Definition of SMEs

Malaysia adopted a common definition of SMEs to facilitate identification of SMEs in the various sectors and subsectors. This has facilitated the Government to formulate effective development policies, support programmes as well as provision of technical and financial assistance.

An enterprise is considered an SME in each of the respective sectors based on the Annual Sales Turnover or Number of Full-Time Employees as shown in the table below.

	Manufacturing, Manufacturing-Related Services and Agro-based industries	Services, Primary Agriculture and Information & Communication Technology (ICT)
Micro-enterprise	Sales turnover of less than RM250,000 OR full time employess less than 5	Sales turnover of less than RM200,000 OR full time employees less than 5
Small enterprise	Sales turnover between RM250,000 and less than RM10 million OR full time employees between 5 and 50	Sales turnover between RM200,000 and less than RM1 million OR full time employees between 5 and 19
Medium enterprise	Sales turnover between RM10 million and RM25 million OR full time employees between 51 and 150	Sales turnover between RM1 million and RM5 million OR full time employees between 20 and 50

FAQ: What condition must be met if a foreigner wishes to form a company in Malaysia?

A foreigner who wishes to be form a company must be above 18 years of age and have a principal or only place of residence within Malaysia (Section 122 of the Company Act 1965).

The Corporate Law Reform Programme of the Companies Commission of Malaysia (SSM)

The Corporate Law Reform Programme of the Companies Commission of Malaysia (SSM) began in December 2003 when the review of the Companies Act 1965 was initiated as part of SSM strategic direction in facilitating the development of a conducive and dynamic business and regulatory environment for this country.

SSM established the Corporate Law Reform Committee (CLRC) to spearhead the review of the Companies Act 1965 with the following objectives:

1. to create a legal and regulatory structure that will facilitate business; and
2. to promote accountability and protection of corporate directors and members taking into account the interest of other stakeholders, in line with international standards.

At the same time, when reviewing and recommending changes to the Companies Act 1965, the CLRC was to take into consideration the following factors:

1. Modernising the law by taking into account the advances made in Information and Communication Technology (ICT);
2. Reducing the costs of compliance;
3. Reducing duplications and conflicts that exist between the various corporate regulatory bodies;
4. Simplifying the existing operational processes of a company; and
5. Simplifying the current legislative language as used in the Act.

COMPANY LIMITED BY SHARES

The most common type of company incorporated for purposes of carrying on business is a company limited by shares. A company limited by shares may be incorporated as a:

• Private Limited Company – identified through the words ‘Sendirian Berhad’ or abbreviation ‘Sdn. Bhd’ as part of the company’s name.
• Public Limited Company – identified through the words ‘Berhad’ or abbreviation ‘Bhd’ as part of the company’s name.

The requirements to form a local company are:

(i) A minimum of two (2) subscribers to the shares of the company (section 14 of the CA);

(ii) A minimum of two (2) directors (section of the 122 CA); and

(iii) A company secretary who can either be:

(a) an individual who is a member of a professional body prescribed by the Minister of Domestic Trade and Consumer Affairs; or

(b) an individual licensed by SSM.

Both the director and company secretary shall have their principal or only place of residence within
Malaysia (sections 122 and 139 of the CA respectively).

INCORPORATION OF A LOCAL COMPANY IN MALAYSIA

Incorporation of a local company is carried out pursuant to the provisions of the Companies Act 1965 (‘CA’). There are three (3) types of companies that can be incorporated under the CA namely:

• A company limited by shares;
• A company limited by guarantee; or
• An unlimited company.

As at 28th February 2009, there are 839,853 local companies incorporated. Since the establishment of SSM in April 2002, the growth rate of the number of local companies incorporated exceeds 5% annually.

STARTING A BUSINESS IN MALAYSIA

Malaysia offers abundant opportunities for those who wish to pursue business in the country. In doing so, there are fourways of carrying out business in Malaysia, namely:

• Incorporating a local company;
• Registering a foreign company;
• Registering a sole proprietorship; or
• Registering a partnership.

The Companies Commission of Malaysia (SSM), established on 16 April 2002, serves as an agency to incorporate companies and register businesses. SSM also ensures compliance with business and corporate legislations through comprehensive enforcement and monitoring activities. SSM offers efficient and fast service for the incorporation of companies, registration of businesses and lodgement of statutory documents. SSM has nationwide presence through its headquarters located in Kuala Lumpur as well as branch offices in all the states in Malaysia. SSM also serves as a depository and custodian of corporate and business information. Such information is vital to enable the business community to make informed business decisions and to enable members of the public to carry out verifications.

Inland Revenue Board of Malaysia

The Inland Revenue Board of Malaysia (IRBM) is one of the main revenue collecting agencies of the Ministry of Finance.

The Department of Inland Revenue Malaysia became a board on March 1, 1996, and is now formally known as IRBM.

IRBM was established in accordance with the Inland Revenue Board of Malaysia Act 1995 to give it more autonomy especially in financial and personnel management as well as to improve the quality and effectiveness of tax administration.

The agency is responsible for the overall administration of direct taxes under the following Acts :

1. Income Tax Act 1967,

2. Petroleum (Income Tax) Act 1967,

3. Real Property Gains Tax Act 1976,

4. Promotion of Investments Act 1986,

5. Stamp Act 1949,

6. Labuan Offshore Business Activity Tax Act 1990

Functions of the Board

1. To act as agent of the Government and to provide services in administering, assessing, collecting and enforcing payment of income tax, petroleum income tax, real property gains tax, estate duty, stamp duties and such other taxes as may be agreed between the Government and the Board;

2. To advise the Government on matters relating to taxation and to liaise with the appropriate Ministries and statutory bodies on such matters;

3. To participate in or outside Malaysia in respect of matters relating to taxation;

4. To perform such other functions as are conferred on the Board by any other written law;

5. May act as a collection agent for and on behalf of any body for the recovery of loans due for repayment to that body under any written law.

The Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia or SSM)

The Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia or SSM) is a statutory body which regulates companies and businesses. SSM, which came into operation on 16 April 2002, is a statutory body formed as a result of a merger between the Registrar of Companies (ROC) and the Registrar of Businesses (ROB) in Malaysia.
The main activity of SSM is to serve as an agency to incorporate companies and register businesses as well as to provide company and business information to the public. As the leading authority for the improvement of corporate governance, SSM fulfils its function to ensure compliance with business registration and corporate legislation through comprehensive enforcement and monitoring activities to sustain positive developments in the corporate and business sectors of the Nation.
SSM is responsible for the administration and enforcement of the following legislation:

• Companies Act 1965 (Act 125);
• Registration of Businesses Act 1956 (Act 197);
• Trust Companies Act 1949 (Act 100);
• Kootu Funds (Prohibition) Act 1971 (Act 28);
• any subsidiary legislation made under the Acts specified above such as:
  
  • Companies Regulations 1966; and
  • Registration of Businesses Rules 1957

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