Companies Act and Company Law in Malaysia – Regulations Pertaining to the Legal Formation of A Company
Thinking of setting up a company in Malaysia? While the prospect is exciting, the journey to company incorporation can be complex. From navigating regulations to fulfilling statutory obligations, setting up a new company requires a solid understanding of legal and administrative requirements.
Under Malaysia’s Companies Act 2016 (CA 2016), a range of essential elements must be satisfied for a business to transition from concept to a legally registered entity. These include the appointment of directors, selection of the appropriate business structure, publication and registration of the company name, compliance with reporting standards, shareholding requirements, and—ultimately—procedures surrounding liquidation, if applicable.
About the Directors and Secretary of the Company
A private company shall have a minimum of one director, whereas a public company must have a minimum of two directors who act as company shareholders, being natural persons of 18 years, having their principal or only place of residence in Malaysia, and not under bankruptcy.
If an undischarged bankrupt acts as director of, or directly or indirectly takes part in or is concerned in the management of, any corporation except with the leave of the Court, shall be guilty of an offence against this Act, the penalty for which is imprisonment for five years or RM 100,000 or both.
A director has strict obligations under the Companies Act 2016 (CA 2016), as well as everyday law duties, including statutory duties, a duty of care, and fiduciary responsibilities, and is also bound by a Code of Ethics.
Additionally, Section 9(b) of the Companies Act 2016 stipulates that ‘A company shall have one or more members’. Note that this provision allows the incorporation of a company with only one member. Section 235(1) of the Companies Act 2016 provides that a company must have at least one company secretary who is a citizen or a permanent resident of Malaysia. In addition, they must ordinarily reside in Malaysia by having their principal place of residence in Malaysia. A company may have more than one company secretary, and all of them must fulfil these requirements.
Application and Registration for Incorporation
Under the Companies Act 2016, the process of incorporating a company is simplified. With the introduction of MyCOID 2.0 in 2023, the registration process is now more efficient. It includes real-time document verification and digital identity checks via MyKad/MyPR integration, making incorporation faster and more accessible for both local and foreign investors.
Section 15 of the CA 2016 still mandates the use of a consolidated “super form” for incorporation, which is now integrated into MyCOID 2.0. Upon payment of the prescribed fee and submission of the required information, the Registrar of Companies (ROC) will assign a registration number and issue a Notice of Registration, which serves as conclusive proof that the company has been legally formed.
Section 65 of CA 2016, which addresses pre-incorporation contracts, remains unchanged. Any party signing such a contract before the company is formed will be personally liable, unless ratified by the company after incorporation.
As of 2024, digital contracts and e-signatures are legally binding in Malaysia, providing greater convenience in executing incorporation-related documentation.
Nevertheless, the company’s position regarding its liability under the pre-incorporation contract remains unchanged. Section 65(2) permits the company to ratify the contract after its incorporation. If the company does ratify the contract, ‘the company shall be bound by the contract or transaction as if the company had been in existence at the date of the contract or transaction and had been a party to the contract or transaction’.
Registered Office and Characteristics of a Private Company
A company shall as of the day on which it begins to carry on business or as of the 14th day after the date of its incorporation, whichever is the earlier, have a registered office within Malaysia to which all communications and notices may be addressed and which shall be open and accessible to the public for not less than three hours during ordinary business hours on each day; Saturdays, weekly and public holidays excepted.
In accordance with Section 30(1) CA 2016, every company must also affix and keep affixed on the outside of every registered office or place where it carries out business, in a prominent position in Romanised letters easily legible its name, and also, in the case of the registered office, the words “Pejabat Yang Didaftarkan”. However, this has now been streamlined; listing “(Malaysia)” after the company name is sufficient for digital signposting.
To differentiate an unlimited company from the others, section 25(1) CA 2016 provides that the name of an unlimited company shall end with the word ‘Sendirian’ or the abbreviation ‘Sdn.’. A company can also be classified as either a private or a public company. Under the CA 2016, a private company is required to have the following characteristics:
- It is a company limited by shares (s42(1))
- It has not more than 50 shareholders (s42(1))
- It restricts the transfer of its shares (s42(2))
- It cannot offer its shares or debentures to the public (s43(1)). Under Section 15 (1) of the CA 1965, a private company is prohibited from inviting the public to subscribe to its shares or debentures.
- It cannot allot shares or debentures to offer them to the public (s 43 (1)). This prohibition was not found in the CA 1965
- It cannot invite the public to deposit money with the company (s 43 (1)).
Other than the above characteristics, s25(1) mandates that the name of a private company should end with the words ‘Sendirian Berhad’ or its abbreviation Sdn. Bhd. In the case of a public company, its name should end with the word ‘Berhad’ or its abbreviation ‘Bhd.’.
Memorandum and Articles of Association & Company’s Constitution
Under the CA 1965, every company was required to have a memorandum and articles of association. The memorandum and articles of association are now collectively known as the constitutionconstitution. Since 2022, all private companies have been required to maintain a digital constitution stored in MyCOID 2.0, while still retaining the option to use standard statutory templates.
In addition, ‘if the company has a constitution, the company, each director and each member of the company shall also have the rights, powers, duties, and obligations as set out in the Act, except to the extent that such rights, powers, duties and obligations are permitted to be modified in accordance with this Act, and are so modified by the constitution of the company’ (s31(2) CA 2016).
In other words, the rights, powers, duties, and obligations of the company, director, and member are prescribed by the CA 2016 unless modified by the company’s constitution. The company’s constitution can modify any of those rights, powers, duties, and obligations only if the Act permits it to do so.
Pertaining to a company’s objects, Section 21 CA 2016 provides that a company shall have the capacity to carry on or undertake any business or activity. Nonetheless, if the company has a constitution that states the company’s objects, s35(1) provides that the company shall be restricted from carrying on any business or activity that is not within those objects. The CA 2016 does not prescribe the consequences of a transaction outside the company’s objects clause. Thus, the implications of an ultra vires transaction are uncertain.
Drawing from the provisions in the Act, specifically sections 21 and 39, it is submitted that a third party dealing with a company can assume that the company has the full capacity to carry on or undertake any business or activity. This is because section 39 provides that the doctrine of constructive notice applies only to documents relating to instruments of charges. No person shall be deemed to have notice or knowledge of the contents of the constitution or any document (other than charges) related to the company that has been registered by the ROC or that is available for inspection at the company’s registered office.
Thus, a third party dealing with a company can rely on sections 21 and 39 and assume that the transaction in question is within the company’s capacity, as the company has the full capacity to carry on or undertake any business or activity.
About Appointment / Re-Appointment of Auditor
Following the Digital AGM Act of 2023, shareholder meetings in Malaysia have undergone significant enhancements. Companies can conduct virtual/hybrid AGMs, and notice periods for such meetings have been streamlined, improving participation and compliance flexibility.
The Companies Act even includes reform in the appointment of an auditor. The CA 2016 provides for the automatic re-appointment of an auditor for a private company, whereas for a public company, their appointment is until the conclusion of the company’s next AGM.
In addition, under section 255 (3) of the CA 2016, the ROC may exempt certain classes of companies from appointing an auditor. Private companies, often exempt from audit if they meet the criteria under Practice Direction 3/2007, require an auditor appointment only when the thresholds are exceeded.
Under revised Practice Direction 3/2007, many private companies that meet specific criteria—such as having zero revenue or being dormant—are exempt from appointing an auditor. However, if revenue or asset thresholds are exceeded, auditors must still be appointed annually.
Public companies, by contrast, must continue to appoint or re-appoint their auditor at every AGM.
The Digital AGM Act 2023 also permits virtual or hybrid AGMs, allowing shareholders to attend, vote, and appoint proxies remotely. Notice periods have been reduced, offering companies more agility in hosting compliant yet efficient general meetings.
Corporate Restructuring – Winding Up of A Company
In terms of corporate restructuring, the Companies Act 2016 provides a mechanism for a statutory corporate restructuring scheme that will bind all creditors. However, the company is in a vulnerable state between the formulation of the scheme and the court’s approval, as a creditor who disagrees with the scheme may take legal action to recover their loan.
Thus, the company or any of its members or creditors may apply to the court for an order to restrain further proceedings against the company except with the court’s leave. Furthermore, CA 2016 also delves into the liquidation of a company. There are two ways to wind up a company: (1) voluntary winding up, where the members have passed a resolution to wind up the company; and (2) compulsory winding up, where the court has ordered the company to be wound up (s432(1)).
Generally, the voluntary winding up of a company commences when the members pass a resolution to wind up the company voluntarily. However, where an interim liquidator is appointed before the members’ resolution is passed, then the winding up will commence when the directors’ declaration on the company’s insolvency is lodged with the ROC. In a compulsory winding up, the winding up commences at the passing of the members’ resolution, provided the company has passed a resolution to voluntarily wind up before the presentation of the winding-up petition.
In other cases, the winding up commences on the date of the winding-up order. One of the grounds for the winding up of a company is its inability to pay its debts. Section 466 CA 2016 provides that a company is deemed to be unable to pay its debts if it fails to pay a debt exceeding the amount prescribed by the Ministry, within 21 days after it is served with a notice of demand at its registered office.
Conclusively, it can be seen that the CA 2016 has reformed almost all aspects of company law in Malaysia. These are just a few among a plethora of regulations pertaining to the legal formation of a company. Abiding by these laws will be crucial for organisations to conduct a legal and by-the-book inauguration of their companies, allowing the business to be run accordingly. The strict ramifications for failing to adhere to the regulations are imperative to ensure potential business owners are on a level playing field with others in the market.
