Incorporating A Company In Malaysia. What Are The Advantages?

Planning to incorporate a company and weighing out the pros and cons of doing so? Fear not as we will brief about the pros of incorporating a company in Malaysia in this article. Alternatively, if you want to know more about incorporation, you can contact us and talk with our experienced business lawyer and company secretary:

It Creates A Separate Legal Entity

A concept that derives from the English case of Salomon v Salomon1, it entails that the company is an entity on its own/ artificial person. In this regard, it allows the company to exist as an individual personality/ entity i.e.:

  1. Its members cannot be held liable for the acts of the company;
  2. Its members’ assets are separate to those of the company i.e. its debts is limited to what can be paid via the company assets;
  3. It can sue and be sued.

This feature is somewhat different to that of a partnership, limited liability partnership or even a sole proprietorship, where its partners/ owners are liable for all their decisions that they make, and could potentially be drained of their assets in a legal battle.

Tax Incentives

There are myriads of tax relieves according to a corporation. Various industry-specific tax incentives are available for local companies to apply. It is usually granted via income exemption or allowances2. In this regards3:

  1. It could be direct tax incentives, granted partially or in full from income tax payment for a specified period, or it could be indirect tax incentives such as exemption from import duty, sales tax and excise duty;
  2. In the case of allowances, any allowances (generally) that are not utilized can be carried forward indefinitely until it is utilized.

For example4:

  • Companies in the manufacturing, agricultural, hotel and tourism sectors, or any other industrial or commercial sector, that participate in a promoted activity or produce a promoted product may be eligible for either pioneer status or investment tax allowances.
  • A resident company in operation for not less than 36 months that incurs capital expenditure to expand, modernise, automate, or diversify its existing manufacturing business or approved agricultural project is entitled to a certain reinvestment allowance.
  • A principal hub is a locally incorporated company that uses Malaysia as a base for conducting its regional and global businesses and operations through management, control, and support of key functions only requires to pay a certain amount of corporate income tax, subject to conditions being met by the company.

Succession

Compared to that of a partnership, limited liability partnership or even a sole proprietorship (which have to be closed down or in the case of a sole proprietorship company, cease to be in existence if no successor can be found), a death of one of the members of the company does not (generally) signify the end of the existence of the company unless the company is being wound up. Companies can still run with the same privileges, liabilities, responsibilities, properties etc.

Ability To Raise Funds

This is commonly done via the issue of shares to raise capital for funds expansion. The advantages of issuing shares generally include but not limited to:

  1. The ability to incur less debt as compared to if you were to borrow a sum of money straight up from the bank; and
  2. The funds that are raised via the issues of shares (i.e. investment by shareholders) need not be repaid back at a later date. (Having said that, this does not mean that shareholders give the company the investment for free- they still expect returns on their investments, either through stock growth or dividend payments).

Autonomous

While the company still has to comply with a certain set of laws and regulations, the courts will generally not intervene in the management of the company, even in a situation where the minority shareholders are constantly being outvoted by the majority, as long the decisions and actions taken by the company are done in such a way that it complies to the laws and regulations of the land and in good consciences/ good faith.

And there you have it. We shall share the cons of doing so in another article.

Meanwhile, if you need to know more about incorporation, feel free to contact us:


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1. [1987] AC 22.

2. https://taxsummaries.pwc.com/malaysia/corporate/tax-credits-and-incentives

3. Ibid.

4. Ibid.