Malaysia is among the country with a liberal foreign investment policy. Generally speaking, there is very minimal restriction on the foreign ownership of a company, save and except for a company trading in an industry where the Malaysia’s public interest is at stake such as energy, water, education, petroleum etc.
Under the Malaysian corporate landscape, if a foreigner wishes to start a company (Also see How tax benefit the foreigners to invest in Malaysia), he has two choices: register his business vehicle as a foreign company in Malaysia or incorporate a private company limited by shares in Malaysia.
Under the Companies Act 1965, a foreign company is defined as a company incorporated outside Malaysia or an unincorporated body, association or other with legal personality which does not have its head office or principal place of business in Malaysia. Having defined as such, it goes without saying that unless the Companies Act 1965 stated otherwise, most of its provisions is not applicable to a foreign company.
The Companies Act 1965 imposes an obligation on foreign company that is carrying its business to register with the Companies Commission of Malaysia. Otherwise, the individual carrying the business of the foreign company may be liable under the Malaysian taxation law. However, please note that only foreign company carrying a business in Malaysia is obliged to register.
A foreign company is deemed as carrying a business in Malaysia if it has a place of business in Malaysia. A place of business does not necessarily mean business premises. There are case laws to say that a foreign company is deemed as carrying business in Malaysia when its director has been visiting the country for 9 consecutive years and transacted business from the same hotel every year.
Therefore, be advised that if you are conducting transaction on behalf of your company in Malaysia and the above sounds relatable to you; you may have an obligation to register your business as foreign company.
Private Companies Limited By Shares
Under the Companies Act 1965, there is no specific limitation imposed on the shareholding right of a foreigner in a private company limited by shares. This means, that foreigners can have 100% equity of a locally registered private company limited by shares (Also see Quick Guide to starting foreign-owned company in Malaysia).
Under the Companies Act, only two shareholders are required in order to incorporate a company in Johor Bahru. There is no requirement for the two shareholders to be a Malaysian citizen. However, the Act provides statutory requirement of having at least 2 directors having residence in Malaysia.
At a glance, it seems that incorporating a local private company limited by shares would be the easier way to do business in Malaysia. While that may not be entirely wrong, this is not without its difficulties.
For example, a company registered under the Act is given a legal personality (See Company’s Legal Personality) and is considered as a Malaysian even though its beneficial owner is actually foreigners. However, as Malaysia applies the common law as part of its extensive legal system, the principle of lifting the corporate veils is also applicable.
This means it is possible to look beyond the legal personality of the company and considered the identity of its controller as the real identity of the company. In such case, it would invite great risk to the company’s power to hold interests and properties, especially lands.
Under the Malaysian laws, lands fall under the jurisdiction of the State Government. Each State in Malaysia has different policies and approach in relation to the ownership of the land by foreigners.
Therefore, taking the easy way out of incorporating a local company limited by shares may prove wasteful if it is done without proper planning and consultation with the relevant experts. Imagine, having incurred substantial costs to incorporate a company limited by shares only to find out that it is not able to carry out the business that you intended.
Hence, it is advisable for you to first consult the corporate secretary in Johor Bahru to help you decide which method is more suitable for your intended business. Knowing what your business entity can and cannot do would help you to make a calculated business risk and thus, reducing the risk of devastating loss.