Explore key changes in Malaysia’s Companies Act 2016, including incorporation, governance, audit, AML, and constitution updates for businesses and professionals.
Make an appointment with Company Secretary for advice and consultation
A Practical Review of the Malaysian Companies Act 2016
The Malaysian Companies Act 2016, effective from 31 January 2017, replaces the Companies Act 1965 and introduces significant reforms to streamline corporate processes, promote transparency, and strengthen governance.
1. Simplified Incorporation & Corporate Structure
Companies can now be incorporated by a single individual acting as both director and shareholder. The registration process is conducted online through the MyCoID 2016 portal, and the requirement for a Memorandum and Articles of Association has been replaced with a Constitution, which is optional unless required by the company’s shareholders.
The Act also recognises three main types of companies: companies limited by shares (most common), companies limited by guarantee (non-profit organisations), and unlimited companies. Additionally, companies are categorised as private or public, with private companies using “Sendirian Berhad (Sdn. Bhd.)” and public companies using “Berhad (Bhd.)”.
2. Corporate Governance, Constitution & Ownership Transparency
The Act codifies directors’ duties, requiring them to act in good faith, exercise reasonable care, and act in the best interest of the company. Shareholders can pass written resolutions without holding meetings, which helps reduce procedural burdens, particularly for private companies.
The company’s Constitution is no longer mandatory under the Act. If adopted, it binds the company and its members and may include specific provisions that override or expand statutory rules. Companies may also include entrenchment clauses, which require a higher threshold to amend certain provisions.
Furthermore, companies are required to maintain a register of beneficial owners (those with significant control) and ensure it is kept up to date with the Companies Commission of Malaysia (SSM). Non-compliance can lead to enforcement actions.
3. Share Capital, Solvency & Financial Integrity
The Companies Act 2016 removes the concept of par value, introducing a no-par value share regime. This simplifies the capital structure and removes share premium accounts. Companies must ensure they are solvent before undertaking certain actions such as declaring dividends or reducing capital. Directors are required to sign a solvency statement and may be held personally liable for inaccurate declarations.
While share certificates are no longer mandatory, companies still have the responsibility to issue them if requested. Share transfers must be processed within 30 days from the date of lodgement.
4. Audit, Strategic Reporting & Internal Controls
Large companies must prepare strategic reports, which offer a fair review of financial performance, principal risks, and non-financial indicators such as environmental, social, and governance (ESG) matters. Disclosures may include anti-corruption efforts, sustainability policies, and board diversity.
Auditors are required to be independent and qualified under standards set by the Audit Oversight Board (AOB) and Malaysian Institute of Accountants (MIA). Audit firms must implement internal quality control systems in line with global standards (ISQM 1 and ISQM 2) and maintain Professional Indemnity Insurance (PII) to protect clients and stakeholders. Periodic auditor rotation is also encouraged to maintain impartiality.
5. Meetings, Resolutions & Company Officers
The Act provides that private companies are not required to hold Annual General Meetings (AGMs), while public companies must hold AGMs within six months of their financial year-end. Written resolutions are permitted only for private companies. Shareholders may appoint proxies to attend, speak, and vote on their behalf.
Every company must have at least one director who is a resident of Malaysia (for private companies) or at least two for public companies. Directors’ service contracts must be made available for inspection. The appointment of a company secretary is also compulsory. Secretaries must be natural persons who are Malaysian citizens or permanent residents and are qualified under the law. The Act also outlines clear procedures for the resignation or removal of company secretaries.
6. Corporate Capacity, Pre-incorporation Contracts & Rescue Mechanisms
Under the Act, companies have full capacity to carry on any lawful business unless restricted by their Constitution. This means a company can undertake any business activity without needing to specify its objects unless it chooses to do so.
Regarding pre-incorporation contracts, promoters who enter into contracts on behalf of a company before its incorporation are personally liable unless the company adopts the contract after incorporation.
To support businesses in financial distress, the Act introduces Corporate Voluntary Arrangements (CVA) and Judicial Management. CVA allows a company to propose a debt arrangement with its creditors, while Judicial Management provides court-appointed management to rehabilitate a company. These mechanisms help reduce bankruptcy and preserve business continuity.
7. Winding Up, Unfair Preferences & AML Compliance
The Act outlines procedures for both voluntary and compulsory winding up. Creditors’ rights are clearly defined, with secured creditors given priority. In insolvency cases, the Act also defines the concept of “unfair preference,” where a company improperly favours certain creditors prior to insolvency. Courts may reverse such transactions if proven.
All companies and service providers must comply with Anti-Money Laundering (AML) laws, including conducting customer due diligence, retaining transaction records for at least seven years, and reporting suspicious transactions under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). SSM performs regular inspections to ensure compliance.
Make an appointment with Company Secretary for advice and consultation
Read More about our article about Company Secretary :
Winding Up Company in Malaysia
Disputing A Winding Up Order In Different Courts- Is It Even Possible?
What is Paid-up Capital in Malaysia?
Winding Up 101: The ‘Just and Equitable’ Principle