To register or not to register, that is the question.

Few years ago, when I first started my legal firm, I tried to get some form of financing. My experience was not that pleasant. At the time I took the leap of faith, I was young and restless (and most of the time dangerous to my self not to anyone else). I was so confident that I could create a different, and able to give back to the society. That’s aspires me to open my own legal firm (and I still hold on to that believe). Time are very tough for an energetic, idealistic, and aspired young lawyer who just open up a legal firm in Kuala Lumpur. Most of the start up cost came from my own savings.

I also tried to get some funds from the banks. I then realized that banks don’t take risk with young start up like mine. I went to PUNB and I experienced the same thing. Tekun is another avenue for financing but with some problem. They require the business to be registered with the Suruhanjaya Syarikat Malaysia (SSM) or the Companies Commission. Despite vigorous explanations that a legal firm does not register with SSM, the officer tried to teach me about corporate law. He said, “Even a sole trader at pasar malam can go register with the SSM”. To satisfy the officer’s vast knowledge on corporate law, I went to the SSM and explain my situations. The SSM issued a letter explaining that for business like mine, there is no need to register with the SSM. I came back to the TEKUN’s officer and gave the SSM letter. The officer then got his “AHA Moments” and came agree to give me some funds. They offered me financing but because that I don’t have SSM registration, they offered me RM5,000.00 financing which I graciously declined.

Grace to God, the business managed to sustain without any financing. Then I am moving to new and bigger office. Logistically, I need t make sure that all the working tables, cabinet and most importantly is that the internet connection are ready. Then I faced with another problem: it is a new building and the main Internet cable had not been connected to the building. It may take few months to solve this and this is beyond my control. So I went window-shopping for the best deal on office wi-fi internet deals available. At the end, I subscribed to P1 wimax deal not the office package but the residence package. Why? For the office package, I need to be registered with the SSM. It is dejavu all over again.

The thing about the SSM registration form triggered me to write this article.

Business can be in many forms. You can take a photo of your home made shawl, take a photo, advertise it in your Facebook and you are already in a business. You and your friend decide to get together during the weekend to bake a shepherds pie. You filmed the whole process of baking the pie and post in the Youtube as an advertisement for your weekend effort. You are in a business.

It is important to know what do you want to sell for your business. It is equally important for you to know how to register your business. Then you need ask the following:

To register or not register your business, that is the question?

Do we need to always register our business with the SSM? It depends!

You are sole proprietor of the business or you are running a family business. If you want to sell your farm produce or any craft at a pasar malam (the night market), or uptown, downtown, flea market; these places requires you to have some form of company’s registration. You can go to the SSM and register your business. This kind of businesses registration does not take a messy registration process and can be done by filling up some forms and payment of small amount of registration fee.

However, if your business is mainly online, you may not need to have a physical presence of brick and mortar for your business. As I said before, you snap a photo of your product and you post it in your website, Facebook, twitter, Instagram etc and your business is already up and running. You do not have to apply for a business registration for this. Well, I have never heard any of the online business owners being sued by the authority for conducting online business without any license. Is there special license for online business? I never heard of such a thing. Hence, in the spirit of freedom in the cyberworld, you are free to conduct your business online without having to apply for business registration.

The problem starts when your online business growing bigger. You have to deal with lot of suppliers and customers (and financiers) and they are more comfortable to deal with a registered company. At this moment, you may have to seriously thinking on how to register your business.

Now, let say you a graphic designer or an accountant and you want to start a business with your friend. You can start a partnership agreement. Partnership business will give you share of profit of the business but you are also will be jointly and personally liable to the liability of the business. So you do not want this. You are thinking that you want the profit but you do not want the unlimited liability. Is this achievable? Yes it is!

You can create a Limited Liability Partnership (LLP). All that you need to do is to go to the SSM office and fill up an online forms, pays RM500 fee and your LLP is now ready for business. It is easy to create your LLP, enjoy the freedom of a partnership with the limited liability of an incorporated company with one tiny caveat to your happiness…your business is subject to 20% for the first RM500,000.00 chargeable income (please be in look out for the yearly national budget announcement. They may increase, reduce, or sustain the tax rate every year).

However, you also may want to incorporate your business with the SSM a private limited company. The following are the procedures in registering your private limited (Sdn Bhd) company taken from the SSM guidelines:

1. INCORPORATION PROCEDURES

1.1 Application of Name Search

A name search must be conducted with Suruhanjaya Syarikat Malaysia (SSM) to determine whether the proposed name of the company is available. Refer to Government Gazette No. 716 dated 30 January 1997, Gazette (Amendment) dated 11 October 2001, Guidelines For Naming A Company and Guidelines For Application Of A Company Name. The steps involved are:

(1)   Completion and submission of Form 13A CA (Request For Availability Of Name) to SSM; and


(2)   Payment of a RM30.00 fee for each name applied.

Where the proposed company’s name is approved by SSM, it shall be reserved for three months from the date of approval.

Name of companies

The name of a company carries a value. A private company must bear the name ‘Sendirian’ or ‘Sdn’ and Limited companies must have the word ‘Berhad’ or ‘Bhd’. Private limited company will bear the name ‘Sdn Bhd’.

Some names are prohibited. The following gives a sample of forbidden names (except with prior approval from the minister):-

i.               Name suggesting connection with royal family e.g King, Prince.

ii.              Name suggesting connection with state or federal government;

iii.            Name suggesting connection with Asean, commonwealth or foreign government such as ASEAN, APEC, UNESCO.

iv.             Name suggesting connection with political party, society, trade union.

v.              Names like ‘Bank’, ‘Consumer’, ‘Foundations’ etc.

vi.             Name including a proper name that is not the name of the director of the company.

vii.           Name that may misled people as to the identity and nature of the company.

viii.          Blasphemous or offensive to members of the public

Basically, the name of a company cannot give an impression that the said company is associated with other organization/entity when there is connection between the two. The name also cannot be offensive to the norm of the people at that jurisdiction.

Documents required in registering a company

i)               Memorandum of association;

ii)              Articles of Association; and

iii)            Statutory declaration of compliance.

1.2 Lodgment of Incorporation Document

Incorporation Documents (as further explained below) must be submitted to SSM within 3 month from the date of approval of the company’s name by SSM, failure of which a fresh application for a name search must be done. (Steps (1.1 (a) and (b) above shall have to be repeated).

2. DOCUMENTS TO BE LODGED WITH SSM

Memorandum and Article of Association

We may regard Memorandum of association as a constitution of a company. Section 16 (1) of the CA 1965 provided that any person who desires to incorporate a company needs to register a signed copy of the memorandum of Association with the Registrar.

Section 18 of the CA 1965 has laid down the essentials contents of a Memorandum of association:-

(a)   Name;

(b)   Objects;

(c)    Share capital;

(d)   Liability of the members;

(e)   Full name, address and occupation of the subscribers;

(f)     The subscribers agreeing to take up shares in the Company.

Section 122 (3) CA 1965 provides that the memorandum or the articles must contains the names of the first directors of a company. Section 16 (7) CA 1965 also provides that the Registrar shall not register a Memorandum and Articles of a proposed company unless these two documents contains the names of at least 2 persons who are to be the first directors of the company.

Section 33(1) CA 1965 provides that the memorandum and articles is binding the members of the company.

Objects

Similar to human, a company needs a purpose for its existence. Hence, an object is the purpose of a company being created. The objects must be stated in the memorandum of association and the object must be lawful.

The moment the company did an activity which is not the object of the company, that act is beyond the capacity of the company. In law, we call that the action is ‘ultra vires’; beyond the power.

However, the impact of ultra vires has been curtailed thanks to development of the law and the reality of business practice.

Most companies had drafted their memorandum so wide that they can engage in any legal business under the sun. Furthermore, section 20 CA 1965 also restricted the application of the doctrine of ultra vires.

However, section 20 (2) CA 1965 stated that the usage of ultra vires can be asserted in the case of the following:-

i.               an action by the member of the company against the company;

ii.              Action taken by debenture holder of the company against the company;

iii.            Action taken by members or the company against the present or former officer of the company;

iv.             Petition by the Minister to wind up the company.

Subscribers?

Subscribers are 2 or more persons subscribing their names to the memorandum for the purpose of incorporating a company. The subscribers must sign the Memorandum of Association in front of at least 1 independent witness.

The subscribers are deemed agreed to become members of the company. The subscribers will become members of the company when his name is registered as members of a company.  

Article of Association

The Articles of Association need to be registered together with the Memorandum of Association. A person desiring to incorporate a company may also adopt Table A of the CA 1965 as its Article of Association.

An article of association is an internal regulation of a company that is a subsidiary to the Memorandum of Association. However, the Articles of association must be lawful.

Contents of articles of association:-

a)     registered office;

b)     exclusion, wholly or in part of Table A;

c)     execution or adoption of pre-incorporation contract  or preliminary agreement (if any);

d)     classes or variation of class shares;

e)     lien on shares;

f)      calls on shares and forfeiture for non payment of calls;

g)     transfer of shares;

h)     transmission of shares;

i)      alteration of shares capital;

j)      reduction of shares capital;

k)     general meetings of members;

l)      directors;

m)   accounts and audits;

n)     dividends and reserve fund;

o)     notices to members; and

p)     winding up.

Like the Memorandum of association, articles of association is also a binding documents between the members of a company by virtue of section 33(1) CA 1965. Section 31 (1) CA 1965 provides that the majority member can change the articles by special resolution to alter or add to its articles

An original of the Memorandum and Article of association shall each be stamped at RM100.00. Stamps are affixed at the Inland Revenue Board’s stamp office.

•   The first directors and secretaries shall be named in the Memorandum and Article of Association.

•   The subscribers to the company’s shares shall sign the Memorandum and Articles of Association in front of a witness.

•   Table A of the Fourth Schedule in the CA can be adopted as the Article of Association of the company (Section 30 CA).

*NOTE: For incorporation of a private company, the articles of association shall contain the following stipulations.

(i) Restriction on the right to transfer the company’s shares;


(ii) Limitation on the number of members to not exceed fifty;


(iii) Prohibition to any invitation to the public to subscribe the shares/debentures of the company; and


(iv) Prohibition on public invitation to deposit money with the company.

3. Form 48A (Statutory Declaration By A Director Or Promoter Before Appointment)

The director or promoter declares under oath that:

•   He/She is not a bankrupt; and

•   He/She has not been convicted and imprisoned for any prescribed offences.

4. Form 6 (Declaration of Compliance)

This declaration states that all the requirements of the CA 1965 have been complied with. The Declaration of compliance must be signed by the company secretary who handles the registration and is named in the Memorandum and Articles of Association.

5. Additional Documents:

•   Original copy of Form 13A.

•   A copy of the letter from SSM approving the name of the company.

•   A copy of the identity card of each director and company secretary.

6. REGISTRATION FEES

Each application for the incorporation of a company shall be accompanied with payment as per the schedule following:

AUTHORISED SHARE CAPITAL (RM)	FEES (RM)
Up to 100,000	1,000
100,001 – 500,000	3,000
500,001 – 1 million	5,000
1,000,001 – 5 million	8,000
5,000,001 – 10 million	10,000
10,000,001 – 25 million	20,000
25,000,001 – 50 million	40,000
50,000,001 – 100 million	50,000
100,000,001 and above	70,000

7. CERTIFICATE OF INCORPORATION

A Certificate of Incorporation will be issued by SSM upon compliance with the incorporation procedures and submission of the duly completed Incorporation Documents.

Section 361 of the CA 1965 provides that the certificate of incorporation is a conclusive evidence of registration of the company.

UNLIMITED COMPANY
The procedures and Incorporation Documents for the incorporation of an unlimited company is the same as company limited by shares. The only difference is that for an unlimited company, the liability of its members must be stated in the Memorandum of Association as unlimited.

Conclusion

However, if all the above requirements to register a private limited seems too complicated to you, you can just pay the company secretary to do the registration for you. Let the chartered company secretary to drown under pile of paper works while you just concentrate on your products. Your choice of business entity should correspond with your business strategy and operations.