Company Law

What is a business?

A business is an activity undertaken with risk with the objective of making a profit. The difference between carrying on a business and a hobby is that a business has an expectation of making profit, is run in a systematic, continuous and regular businesslike manner, and is govern by ordinary commercial principles (such as business and accounting records).

A person who collects and sells old carton boxes on a regular basis is engaged in a business, while a casual collector, who trades a box or two occasionally with friends is probably engaged in a hobby. The distinction is important for tax purposes as losses from a business are tax-deductible, while losses generated from a hobby are not.

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What do I need to start a business?

Before starting a business, you must have a good understanding of the business, a proper business plan, the economics of the business, some experience in the related field, and enough funds to cover your costs until the business becomes profitable.

It is often useful to speak to an accountant and a lawyer so that you understand the accounting, tax and legal issues and if necessary, structure the business to minimize taxes and avoid legal problems and reduce the chances for personal liability. A brief, inexpensive consultation with your accountants can save you huge sums of money.

The legal structure of your business is extremely important. Our business laws allow you to create a legal entity which is a separate "identity" from yourself under which you can transact business, without the risk of exposing your assets to any personal liability that might arise out of your business affairs.

What is a company?

A company is an artificial legal entity, incorporated with the Registrar of Companies under the Companies Act 1967. Once incorporated, it is completely separate from its owners, has its own life, and is liable for its own debts and must pay its own taxes.

How can I incorporate a company?

You must 1^st make a search with the Companies Commission of Malaysia (CCM) on the availability of the proposed company’s name on Form 13A.

On receiving the letter of approval from the CCM – you lodge Form 14 with the CCM. Prepare for signature by the interested parties the following documents (a) Forms 6, 7, 45 and 48A, (b) Memorandum and articles of association and (c) The Lampiran “A” as prescribed by the CCM.

After completion, compile the above documents supported by a covering letter for lodgement with the CCM. Ensure that Forms 6 and 48A are properly attested by a Commissioner for Oaths.

If the above are successfully completed, the CCM will issue you a Certificate of Incorporation within a week.

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Can I incorporate a company without a professional?

You may do so, but a professional can advise you on the type of entity suitable for your business needs.

Incorporation of a company is just a small part of the total process of setting up a business and making sure what you are setting up makes sense for you. In terms of the actual filing, the process can be tedious and if errors are made, the ROC can reject outright.

A professional advice is normally required in connection with many other aspects of business start-up, relying on a professional to set up a company will make it far more likely the whole job is done right.

Further, once the company is set up, it becomes necessary to adopt resolutions and a whole long paper trail to assure you the protections and benefits you are seeking by operating in corporate form.

However, many business people choose to buy “shelf company” i.e. companies that has already been incorporated.

What are the benefits of incorporating?

The most important benefit is LIMITED LIABILITY. If you can maintain the company's legal status properly, and avoid providing personal guarantees to your company's obligations, you will not be responsible for your company’s debts.

The reason most business people use companies in doing business is to safeguard the personal assets of the owners -- the shareholders (or stockholders) of the companies against potential claims of creditors. Sole proprietors and general partners in a partnership are personally liable for all debts and obligations of the business, such as loans, accounts payable, and defective products. Shareholders typically are not liable for ordinary debts and obligations except up to the amount of unpaid capital.

Other potential benefits of incorporating:

· Corporate identity: the sense of image, stability, sophistication, credibility, and permanence results from incorporating, no matter if you start with just two persons or several.

· Raising capital: you can issue shares to investors to raise capital which may be more advantageous than borrowing and making interest payments. A company can also issue and sell additional shares.

· Continuous life: a company, can survive its founders, provided it complies with ongoing laws and pays the annual filing fees. Its shares can be transferred, be pledged, sold, given away, used as security, or given as bonuses.

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I want to incorporate outside my country. What should I do?

If you plan to incorporate a company outside your country, say in Malaysia, we recommend you to consult with a professional who is familiar with the "foreign" companies or incorporation rules in Malaysia.

How many people do I need to form a company?

In Malaysia, you need two natural persons, preferably Malaysians or at least one of the promoters having a permanent residential address in Malaysia.

What’s in a company name?

It is like a brand name to a product. It conceptualize your business. It may not worth anything if it is not well known. However, if you expect to be a major player, a name will be an important asset.

Picking a company name is not as simple as it sounds. Others may have a prior claim: (1) it may be in use or be someone else's trademark or service mark; (2) it may be a generic name so that someone else can readily copy it; (3) it may be used by (or similar to) another existing company. The acceptance of your company name by the Registrar of Companies does not guarantee your right to use it if others have trademarked the name. They may take legal actions!

When you have found a catchy name, move fast! File with the Registrar of Companies quickly, particularly if you feel that the name has "magic" to it. Your competitors might also be seeking approval of the same or similar name and are moving faster by filing incorporation papers "a step ahead" of yours.

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Who runs the company?

A company has no life. The key players in a company are: (1) the shareholders, (2) the directors, (3) the officers, and (4) the employees. There is no limit to the number of shareholders, unless the company is a private limited company where the shareholders shall not exceed 50. One individual can simultaneously be the shareholder, the director, the officer, and the employee.

It is the shareholders who own the company. That ownership may be 100% in the hands of two individuals or spread among tens of thousands of individuals. Although shareholders may not participate in the day-to-day management or have a direct say in decision-making, major shareholders nonetheless carry great weight in influencing corporate decisions because they routinely vote on: election and removal of directors, amending the memorandum & articles of association major corporate changes (mergers, sales, dissolution), disposition of corporate assets.

What is the role of the directors and officers?

Since the company has no physical existence, its day-to-day management is usually carried out by the directors. The board of directors are the responsible for making policy and overseeing the operation of the business, although they typically select officers to deal with normal everyday operations.

The corporate officers usually consists of a Chairman, a Managing Director, one or more Executive Directors and the Secretary. In larger companies, there may be hundreds of officers.