Malaysia

5 Chapter Corporate Law

    • Institutional structure

      In 1965, the Corporate Law of Malaysia established basic matters concerning the establishment and operation of corporations. It is composed of sub-rules such as Companies Regulations 1966 in 1966 and Companies Winding-up Rules 1972 in 1972. The  three types of companies that are recognized are local affiliates, branch offices and representative offices. A branch office is in a form of affiliated company located in Malaysia of a foreign corporation.  In addition, in accordance with the basic deciding bodies of a corporation such as the Board of Directors and General Meeting of Shareholders, a company must select company secretaries (position as a judicial scrivener in Japan) and  auditors in Malaysia. The board of corporate auditors is not required.

      The overall picture of the engine design is as follows.

      　　　　　　　　【株式会社の機関の体系】

    • Shareholder

      In Malaysia, the minimum number of shareholders required in a company is not less than two or there is also a case where minimum of one shareholder is possible, t in accordance with the provisions of Article 14 of the Companies Act, not limited to private and public.

      In addition, the number of shareholders of a private company is limited to 50 (regardless of whether corporate or  individual), and if the number of shareholders exceeds 50, it is it is necessary to change to a public company.

    • Protection of Minority Shareholders

      According to Article 181 of the Corporate Law, any shareholder may be able to file a court complaint if the company has made judgment repressively or unfairly against the interests of such shareholder. The Companies Act provided  the court  grant for the following rights and require the company to deal fairly in order to protect shareholders.

       

      (a) To lead or prohibit the act fairly, to change the resolution

      (b) Regulating future company operations

      (c) To establish provisions concerning the acquisition of shares from other shareholders,  company and bondholders

      (d) To determine provisions on capital reduction in the case that company purchased its  own shares

      (e) Dissolving the company

    • General meeting of shareholders

      ■ Types of Shareholder

      The general meeting of shareholders in Malaysia shall be held within 18 months from the establishment of the company, while the second annual shareholders meeting (AGM) which needs to be held once a year (calendar history) shall be within 15 months from the previous one.  An extraordinary general shareholders' meeting (EGM) shall be held if the director or shareholder considered it as deemed  necessary. A statutory general meeting which is required to be held only once when a status changes from a private company to a public company.
       


      ※  Although in general, practicing the voting rights of shareholders are done by raising their  hands, if there is a request from the chairman of the shareholders meeting, with the affirmation of shareholders attending more than three people, shareowners or shareholders (including proxies) etc. of all shareholders who have voting rights at the general meeting of shareholders etc. any other way of voting may be practice.

      ■Venue

      The shareholders meeting can be held in any venue anywhere in Malaysia, regardless if it is a public or private company.  In that case, it is necessary to specify in the notice the venue of the place.

       

      ■ Convener and the Convocation Notice

      As stipulated in Article 145 of the Companies Act of Malaysia, the shareholder that has the right to call for the meeting has to be two or more persons with a shareholding of 10% or more in a public company and 5% or more in a private company. However, if stipulated through a special provisions in the articles of incorporation, shareholders with 5% or less shares can call for a meeting. 
       

      ■ Holding Procedures

      ① Legislative General Meeting

      It is a general meeting that needs to be held when a private company is intending to become a public company. As a general procedure, we will send a statutory report to each director or secretary at least seven days before the date of the meeting and conference accordingly. Resolutions included in the statutory report mainly include appointment of directors, number of shares, confirmation of registered address, confirmation of articles of incorporation, etc.

       

      ② Annual General Meeting of Shareholders

      The notification period is 14 days in case of general resolution matter and 21 days in case of special resolution matter. The corporate secretary will send a notice in writing for the purpose of holding general meeting of shareholders. After that,  annual shareholders meeting will be held at the place and date specified in the notice. It is permitted in Malaysia to do the notification of meeting through writing. Also the first annual shareholders meeting must be done within 18 months after establishment and thereafter it is necessary to do it within 15 months from the month the previous meeting was held. In that case, as long as he meeting is being held once a year, it is not necessary to call further meetings in the current fiscal year.

      At the Annual General Meeting, all agendas to be deliberated are required to be sent together with the notice. In Malaysia, since the date and time of all the meetings for every year is cannot fixed at one time, it is preferable to decide in advance to a certain extent of the date and time.

      ③ Extraordinary Shareholders Meeting

      According to Article 144 of the Companies Act, extraordinary shareholders meeting  will be held at the request of the Board of Directors, or shareholders (even multiple shareholders) who owns 10% or more of the paid-in capital or voting rights. In the event that if the ones requesting for the meeting are shareholders, it is necessary to describe the purpose of holding the extraordinary shareholders meeting in the notice together with the signatures of all the requesting shareholders. A notification must be sent to the company's registration office. In addition, it is necessary to hold an extraordinary general shareholders meeting within two months from the request of the meeting. If the shareholders do not hold the extraordinary general meeting of shareholders within 21 days after the request of the extraordinary shareholders meeting, it is possible that the meeting will be held within three months by a request of more than half of the shareholders calling for the meeting. In addition, expenses for the extraordinary general shareholders' meeting requested by shareholders can be borne by the company.

       

      ■ Resolution of General Shareholders Meeting

      ① Annual General Meeting of Shareholders

      There are two types of agenda items at the annual general shareholders meeting, general resolution items and special resolution matters.

       

      ⑴    General Resolution Matter

       

      · Determination of dividends to be declared

      · Confirmation and approval of settlement report

      · Resignation of directors and approval of election

      * In Malaysia, a one - third of the directors are required to retire every year, taking a row tension system. Once you have retired at the annual general meeting of shareholders and stated in the minutes that you will be re-appointed, you can still exercise you authority to operate the company as director.

      · Selection of accounting auditor and determination of remuneration amount

      · Selection of tax administrator and determination of remuneration amount

      · Selection of secretaries and determination of remuneration amount

       

      (2) Special Resolution Matter

      All resolutions items other than general resolution items fall under special resolution  at the annual general meeting of shareholders

       

      ② Extraordinary Shareholders Meeting

      There are also two kinds of agenda items at the extraordinary general shareholders meeting, general resolution items and special resolution matter, just like in the annual general meeting of shareholders.

       

      ⑴    General resolution matters

      · Dismissal and appointment of director ※ Required notification period is 28 days

      · Increase of authorized capital

      · Issuance of shares

      · Trading and selling of assets related to directors

       

      (2) Special resolution matters

      · Amendment to the articles of incorporation

      · Change of company name

      · Company's discontinuation

      Capital reduction

       

      ■ Quorum

      · Annual General Meeting of Shareholders

      The quorum of the Annual General Meeting of Shareholders is 2 shareholders present at the meeting (agents are also acceptable). In the case where the shareholder is an agent of another shareholder or when the same person becomes an agent of multiple people, it is being considered  that one person who is actually at the place of the general meeting counts as only one person. Therefore, in that case, since the minimum number of person that needs to be in actual meeting to compose a quorum is 2, quorum requirement is not satisfied. In Malaysia, it is also permitted that there is only one shareholder in the case of a corporation. If there is only one shareholder, the quorum of the general meeting of shareholders will be one according to the number of shareholders. In other words, in the case of a 100% subsidiary, it is not necessary to actually hold a general meeting and it is said that it is sufficient to do a document resolution only. However, as the general shareholders' meeting is obliged to be held in Malaysia, if the person signing on behalf of the shareholders is not in Malaysia on the actual day of the meeting, it is necessary to assign a person in Malaysia as a proxy. It is necessary to pay attention to these points.

      ■ Voting Rights and Resolution Requirements

      The usual voting method at Malaysian annual shareholders' meeting is by raising hand. One   person holding a voting right is equal to one vote, regardless of the investment ratio. In this case, voting rights are only granted to shareholders themselves, so be careful since it is not possible to delegate voting rights to agents. Also, as stated in Section 51 of the Corporate Law Table A, it is mandatory to vote by hand raising system unless requested by the following: Requested by the chairperson or three or more shareholders, or by a shareholder who owns more than one tenth of the stock or voting rights. In the case of voting system, it becomes possible to delegate voting rights to an agent, and the number of shares owned will be the number of votes. If you wish to make a resolution based on the shareholding ratio, you must request that using such method be voted at the time of resolution.

      Resolution Requirement

      At the Annual General Meeting of Shareholders, in order to establish the proceedings, a majority of general resolution matters and a special resolution require more than 75% of approval. Similarly, at the extraordinary shareholders' meeting, a majority of the vote of shareholders holding voting rights is necessary for approval of general resolution items and a vote of over 75% for special resolution matter are required.

       

      An Agent

      Individual shareholder who cannot attend the general meeting can assign a proxy. In the case of a corporation, there are two ways of assigning a proxy: appointment by shareholder proxy attorney (Proxy) and appointment by corporate shareholder representative (Corporate Representative). Although appointing a proxy is possible through  the power of attorney, for a shareholder which is corporation in Japan, the power of attorney is required to be notarized and certified.  Since it is very troublesome to do such things every year, many companies issue a document that an appointed proxy  can act as a representative of the corporation, notarize and certify by the Japanese side as well as the local Malaysian company. By managing to issue such document, the proxy will be able to sign all Annual General Meeting Documents. In addition, this document does not need to be issued again every shareholders general meeting unless the proxy retired, so it can save the parties from troublesome tasks.
       
       

    • Director (Board of Directors)

       

      ■ Number of Directors (Important)

      In Malaysian companies, the required number of directors must be two or more. It is necessary that these persons must have a domicile in Malaysia. These are applicable to whether public or private companies.

       

      ■ Requirements for Directors

      The requirements of the directors are as follows.

       

      · The person is not suffering from any mental disorder

      · Not a bankrupt

      · Over 18 years old

      · Nationality is not required

      However, according to Article 126 of the Corporate Law, all companies need to appoint at least two directors who have domicile in Malaysia. Please refer to the column below for the criteria that a person has domicile in Malaysia.

      · Be under 70 years old (Public company only)

      * However, if approval from more than 75% of shareholders is obtained at the annual general meeting, it can become a director.

       

       

       

      Judgment of actual presence in Malaysia is judged in the following order.

       

      ①    Whether he has Malaysian nationality

      ② Does he  has an address on the site?

      ※ Check with the rental agreement etc. of the apartment

      ③ Does he has  a work visa on the site

       

      If the director that will be appointed  is a Malaysian national,  only the condition (1) is need to be satisfied, but in the case of a foreign national, it is necessary to satisfy ② and ③. By submitting the required documents to the company registration office (SSM), it will be decided if he has the actual presence in Malaysia and is qualified to become a local director. In practice, since many companies are practicing  nominal lending, it is usual to borrow the name first and then to change the directors when the visa acquisition is completed. It will take about 1 month for the change of director to be reflected in the SSM database, so the company still need to do the name lending during this time.

      When the change is reflected in the database of SSM, it means that authorization has been completed, so it is normal that two local directors are required until it is approved.

       

      ■ Election and Dismissal of Directors

      In case of public company and private company Dismissal of directors can be made at ordinary resolution. However, in accordance with Article 128 of the Companies Act, a director cannot be dismissed until a new director is appointed if the director who is to be dismissed is a holder of a particular class of shares or holder of bonds. In addition, special resolution is also needed to elect or appoint directors who are holder of specific class of shares or holder of corporate bonds.

      In the 1st General Meeting of Shareholders all directors will be dismissed and one third of the directors after the following year (in case the number of directors is not a multiple of three, it is made to approximate 1/3) will be dismissed.

      The order of dismissal is based on  the longest term of office. When the directors to be dismissed has the same period of time, dismissal will be depend on consent or drawing among the parties.

      The number of directors can be changed by ordinary resolution of the general meeting of shareholders, and directors can also appoint new directors if it is within the scope of the articles of incorporation.

       

      Representative Right

      Unlike in Japan, business decision-making functions cannot be delegated to the representative director, and decisions are made at the Board of Directors. However, it is possible to transfer authority of decision making by stating it in the articles of incorporation. The delegate who has the authority  is limited to the following institution / person.

       

      1. Board of Directors

      2. Persons who are admitted by the Board of Directors and were given rights to represent in decision making.

      3. Individuals like executive officers

      (Those who are in positions such as Managing Director etc.)

       

      ■ Authority of Directors

      Responsibilities of directors are not stipulated concretely under the Corporate Law. Although Article 132 of the Company Law stipulates the responsibilities of directors, this stipulation is only about general obligations such as fiduciary duties and fidelity obligations to companies and shareholders. From this point of view, it is common in practice that the  responsibilities of directors are being determined in the by-laws. Generally, the obligations that the directors must do are signature of the audit report, payment of legally prescribed items such as corporate taxes and EPFs and notification of change of role and change of registered office etc.

      If the director violates one of these roles, he will be fined or arrested accordingly. In case of maliciousness, there are cases where he will be fined and arrested.

       

      ■ Board of Directors

      In the Company Law of Malaysia, matters to be resolved at the Board of Directors meeting are not specifically stipulated. According to the articles of incorporation, the board of directors meeting must be held within 18 months from the establishment of the corporation. Thereafter there will be no problem if it will be held within 15 months from the date of the last meeting. Because  many companies set their fiscal year from January to December, commonly board of directors meeting was being held around March to April as soon as the annual audit is over. With this schedule, companies can comply with corporate tax payment (until June 30  every year) with plenty of time. There is no particular designation as long as the venue is in Malaysia. By specifying in the articles of incorporation, individual telephone, telephone conference or electronic method is possible. The quorum is composed of 2 persons unless there is provision in the articles of incorporation. In fact, matters about the board of directors is held in the form of so-called written resolution in most companies. However, in the case of written resolution, everyone should agree and it is necessary that is signed by them. Also, the date on which the last signature was made is taken as the resolution date.

      In addition to written announcement, the notice for the meeting can also be made by  telephone, fax, e-mail or oral. The notice content must include the agenda of the Board of Directors.

       

      Resolution Requirement

      The decision of the Board of Directors will be the majority of the vote by attendees. If the number of the vote happened to be the same, the chairperson will have authority to make the decision.

      In the case of a joint venture company or the like, it is possible to prevent a biased resolution by prescribing in the articles of incorporation in advance. As an example, in the quorum of the Board of Directors, it is not only necessary to have at least 2 attendees, but the two parties must each have representative in the quorum, at least one member is agreed from each party.

      【board of directors】

      Q & A

      Q Please tell me about the procedures when changing directors in Malaysia.


      A We will submit the following documents to SSM. It will take about 1 month to complete the procedure.


      Required documents

      ① Copy of new director's passport

      ② Form 49

      ③ Former Director's resignation letter (signed)

       
       

    • Company Secretary

      ■ Obligation to appoint a company secretary (important)

      All companies in Malaysia are obliged to appoint company secretary. He/she is said to be the administrative scrivener in Japan.

       

      ■ Number of company secretary

      For Malaysian companies, in principle one or more company secretaries are required. Also, absence of position for more than one month is prohibited.

       

      ■ Requirements for company secretary

      The company secretary must be of legal age and qualified to make Malaysia the main residential country. In addition, he/she must  obtained permission from a member of the prescribed organization such as the Company Secretary Association, or by the Malaysia Company Registration Authority.

       

      ■Election / dismissal of company secretary

      The appointment of an corporate secretary is made by the Board of Directors.

    • Accounting auditor

       ■ Appointment of Corporate Auditor (Important)

      In Malaysia, all companies are obliged to be audited by external accounting auditors, not just public companies and private companies. The accounting auditor must submit the audit report of the accounting documents to the annual general meeting of shareholders and submit  it to the company registration office in Malaysia (SSM) within one month after approval. In principle, the general meeting of shareholders needs to be held within six months from the end of the fiscal year. The auditor must submits the income statement, balance sheet and audit report.

      During the liquidation period, the representative office is not subject to audit.

       

      ■ Number of Corporate Auditors

      At least one accounting auditor is required in Malaysia.

       

      ■ Requirements of the Accounting Auditor

      The accounting auditor is required to be accredited as a Certified Public Accountant in Malaysia. In addition, an auditor is cannot be appointed is he has interests with the company, directors, employees etc.

       

      ■ Appointment / dismissal of accounting auditor

      In Malaysia, the appointment of the accounting auditor is to be done in the annual general meeting of shareholders. Also, the auditor 's remuneration will be decided there. While his/her dismissal is decided by a special resolution of the shareholders meeting.

      In the unlikely event that vacancies arise in the accounting auditor position, it is necessary to hold an extraordinary general meeting of shareholders and appoint a new one. In this case, it is also possible to reappoint.

      It is not necessary to appoint an accounting auditor, especially at the founders’  general meeting at the time of establishment. It is necessary to decide about the matter of appointing an auditor in the founders’ general meeting or deciding at the annual shareholders meeting before the first annual general meeting of shareholders.

       

      ■ Authority of the Accounting Auditor

      The accounting auditor audits the financial statements prepared by the company and expresses opinions on the appropriateness of the financial statements in the audit report. The accounting auditor is authorized to view accounting books and vouchers and to ask questions in order to conduct the audit. There will be a doubt in the opinion of the auditor if the company does not provide materials or answer questions as requested by him. 

    • Type of stock

      In Malaysia, it is possible to issue class of shares and preferred shares not only by converting ordinary shares but also by stating in the articles of incorporation.

      Normally, a company can issue common shares as many as the required number of shares in one stock ringgit.

      In preferred stock and other class of stock except to common, you can assign  priority or restrict on dividends declaration, voting rights, capital cancellation, etc.

    • Issuance of new shares

      ① Issuance of new shares at the time of establishment

      At company establishment it is necessary to issue at least 2 shares (2 ringgit). However, this is the lowest paid-in capital, it does not take into account the licenses for doing business and the acquisition of work visa. Depending on the type of industry, the capital ratio of foreign capital, the type of visa, etc., the number of necessary shares to be issued at the time of establishment will change. The minimum authorized share capital required to start a business is 100,000 ringgit.

       

      ①   ② Issuance of new shares after establishment

      Mainly, the number and type of shares to be issued  will be determined in the (extraordinary) general meeting of shareholders. In the case of the issuance of ordinary shares, board of directors will execute a resolution and this resolution will be approved at the annual general meeting. This will be no problem if it will be executed as ordinary resolution. However, as stipulated in Articles 61 and 66 of the Companies Act, it is required to state the rights, etc. on preferred shares in the articles of incorporation, so it cannot be issued unless special resolutions are passed.

      The company is permitted to do the following with respect to the issuance of new shares:

      (a) issue new shares for the sake of convenience

      (b) Merging and splitting shares against outstanding shares

      (c) changing the type and class of shares
       

    • Capital increase

      After the initial capital is deposited from the parent company to the bank account of the overseas corporation, usually one share owned by each promoter is transferred to the parent company, shares of the additional capital are allocated, and share certificates are issued. This series of work is done by the company secretary. When the company can confirm the payment of capital, the company will send a bank confirmation of payment to the company secretary. After that, the reporting secretary will prepare necessary documents for the capital increase procedure.

       

      Stock Allocation

      Proposed form (Form 11, 24, 52, etc.), resolution of Director (Convocation Notice of Extraordinary General Meeting of Shareholders, Share Allocation, etc.), Shareholder Resolution (Grant the authority to share allotment to the Board of Directors) Book (Allotment Letter)

       

      Stock Transfer

      Director resolution (approval of stock transfer), Form 32A (preparation, signature, stamp duty payment)

       

      Signing to necessary parts of the documents, completion of payment of stamp duty, notification is made to SSM, capital increase is reflected in paid-in capital of Form 24 are the procedures to undertake. It usually takes 1 to 2 months until the fact of the capital increase is reflected in SSM's company information (Conpany Profile). But it is possible to be reflected in only about 1 to 2 weeks if you will ask the SSM for prompt data updating called Express Filing (Express Filling) upon paying the prescribed fee. . This is effective when you want to shorten the number of days required to apply for a visa and various applications after the establishment of the company.

    • Capital reduction

      Under the Corporate Law, in order to reduce capital,  it is necessary to acquire a vote of three-fourths or more of shares with voting rights at a special resolution.

    • Treasury stock

      Public companies are permitted to purchase treasury stock if it is stated in the articles of incorporation.

      However, purchase of treasury stock cannot be made if it falls under the following conditions.

       

      ① The company has no payment ability on the purchase date. If the ability to pay creditors will be sacrificed  due to the obligation to pay for the purchased shares.

      ①  ② If transactions are not made under the law related to securities law

      ③ If there is injustice and it does not benefit the company

      ②    The company can provide premium shares with an indication of purchase of shares

       

      In case of  breach of these rules, 5 years imprisonment, or 100,000 ringgit or both will be imposed.

    • Dividend

      The company will pay dividends according to the number of shares held and the invested capital amount.

      Regarding dividends, after being resolved at the Board of Directors, approval and declaration will be made at the general shareholders' meeting.

      In order to pay dividends, there must be distributable profit.

      The authority to declare  dividend is stipulated in the company's articles of incorporation, and the dividend ratio also varies depending on the type of stock etc. In that case as well, the decision must  reflect the contents specified in the articles of incorporation.

      Maximum amount of dividends that can be declared can be resolved at the general shareholders meeting with an upper limit up to the amount determined by the Board of Directors.