Things to Think About When Setting Up a Company
Setting up a Company is simple. But there are some things you need to understand and think about before you set it up, especially when you partner with others.
Understanding the Concept of a Company
A Company is a type of business entity established under the Companies Act 2016 in Malaysia. A Company is a separate legal entity from its shareholders and directors. It can enter into contracts, transact, and hold assets and liabilities. The few characteristics of a Company are such as:
- Separate legal entity
- Liability limited to amount of paid up capital
- Perpetual Existence
- Ownership of a company is transferable
- Private Company (also known as a Sdn Bhd)- most commonly business vehicle used in doing business in Malaysia and privately owned by the owners and partners.
- Public Company (also known as Bhd) - usually for a company with more than 50 shareholders. Usually are those listed public companies in Malaysia are on Bursa Malaysia - Main market, ACE market and LEAP market.
- Company Limited by Guarantee (CLG) - usually for Non-profit organizations / NGOs
- Based on Suruhanjaya Syarikat Malaysia (SSM) statistics published - SSM statistics on Company Registration, there are a total 1,388,907 companies incorporated as at 31 December 2020, with average of 2,000-4,000 new companies incorporated every month.
Picking company name is another important thing to decide before incorporating your company. You are not allow to use an existing company name or the name reserved under the registers kept pursuant to laws administered by the Companies Commission of Malaysia. You can always check the existing company name on the MYDATA portal, which is a easier and quicker way beside asking you company secretary to do the name search.
Besides company legal name availability, you should also consider the availability of domain name. You can search availability of domain name in Exabyte or Godaddy
It is also important to check on Intellectual Property Corporation of Malaysia (MyIPO) in Malaysia for the registered trademark to ensure not to infringe or conflict with other existing business trademark and name. Or you can engage our professional help to you to perform searches for trademark. https://www.myipo.gov.my/en/home/
Business activities and MSIC Code
It is important that you must decide what is the principal business activities of your Company. For statistical purpose, now SSM require every company incorporated to choose its business nature from the national industry classification code - MSIC Code
Below are some MSIC code for certain business activities:
- Advertising - MSIC Code 73100
- Restaurants and mobile food service activities- MSIC Code 5610
- Retail sale of any kind of product over the Internet (E-commerce)- MSIC Code 47912
For full list, please visit - MSIC Code
Shares and Shareholding
Generally for a private company (Sdn Bhd) in Malaysia, there are 2 types of shares:
- Ordinary shares - the most common form and main type of shares in a Company. The ordinary shareholders take the residual interest in the company (bear risks and rewards of the business) and have the voting powers in the running of the Company.
- Preference shares - The preference shares usually give benefit or preferential rights to the holder(s) over and above the rights of Ordinary shareholders. (e.g. preference in dividend and distribution in winding up). However, preference shareholders are usually only entitled to fixed return and limited upside
- The amount of capital invested by each person
- The relative efforts and commitment in the business by each person
- The speciality and expertise of each person
Also, it is advisable to discuss the terms and structure of the Company if you are partnering with others. Although shareholder's agreement is not mandatory under the Companies Act 2016, it also does not require constitution. Nevertheless, it is strongly advisable to have a shareholders’ agreement if you have other shareholders to set clearly all the rights and obligation and avoid any misunderstanding and ensure smooth running of the Company.
Companies Act 2016 prescribes that a private company shall have a minimum of one (1) director who ordinarily resides in Malaysia by having a principal place of residence in Malaysia ('resident director').
A person must not be disqualified under sec 198 of CA 2016 to be a director of a Company.
- Is not an undischarged bankcrupt
- have not been convicted whether within or outside Malaysia of any offence- in connection with the promotion, formation or management of a corporation; or involving bribery, fraud or dishonesty
Directors are the persons elected by the shareholders with the responsibilities to run the affairs and management of the Company. Directors usually the ones that decide matters of the Company (unless require shareholders' approval). The Directors carry great responsibilities and legal obligations.
For you to decide the directors of your company- usually will be the ones you work with closely together to deliberate and make decisions. The persons together are held responsible for the decision of the Company.
Shareholding table (Sample)
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