Types of Business entities
The most common types of business organization include sole
proprietorships, partnerships and companies. Foreign companies may also operate
through a branch in Malaysia.
Sole proprietorship is a type of business organization owned
by one person only and a partnership may be formed by two or more persons, up
to 20 persons.
The sole proprietor and partners do not have a separate
legal identity from the sole proprietors and partnerships. A sole
proprietorship or partnership must be registered with the Companies Commission
of Malaysia (CCM).
The most common company structure in Malaysia is a company
limited by shares. Such limited companies may be either private or public
A private company is
one which restricts the transfer of its shares and has no more than 50
shareholders. A private company may not offer its shares to the public.
There are two means of setting up a subsidiary in Malaysia:
by incorporating a new company or buying a shelf company. Buying a shelf
company may take less time than forming a new company, although if all relevant
documents are duly submitted, incorporating a new company may take less than
The secretary of a company must be a natural person of full
age who has their principal or only place of residence in Malaysia. The person
must be a member of a prescribed body or be licensed by the CCM. The company
must also appoint an approved company auditor to be the company auditor in
In addition, the company shall have at least two directors
who each has his or her principal or only place of residence within Malaysia.
A foreign company may set up a branch in Malaysia by
registering itself as a “foreign company” with the CCM under the Companies Act
1965. The foreign company must appoint one or more “agents” in Malaysia, who
must be residents of Malaysia to accept, on the foreign company’s behalf,
service of process and any notices required to be served on the foreign
Malaysia has currency and capital controls governed by the
Exchange Control Act 1953. Since 1 April 2005, the foreign exchange
administration rules have been liberalized and simplified.
There is no restriction on the amount payable by residents
to non-residents for the import of goods and services, or by non-residents to
residents for the export of goods and services. However, such payment must be
made in foreign currency with the exception of the currency of the state of
Israel (Restricted Currency). There is no restriction for residents to enter
into a forward foreign exchange contract with licensed onshore commercial and Islamic
banks (licensed onshore banks) or approved investment banks, to buy foreign
currency against the Malaysian ringgit or another foreign currency to make
payment to a non-resident in respect of the imported goods.
Resident travelers are allowed to import or export Malaysian
ringgit notes up to RM1,000, and to export foreign currency notes, including traveler’s
cheques, up to an equivalent of uS$10,000. There is no limit on the value of
foreign currency notes or traveler’s cheques that a resident may bring into
Non-resident travelers are allowed to bring in or take out
of Malaysia ringgit notes up to RM1,000. A non-resident traveler may bring in
any amount of foreign currency notes, including traveler’s cheques, into
Malaysia. A declaration is required where the amount of foreign currency notes
and traveler’s cheques exceeded uS$10,000. A non-resident traveler may take out
foreign currency notes and traveler’s cheques up to the amount brought into the
country or uS$10,000, whichever is higher.
There is no restriction on non-residents for the
repatriation of capital, profits, dividends, interest, fees or rental by
foreign direct investors or portfolio investors. Malaysian ringgit assets
purchased by residents from non-residents may be settled in ringgit or foreign
currency, other than a Restricted Currency. However, all remittances abroad
must be made in a foreign currency other than in a Restricted Currency.
Resident companies and resident individuals with no domestic
borrowing are free to invest abroad.
Resident companies with domestic borrowing can equally
invest with no restriction on the amount if the investment is funded with their
own foreign currency funds retained onshore or offshore, or funded from
proceeds of listing through initial public offering on Bursa Malaysia
Securities Berhad or any other foreign stock exchanges. However, they may only
invest up to the equivalent of RM100million in aggregate on a corporate group
basis if funded by foreign currency borrowing, or up to the equivalent of RM50million
in aggregate on a corporate group basis per calendar year if funded from
conversion of ringgit.
individuals with domestic borrowing can also invest with no restriction on the
amount if the investment is funded with their own foreign currency funds
retained onshore or offshore. However, they may only invest up to the
equivalent of RM10million in aggregate if funded by foreign currency borrowing,
or up to the equivalent of RM1million in aggregate per calendar year if funded
from conversion of ringgit.
Resident companies converting ringgit for overseas
investments must have minimum shareholders’ funds of RM100,000 and must be in
operation for at least one year. Individuals who are residents may convert
ringgit into foreign currency up to the amount required for investment in
foreign currency securities under an employee share option or purchase scheme
offered by their employer’s overseas parent or related companies.
Residents may also obtain trade financing facilities in
foreign currency from licensed onshore banks nd licensed investment banks. A
resident company is free to obtain trade financing facilities of any amount in
foreign currency up to the equivalent of RM100 million in aggregate on a
corporate basis from non-residents as well as through issuance of onshore
foreign currency denominated bonds onshore and offshore. A resident individual
may also obtain credit facilities in foreign currency up to an equivalent of
RM10 million in aggregate from licensed onshore banks, licensed International
Islamic Banks and non-residents. Any amount exceeding the above permitted
limits would require prior permission of the Controller. There is no
restriction for the resident to use the foreign currency credit facilities to
finance its own activities in and outside Malaysia. There is also no
restriction to repay or prepay permitted credit facilities.
With effect from 1 October 2007, the Central Bank of
Malaysia has abolished the registration requirements on both the prepayment
exceeding RM50 million equivalent on permitted foreign currency borrowing from
a non-resident lender, and the repayment of foreign currency borrowing with no
fixed tenure or repayment schedule which is deemed to be a prepayment.
Licensed onshore banks and approved investment banks may
extend credit facilities in foreign currency to non-residents for any purpose.
However, credit facilities extended for the purchase or construction of
immovable property in Malaysia are subject to the same requirements as for
ringgit credit facilities. There is no restriction on residents to extend any
amount of ringgit credit facilities to non-resident controlled companies.