Company Law Column Part 1: Overview of the company laws and types of company in Malaysia

2018/11/22

1. Introduction

There are 1,295 locations in Malaysia where Japanese companies conduct their business[1] and The Japanese Chamber of Trade & Industry, Malaysia (JACTIM) has 595 members[2]. Each country, including Malaysia, has company laws to regulate interest among stakeholders such as shareholders, employees, and clients. In Malaysia, the Companies Act 2016 (“New Act”), which comprises 620 sections, has been implemented since 31 January 2017. Japanese companies with business sites in Malaysia are required to comply with the Companies Act, so it is important to have knowledge about this act. However, I often hear that it is very difficult for busy Japanese business persons stationed in Malaysia to read and understand laws written in English. In this column, therefore, I would like to write about basic concepts of the Companies Act and related laws in Malaysia by explaining the law revision as well as comparing Malaysian laws with those in Japan. I hope this column will help you deepen your understanding about the company laws in Malaysia.

[1] Annual Report of Statistics on Japanese Nationals Overseas (2018)
[2]The number of ordinary members as of the end of October 2018

2. Legal System in Malaysia (common law and autonomy for eastern region)

As the Malaysian legal system is largely based on the English common law (case law) system, it is very important to understand the case law. On the other hand, Malaysia is a federal state and especially Sabah and Sarawak have a strong degree of autonomy due to historical background. It is also necessary to know about the Federal Constitution, the statutes and regulations passed by congress, state constitutions, and statutory laws.

3. Companies Act

3-1 Outline

As described above, the new Companies Act, which replaced the previous act enacted in1965, came into effect from 31 January 2017. Compared to the Companies Act 1965, the New Act focuses on the improvement of convenience and corporate governance with some deregulation.

3-2 Individual laws

The following is the list of laws related to the company laws.

Companies Act 2016 regulates interest related to companies
Companies Regulation 2017 provides regulations related to electronic filing etc.
CMSA 2007 (Capital Market and Services Act 2007) provides regulations mainly on acquisition of listed companies.
Malaysian Code on Take-Overs and Mergers 2016 sets out standard to comply with mainly in the acquisition of listed companies.
Rules on Take-Overs, Mergers and Compulsory Acquisition 2016 sets out detailed rules for mainly the acquisition of listed companies.
Securities Commission Act 1993 is a law to regulate capital markets.
Financial Services Act 2013 is a law to protect investors for financial products.
Islamic Financial Services Act 2013 is a law to protect investors for Islamic financial products.

4. Types of Companies

There are three company types in Malaysia depending on the responsibilities of shareholders: ① a company limited by shares, ② a company limited by guarantee and ③ an unlimited company (Section 10, New Act). A company can also either be a private company or a public company depending on transferability. A company limited by guarantee cannot be a public company (Section 11, New Act).

Company types depending on the responsibilities of shareholders
(1) A company is limited by shares if the liability of its members is limited to the amount, in any, unpaid on shares held by the members (Section 10(2), New Act). It is equivalent to a company limited (Kabushiki-Kaisha) in Japan.
(2) A company is limited by guarantee if the liability of its member is limited to such amount as the members undertake to contribute in the event of its being wound up (Section 10(3), New Act).
(3) A company is an unlimited company if there is no limit on the liability of its members (Section 10(4), New Act). It is equivalent to a partnership (Gomei-Kaisha) in Japan.
Private company and public company

A private company (Section 2(1), New Act) means a company having not more than fifty shareholders (Section 42(1), New Act) and having restriction on the transfer of its shares (Section 42(2), New Act). For a private company, there are restrictions on offering shares or debentures of the company (Section 43, New Act).
A public company means a company other than a private company (Section 2(1), New Act). A listed company generally means a company listed on Malaysian Stock Exchange, and it is possible for an unlisted company to be a public company.

One Asia Lawyers details as below:
See One Asia Lawyers detail

All data and commentary included in this material was edited and written by Legal Professional Corporation One Asia based on published information at the time of this material creation, but it does not guarantee its accuracy and completeness. In addition, we are not responsible for any damage caused by using the information in this material.

◆One Asia Lawyers◆

"One Asia Lawyers" is the first ASEAN legal specialization in Japan, which was established in order to offer advice on legislation in Japan and ASEAN countries, including Malaysia. For inquiries regarding this article, please send in email to info@oneasia.legal

List of 「Column」