you may need to get the same regulatory approvals too.

 

Risk of closedown without the necessary licence

In the year 2018, a fintech company in Malaysia was ordered to cease operations because it did not obtain the necessary licence from the Securities Commission of Malaysia (SC), a regulator in charge of protecting the investors and regulating the capital market. Despite having obtained a customer base in the country, the 'cease and desist' letter has made it clear that without the licence from the regulatory authority, a business is prohibited from operating.

Application for business licences seems like a hassle, especially when your business is disruptive to the industry with no existing market players acting as precedent. However, regulators around the world have realised the importance of innovation. In fact, many regulatory agencies have formed dedicated teams to focus on handling new emerging technologies and are open to access new business models. For example, Bank Negara Malaysia (BNM) has established the Financial Technology Enabler Group (FTEG) which is dedicated to fintech companies seeking to set up operations in Malaysia that may fall within the purview of BNM while SC has launched the aFINity@SC initiative to attract greater participation from the industry to facilitate the development of the digital finance and technology sector in Malaysia.

A corporate lawyer with direct experience in dealing with the regulators can help you pinpoint sticky issues that regulators tend to focus on so that you can get prepared before the consultation meeting with the regulator’s team. It is best to work out specific details of the regulations that need to be satisfied as an applicant to save time and to ensure a smoother application process. In short, it is necessary to get advice on your business model and licence application from a corporate lawyer before launching your business in the market.

 

When you have co-founders or other shareholders

Having co-founders and shareholders is a boost to your business especially at the early stages. To prevent fraud and potential conflicts from arising in the future, you can engage a lawyer to outline the rights and responsibilities of various stakeholders in a co-founder or shareholder agreement.

It is advisable to be prepared for several possible outcomes for the business, such as if one of the co-founders decides to leave, the business goes bankrupt, or how to divide the profits if the business manages to exit.

 

Conflicts are bound to happen even in the best relationships

According to the Startup Genome Report Extra on Premature Scaling, over 90% of startups fail due to internal issues rather than competition. Many entrepreneurs get together and start a business together without discussing the 'hard' issues for the sake of preserving peace and cordiality among co-founders.

One of the worst decisions made for the business which can lead to a 'deadlock' conflict is to split the equity equally among co-founders. While it sounds fair to share the business with your co-founder at a 50/50 split, without a pre-agreed mechanism on resolving disagreements between co-founders, the business is bound to get into a standstill.

A good corporate lawyer can ask the difficult questions that can affect the final decisions on equity ownership structure in a company. Customarily, in a newly started business, a corporate lawyer is engaged to help prepare the founders agreement / shareholders agreement. In other words, the lawyer is acting as a neutral party and does not favour any specific shareholder in the company. A lawyer will ask all co-founders in the business on their expectations between competing interests of other co-founders so that all everyone is clear on their respective contributions to the business. Here are some questions that should be discussed among the co-founders of a business.

• How much commitments in terms of time and knowledge will each co-founder spend on the business?
• How should decisions be made if the co-founders disagree, such as if there is a new investment opportunity but one of the co-founders does not like the investment offer?
• What happens if one of the co-founders decides to leave the business 3 - 6 months after the business was started? Are you or other co-founders able to take over the shares of the leaving co-founder?
• Can a co-founder sell their shares to someone else at any point of the time?

 

All these questions can be answered through a well-drafted shareholders agreement, which is also known as a founders agreement or partnership agreement. A shareholders agreement outlines customary and commercial terms such as the composition of the board members, voting mechanism and threshold, conditions on transferring and issuance of shares, and reserved matters. These terms vary according to the different concerns or priorities of co-founders. Hence, no two shareholders agreement are the same. It is recommended to engage a corporate lawyer to finalise the shareholders agreement to make sure all bases are covered.

 

When you want to raise funds for the business

Raising funds from investors for your business is a big deal. You want to have a fair transaction with investors while having your rights protected. A lawyer can explain to you the commercial terms stated in the investment term sheet you receive so that you understand your position in the potential investment before signing any agreement. You can get their advice on how to negotiate with the investors for an outcome that you prefer.

 

Fundraising is a regulated activity

You might not be aware that fundraising is a regulated activity under the Capital Markets and Services Act 2007 (CMSA) that is regulated by the SC in Malaysia. Only public companies can raise funds from the public through an initial public offering (IPO), while unlisted public companies have to issue a prospectus in order to offer shares to the public.

Strictly speaking, private companies like a Sdn Bhd are not allowed to raise money from the general public. As a business owner, you may only raise funds through a closed-door session, such as asking a friend to become a shareholder for the company. Otherwise, they can also raise funds from the public through equity crowdfunding platforms (ECFs) that are licensed by the SC.

A corporate lawyer who has acted in fundraising exercises can guide you through the customary steps that need to be done. If you are raising funds from sophisticated investors (angel investors, high net worth individuals, etc.) or institutional investors (accelerators, venture capitals, etc.), a corporate lawyer can go through the investment term sheet with you to point out if the terms are of industry standards or are uncommon for the specific fundraising round that you are involved with. Besides, the corporate lawyer can help you with the necessary paperwork to make sure that the shares purchased by the investors are properly issued by the company secretary. This can prevent problems in fundraising rounds in the future if the shares have not been issued properly earlier on.

 

When your business wants to have a partnership with another company

Agreements for collaborations between 2 or more companies are not just a signed template to officiate the collaboration. It serves the purpose of protecting the rights of all parties involved and indemnity against the worst-case scenario. Whether it is a strategic partnership agreement or a reseller agreement, a lawyer can draft the agreement based on your business needs and make sure that your rights are protected if the agreement is provided by the other party.

 

Managing expectations through legal agreements

Similar to a shareholders agreement, having a legal agreement between 2 companies is essential in laying out expectations for this collaboration. Usually, both companies who are entering into a contract should have their own legal representation to make sure their rights are protected.

One common commercial issue surrounding a technology transaction is about intellectual property ownership. If you are providing your technology through the collaboration, you need to be clear on the ownership of the intangible assets created during the collaboration. A good agreement drafted by a corporate lawyer will set out the IP ownership issues head-on so that there will be no dispute in the future. Besides, a corporate lawyer will help you list out the scope of services so that there will be little ambiguity as to the expected deliverables on your side to reduce potential conflict or even termination of the agreement due to an unintentional breach of contract. In addition, the corporate lawyer can include a good clause that helps you 'transition' the termination in a smooth manner so that your business can 'exit' and move on to the next deal.

 

When you are hiring employees or contractors

Employees and contractors are a great help for your business but they come and go. Having a proper employment or contractor agreement prepared by a lawyer can protect your Intellectual Property (IP) and confidential information of your business in cases where the employees or contractors leave. Besides, the corporate lawyer can point out clauses that are not enforceable in the agreement so that you can focus on clauses that matter.

 

Protect any confidential information of your business

Whether you are engaging an independent contractor to build your first minimum viable product (MVP) or an employee who is paid a monthly salary, a confidentiality and assignment agreement must be signed. This agreement ensures that any confidential information of the business, such as customers' data, proprietary business structure, and process flows, are not allowed to be disclosed to any third party without the company's prior consent. Besides, the agreement can clearly lay out that all the intellectual assets created by the contractors or employees for your business are legally owned by your company. It is illegal for them to secretly sell the intellectual assets to a third party even though they are the one who created them.

 

 

Everything is fine until it is not. Laying out a strong legal foundation for your business since the beginning is important to ensure that your business is well protected and does not risk falling into a costly legal pitfall. Consult a lawyer if you have doubts in each step you are taking when running your business. Get the professional help your business needs.

 

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Special thanks to Izwan Zakaria for this content collaboration! Izwan Zakaria is the managing partner of Izwan & Partners, a corporate, technology, and venture capital law firm. He is also the author of The Startup Law Blog, a website covering legal topics and trends affecting technology entrepreneurs and startups in Malaysia. He can be contacted on Twitter at @izwanzakaria1 or email at izwan@izwanpartners.com.

You don't always need to incorporate a Sdn Bhd to run a business in Malaysia. There is a total of 8 business entities in general with different requirements and each of them suits different business goals. However, Sdn Bhd is one of the most common business entities registered due to the benefits that it offers. These are 5 reasons to incorporate a Sdn Bhd as the business entity for your business.

 

To run a business as a foreigner residing in Malaysia

Foreigners have limited options when it comes to setting up a business entity to run a business in Malaysia. The incorporation of a Foreign Company is expensive as it requires a high share capital and high incorporation fee, so your best bet would be to incorporate a Sdn Bhd, or in other words, a private limited company. The requirements for a foreigner to incorporate a Sdn Bhd is the same as a Malaysian where only 1 director and shareholder (which can be the same person) is needed to form a Sdn Bhd. You only need to provide your proof of residency in Malaysia. However, you might not be allowed to run certain types of businesses according to the regulations of the local authorities.

 

To run a business in regulated industries

Manufacturing sector, construction sector, medical sector, oil & gas sector, finance sector, and telecommunication sector are some of the examples of regulated industries in Malaysia. Apart from registering your business entity with SSM, you might need to acquire a specific license from the respective governmental authority to operate your business legally. That often requires your business to be registered as a Sdn Bhd with a minimum paid-up capital; hence, it is recommended to check out the MalaysiaBiz portal for suggestions on the business licences that you need based on types of industries and locations of your business before deciding on which business entity to register.

 

To separate your personal liabilities from the business'

Your Sdn Bhd is a separate legal entity. Just like an independent individual, it can receive income, acquire properties, enter a contract with a third party, and be a part of legal actions. Even though you own the Sdn Bhd as a shareholder and manage it as a director, the Sdn Bhd itself bears responsibility for compliance matters and other day-in-day-out operations. Your personal wealth is protected should the business fail or suffer losses. For example, if your Sdn Bhd is sued by a company or an individual, they are only entitled for compensation based on the available funds and assets of the Sdn Bhd, not the personal assets of directors and shareholders. However, you can still be held responsible if you are found to be negligent towards your business.

 

To enjoy corporate tax benefits

If you are running your business as a Sole Proprietorship or a Partnership, there is no differentiation between personal income tax and taxes for your business; in other words, if your estimated annual profit is RM 150,000, this taxable business income of a Sole Proprietorship or a Partnership will be taxed at a personal income tax rate of 24% instead of the company tax rate of 17%. So, by running your business as a Sdn Bhd, the personal income tax rate only applies to the amount of salary you receive from your business while your company will pay the company tax rate for its taxable income each year.

 

To raise funds from investors

The options to raise funds for the expansion of a Sole Proprietorship or Partnership business are limited to only business loans from banks or P2P lending platforms. A Sdn Bhd allows you to raise funds through investments from equity crowdfunding platforms (ECF) or by selling shares in your company to individual and corporate investors. You can even differentiate ordinary shares and preference shares by adopting a constitution for your Sdn Bhd to outline the redeemability of shares and the voting rights of shareholders. Besides that, a Sdn Bhd has more credibility, for it is managed by a board of directors and is backed by shareholders who have contributed to the paid-up capital of the business, which gives you an extra advantage when raising funds from investors.

 

 

Knowing your business goals helps in choosing the right business entity for you. If you have decided to incorporate a Sdn Bhd, you can do it on your own through the MyCoID portal or engage the services of a company secretary. On the other hand, if you are currently running a Sole Proprietorship or Partnership and have plans to convert it into a Sdn Bhd once your business has grown, this comprehensive guide on converting your enterprise into a Sdn Bhd that lays out the requirements and processes of the transition will help you to better prepare your business when the time has come. Run your business the way you envision it to be.

Running your business under a Sdn Bhd business entity not only separates your personal liabilities from the business liabilities, but also opens up more opportunities to grow your business. Nonetheless, the governance of a Sdn Bhd requires compliance towards regulations from various governmental authorities to ensure that you are operating your business legally in Malaysia. Understanding the annual and monthly compliance for your Sdn Bhd helps you adhere to the regular compliance activities accordingly.

After your company is incorporated

Right after your Sdn Bhd is incorporated, there are several compliance activities to do in order to legally operate your business.

Business licence application

When to get it done: As soon as possible

Getting your company incorporated is just the first step in starting your business. Depending on the nature of your business, sometimes a business licence is required to run your business. There are generally 2 types of licensing, Federal Licensing issued by ministries or governmental departments for regulated industries, and State Licensing issued by local authorities for regulated activities such as physical advertising and setting up a business premise, which varies according to the regulations of each State. Some examples of regulated industries are the financial sector, oil and gas sector, manufacturing sector, healthcare sector, and education sector.

You can find out more information on the business licences you need through the MalaysiaBiz portal.

Registration with the Inland Revenue Board Of Malaysia (LHDN)

When to get it done: As soon as possible

Similar to a personal income tax, your company is a separate legal entity that has to pay corporate taxes based on its annual chargeable income. LHDN will normally inform your company secretary regarding your corporate tax number.

However, in some rare cases where your company is not automatically registered, you can get your corporate tax number by registering through the e-Daftar portal.

Registration with Employees Provident Fund (EPF) and Social Security Organization (SOCSO)

When to get it done: Within 7 days (for EPF) and 30 days (for SOCSO) upon hiring the first employee

EPF is a retirement saving scheme for employees who are liable to contribute EPF in Malaysia. The saving is comprised of the employee’s and employer’s monthly contributions and yearly dividends earned. On the other hand, SOCSO manages 2 schemes - Employment Injury Scheme that protects an employee against occupational accident or disease, and the Invalidity Scheme that insures an employee who is unable to work due to incurable or unlikely to be cured condition or death.

Before you can register your employees under EPF and SOCSO, you have to register your company as an employer first at any EPF counter. As for SOCSO, you can register online. You can do this yourself or engage a payroll service provider to do it on your behalf by providing them with an authorised letter.

Financial Year End (FYE) lodgement

When to get it done: As soon as possible

The Financial Year End of a company is the date when the company closes its financial accounts. It is usually the last day of a particular month you have decided for your business.

You should inform your company secretary of the FYE decided for your company as early as possible.

Auditor appointment

When to get it done: Within 30 days after your first FYE

Unlike accountants and lawyers, an auditor has to be appointed by providing consent to act before they can provide auditing services to the company. They are in charge of preparing audited financial statements of your company. This can be done once and the same auditor will be automatically appointed every year. If your company is dormant, has zero revenue, and is threshold-qualified, you don't have to appoint an auditor for your company.

Your company secretary will submit the information of the auditor appointed in Annual Returns.

Annual compliance for Sdn Bhd

These are the compliance activities to be done annually for your company.

Business licence renewal

When to get it done: Depends; typically ranges from every year to every few years

Depending on the governmental authorities that regulate the specific licence, business licences usually require renewal annually or every few years. It is recommended to keep this in mind when you first apply for the licence to make sure your business licence is always up-to-date.

Submission of tax estimates

When to get it done: Within 3 months of operation and 30 days before the start of each assessment year

The estimated tax payable will be calculated based on the estimated annual income of your business. Your company will make monthly instalments based on this estimated tax payable.

You can submit this tax estimates on your own or engage an accountant or tax agent. The tax estimates can be revised if needed. It is recommended to seek advice from an accountant or tax agent on this matter.

Submission of statements regarding PCB

When to get it done: By 31st March of the following year

Your company as an employer should submit Form E, the statement of remuneration paid to employees and PCB deducted during the year, to LHDN. Besides, Form EA/(C.P. 8A), the statement of remuneration paid to employees during the year must be issued to the employees by the last day of February of the following year to allow employees to prepare their tax return.

You can sort this out on your own or engage an accountant or payroll service provider.

Financial Statements with Directors' Report lodgement

When to get it done: To be circulated to shareholders within 6 months after the FYE and lodged within 30 days after the circulation

Financial statements of the year are usually prepared by the accountants before being audited by your appointed auditor. On the other hand, the auditor will prepare an auditor’s report while the directors will prepare the director’s report which explains information on the directors, main activities of the company, shares, dividends, business reviews, etc. These documents are then compiled and signed by the commissioner for oaths before being passed to the company secretary for circulation to shareholders and the auditor.

Once it is approved by the board, your company secretary will lodge the financial statements with the directors' report attached to the SSM.

Annual return lodgement

When to get it done: Within 30 days from the anniversary of the company incorporation date

The annual return is a summary of your company with information such as business nature, registered address, directors and shareholders, etc. This information still has to be lodged to confirm that there were no changes to your business, even if there were no changes made to this information after a year of operating the company.

Your company secretary will prepare the annual return on the anniversary of the company incorporation date and lodge the documents to the SSM.

Submission of tax return

When to get it done: Within 7 months after the assessment year ends

The estimated tax payable and the actual tax payable might be different. After the assessment year ends, if the actual tax liability is greater than the taxes paid based on estimation, the balance of tax payable has to be paid. Vice versa, you can apply for a refund if the actual tax liability is lower than the taxes paid. This can be done through the submission of tax return through the e-filling portal.

You can sort this out on your own or engage an accountant or tax agent.

Monthly compliance for Sdn Bhd

These are the compliance activities to be done monthly for your company.

Corporate tax payment

When to get it done: Starting from the 6th month of the assessment year by the 15th of each month

Based on the estimated tax payable, you will pay corporate tax through monthly instalments. You can do this on your own or engage with an accountant or tax agent.

EPF, SOCSO, and EIS payment

When to get it done: By the 15th of the month for the salary issued for the previous month

Besides registering and regularly updating the information of your employees with EPF and SOCSO, your company as an employer needs to collect the EPF, SOCSO, and EIS contributions from both employer's and employees' shares and pay it to EPF and SOCSO respectively.

You can do this on your own through various online and offline channels of EPF and SOCSO or engage a payroll service provider for their services.

Employees' payroll tax (PCB) payment

When to get it done: By the 15th of each month for the remuneration issued for the previous month

More commonly known as PCB (potongan cukai bulanan), your company as an employer needs to retain a percentage of the employees’ remuneration including salary, commission, bonus, incentives, etc. to be paid as Monthly Tax Deduction (MTD) to LHDN on behalf of employees who are taxable as part of the employer’s responsibility. The calculation of PCB can be done based on the MTD schedule or through the Computerised Calculation Method on the e-CP39 portal.

You can do this on your own or engage with an accountant or tax agent.

The complete checklist of annual and monthly compliance for Sdn Bhd

Here's a checklist of the annual and monthly compliance summarised from the article for your reference. It is recommended to talk to your company secretary for more information on statutory compliance required for your business.

👉 Download the PDF version of the checklist here!

Besides the compliance activities listed above which should generally be followed by all Sdn Bhd in Malaysia, there are other compliances such as:

• If you hire foreign employees, visa renewal is required annually or every few years according to visa requirements.
• If your annual sale or service revenue is more than RM500,000 in 12 months, you have to register your company for SST, submit the tax return and pay the tax every 2 months.
• If you are running a F&B business, all employees who handle food need to get vaccination(s) which should be boosted every few years.

The list goes on and varies according to the industry of your business. If you are unsure of the compliance requirements for your business, you should seek advice from your company secretary, accountant, tax agent, and other professionals, or contact relevant governmental authorities for more information.

Unlike registering for a website domain name where there are fewer restrictions, so as long as the name is available on the domain registrars, you should follow the company naming guidelines as published by the Companies Commissions of Malaysia (SSM) when naming your company to increase the likelihood of company name approval during your company incorporation process. Even if your company name was approved, the SSM has the right to direct your company to change its name if they believe that the company name should not have been registered in the first place. These are the 10 rules that you should bear in mind when deciding on a name for your company.

1. The company name must not already exist

This is one of the first things the SSM officers assess when evaluating your company name — whether the company name already exists or has been reserved. Besides engaging with a company secretary to do the name search for you, another easy way is to search for your desired company names on the MYDATA portal or the SSM e-Info portal. If the company name has been used by an existing business entity, it will show up on the list.

2. The company name must not be identical to the company name of another existing business entity

While it is clear that no 2 business entities should have the same name, an identical name should be avoided as well, especially if the other company has the same business nature as yours. Some of the criteria the SSM looks at in determining whether a company name is identical to another are as follows:

• With or without the word 'The' as the first word of the company name. For example, The ABC Sdn Bhd is considered identical to ABC Sdn Bhd.
• Plural version of the company name. For example, Apple Sdn Bhd is considered identical to Apples Sdn Bhd.
• The spacing between letters and punctuation marks. All single letters in the company name will be consolidated into 1 word. For example, A-B C Sdn Bhd is considered identical to A B C Sdn Bhd and ABC Sdn Bhd.
• The symbol '&' is considered to have the same meaning as the word 'and'. For example, A&B Sdn Bhd is considered identical to A and B Sdn Bhd.
• Synonyms. For example, ABC Development will be considered the same as ABC Building and ABC Renovation.
• Stem words are equivalent to their root word. For example, ABC Development and ABC Developing are equivalent to ABC Develop.
• Direct translation. For example, Merah Biru is equivalent to Red Blue.

3. The company name must not contain words that have the same meaning as the word 'company'.

As the term 'Sdn Bhd' will be automatically added to the back of your company name, words that have the same meaning as the word 'company' cannot be used in your company name. Here are some examples:

• Sendirian / Sdn
• Company
• And company
• Corporation
• Co

4. The company name can be in English, Bahasa, or even foreign languages

It is recommended to not use single words that are too general such as 'Technology' and 'Computer'. You can use words from different languages in your company name. If the company name contains foreign languages, you should explain the meaning of such words accordingly i.e. how it is related to your business. Besides that, you should provide a link to an online dictionary that explains the meaning of the words to support your application. Similarly, an explanation should be given for made-up names that do not exist in the dictionary. Here are some examples of name explanation:

• ABC stands for Apple Banana Collections for a business selling fruits.
• ABC is made of 2 words - Abs as in the abdomen of a human body while C represents Vitamin C. The business is selling supplements for bodybuilders.
• Toko Kaas is made of 2 Dutch words - Toko stands for an Indonesian shop (https://www.interglot.com/dictionary/nl/en/translate/toko) while Kaas means cheese (https://dictionary.cambridge.org/dictionary/dutch-english/kaas). The business will sell dairy products and will be operated by Indonesian owners.

5. The company name can consist of the names of directors

The names of directors as stated in the company incorporation form can be used in your company name. If the names of other individuals related to the directors are to be used, proof of relationship must be given together with a consent letter.

6. The company name can include the usage of certain symbols

Symbols can be used if they are used in a grammatically correct way. These are some symbols that are allowed to be used in the company name.

• And & For example, A & B Sdn Bhd.
• Full stop . For example, A. B. Sdn Bhd.
• Hyphen - For example, A-B Sdn Bhd.
• Apostrophe ' For example, A' B Sdn Bhd.

7. The company name must not be an acronym that can be confusing

While the usage of acronyms are allowed in your company name if the explanation of the acronyms is provided, acronyms that can be confused with names that are associated with the following should be avoided:

• Names of the institutions of higher learning. For example - UiTM, UTM, UM, UKM, UPM, UUM, USM, UIA, UNIMAS, UMS, UIAM, UPSI, UMT, UMP, UTEM, UNIMAP, UTHM, etc.
• Names of the federal or state government agencies and Government Owned Companies (GLC). For example - SSM, CCM, JKR, JPA, JPM, BNM, KPDNKK, SEDC, PKEN, SIRIM, TNB, PNB, FELDA, FELCRA, PETRONAS, SKM, MYCC, MIDA, KWSP, LHDN, PERKESO, MARDI, RISDA, etc.

8. The company name must not contain obscene words

Words that resemble elements of any religion, are considered offensive to the public, and are blasphemous are not allowed to be used in your company name.

9. The company name must not contain gazette words

Certain words are gazetted and cannot be used unless the letter of authorization is obtained from relevant authorities or ministries. These are some categories of gazette words:

• Words suggesting a connection with members of the Royal family or Royal patronage. For example - Royal, King, Queen, Prince, Princess, Crown, Regent, Imperial, etc.
• Words suggesting a connection with a federal or state governmental department, governmental agency or local authority. For example - Federal, State, National, etc.
• Words suggesting a connection with a foreign government or with an international organization. For example - ASEAN, UNESCO, NATO, EEC, OPEC, etc.

10. The company name must not contain controlled words that are limited due to national and public interest

There are controlled words that should not be used for the sake of national and public interest. These are some examples of controlled words:

• Famous established names that are registered under the Trade Mark Registration Act. For example - Astro, DIGI, Berjaya, HICOM, Petronas, Telekom, etc.
• Words suggesting a connection with gambling activities, drinking, or smoking. For example - Sweepstake Lottery, Liquor, Vape, etc.
• Words suggesting a connection with governmental slogans. For example - Vision 2020, Malaysia Boleh, 1Malaysia, etc.

11. The company name must not contain words that suggest connections with activities regulated by laws, governmental agencies, and professional bodies

Words that suggest connections with regulated activities under various laws in Malaysia are prohibited in your company name. However, you may obtain written approval from the relevant governmental agencies and professional bodies for the consideration of the SSM. These are some laws and regulations with examples of word use:

• Banking And Financial Institutions Act 1989. For example - bank, finance, money broker”, financial, leasing, credit, etc.
• Securities Industry Act 1983. For example - stock exchange, stock market, securities trading market, etc.
• Futures Trading Industry Act 1993. For example - futures exchange, futures broker, trading adviser, etc.
• Insurance Act 1963. For example - insurance, assurance, underwriter, etc.
• Money-Changing Act 1998. For example - money changer, foreign exchange, etc.
• Valuers, Appraisers And Estate Agents Act 1981. For example - estate agent, house agent, property agent, house broker, etc.
• Takaful Act 1984. For example - takaful, etc.
• Accountant Act 1967. For example - taxation, tax, accounting, auditor, tax consultant, etc.
• Medicine (Advertisement and Sale) Act 1956. For example - private clinic, private medical laboratory, alternative medicines, traditional herbs, tabib, hair loss, homeopathy, etc.
• Any other laws as being notified to the Registrar of Companies from time to time.

Even if your company name consists of words that are easy to understand, it is best to explain the meaning behind the name and how it relates to your business. Bear in mind that while you can follow the rules as much as you can to increase the chance of approval, the SSM still holds the ultimate right to approve or reject your company name. A company name is not equivalent to a brand name. Hence, under the same company, you can run businesses under several brands of similar business nature.