Company Law Column Part 2: Carrying on Business in Malaysia
1. Business Structure
To carry on business in Malaysia, there are various types of business structure other than a company limited by shares depending on the size and responsibilities of the business. They are roughly divided into three types: sole proprietor, partnership and company. The following table shows main characteristics of each business type.
2. Foreign Company Setup OptionIn addition to the three types of business structures mentioned above, a foreign company can carry on business as a branch office or a representative office. For foreign companies which generally carry on large-scale business, it is common to setup a local subsidiary, branch office or a representative office.
3. Foreign Company carrying on business in Malaysia
(1) Definition of BusinessA foreign company needs to register as a foreign company to carry on business in Malaysia (Companies Act 561). The Thirteenth Schedule of the Companies Act specifies activities not regarded as carrying on business such as holding meetings and conducting an isolated transaction that is completed within a period of thirty one days (Companies Act 561(2)). Therefore, it is interpreted that a broad range of activities are regarded as business. “Carrying on business” includes establishing or using an office whether by servants or agents or otherwise (Companies Act 561(3)). A person who is guilty of an offence under this Act shall be liable to a penalty not exceeding fifty thousand ringgit (Companies Act 588).
(2) Branch OfficeForeign companies need to register with Companies Commission of Malaysia (CCM) to carry on business. In a case of branch office, a foreign company shall appoint an agent (Companies Act 563) and submit a prescribed application form with required documents. In practice, it is required to provide reasons for the necessity of carrying on business for which branch office is suitable (such as a time-limited project with a Malaysian company). Also, a foreign company is required to establish a local subsidiary in some industries such as distributive trade and service industry.
(3) Representative OfficeA Japanese company may establish a representative office to conduct market research or gather information prior to the commencement of business activities. It is required to obtain approval from Malaysian Investment Development Authority（MIDA） to establish a representative office. According to the guideline issued by MIDA, representative offices are not allowed to carry out any business transaction, and the duration of establishment is minimum of two years. In practice, the duration is set for 2 years in many cases. With these conditions, representative offices are considered as a transitional stage during which companies can judge whether or not a local subsidiary should be established.
* In the subsequent columns, I will mainly focus on a local subsidiary (a company limited by shares) which is a common form of a foreign company to carry on business in Malaysia.
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 Limited Liability Partnership
 Partnership Act 1961
 Limited Liability Partnerships Act 2012
 Companies Act 2016