New Companies Act in MalaysiaSep 20, 2016
Without question, the new Companies Act will modify Malaysia’s landscape of corporate culture. The alterations are intended to incite entrepreneurship, making the corporate platform more alluring for multinational corporations. The Act also intends to remove several imposed controls of the corporate process, as well as introduce the idea of corporate assistance for hurting companies.
There are six specific modifications proposed:
Memorandum and Articles of Association
With this new Act, the organization won’t have a Memorandum and Articles of Association anymore. The Act will offer all the provisions and processes required for the consistent operation of the business. That said, if the organization chooses to customize specific provisions for itself, then a Constitution can be adopted. Existing businesses will have its Memorandum and Articles of Association regarded as the new Constitution.
Simplified Company Incorporation
The Act will allow the incorporation of an organization with one person being the sole director and shareholder. A lone person can maintain total control of the organization, and still enjoy the corporate entity’s individual liability.
Rise of Directors or Sanctions
There is a typical rise in the sanctions that directors will be subjected to for violations under the new Act. Severe breaches can lead to an RM3 million fine, 5-year imprisonment, or both, in the case of a criminal conviction.
No Private Company AGM
With the above change, there won’t be any requirement for private company annual general meetings (AGM). Some critical components spin out from this: for companies that are private, audited accounts won’t be placed before the AGM anymore. Rather, there will be a schedule to distribute the accounts that are audited among the shareholders. Additionally, there is a protocol in place for an auditor’s automatic reappointment, unless the shareholders decide differently.
Simpler Passing of Written Resolutions for Private Companies
With the change of no longer having in-person meetings, private companies will find it easier to get written shareholder resolutions passed. For them to pass, most shareholders will be able to sign off on a written resolution. There is no longer a requirement to have an uncontested written resolution.
Additional Safeguards: New Solvency Test Necessity
In conjunction with making corporate processes simpler, specific safeguards will be implemented. This is to keep third parties safe when conducting business with other organizations, where their rights as creditors won’t be biased.
There will be options of a revised ‘solvency test’ applicable for various scenarios. Directors must sign on the equivalent of a statement to be approved, which will deem the business solvent upon taking on the following:
(i) Proclamation of dividends;
(ii) Capital decrease without a court order, financial aid and preference share redemptions; and
(iii) Buyback of shares.
Should there be a violation of this solvency test, the directors will be subjected to personal liability and may face criminal charges.
Please talk to us if you have any questions on how the new Malaysian Companies Act will affect your subsidiaries in Malaysia.