Setting up a joint venture in Malaysia.

This guide is a brief overview of setting up a joint venture in Malaysia.

Foreign investors seeking to explore the Malaysian market may consider setting up a joint venture with a local partner.

Let’s find out more.

What is a joint venture?

A joint venture is a business collaboration between two or more companies to share business expertise, experience and resources to work on a project for a specified period of time.

Foreign investors can set up a joint venture with a Malaysian partner which the local partner will hold at least 50% of the joint venture ownership.

Types of joint ventures

There are two types of joint ventures in Malaysia: the incorporated joint venture and the unincorporated joint venture.

Incorporated joint venture

An incorporated joint venture involves incorporating a new legal entity referred to as a Special Purpose Vehicle (SPV).

An SPV can take the form of either a company incorporated under the Companies Act or a limited liability partnership incorporated under the Limited Liability Partnership Act. The SPV is a separate legal entity from the existing legal status of the parties to the joint venture. This prevents any project or financial risks from being transferred to and from the joint venture.

If the SPV is formed under the Companies Act, the shareholders will need to prepare a joint venture agreement and shareholder’s agreement.

Unincorporated joint venture

Unincorporated joint ventures are also known as contractual joint ventures.

Parties of an unincorporated joint venture are not required to incorporate a separate legal entity but is created through a joint venture agreement.

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What is a joint venture agreement?

A joint venture agreement is a contract that outlines the contributions, expectations, obligations, rights, duties and responsibilities of the involved parties.

The key terms of a joint venture agreement include:

• Objectives and scope of the joint venture – Objectives must be set out in the agreement to avoid any disagreement between the parties of the joint venture.
• Contributions of the parties – The agreement should also set out contributions of the parties to provide the basis of shares and profit-sharing between the joint venture parties.
• Rights, duties and obligations of the parties – The rights, duties and obligations should be specified to ensure all parties know each party’s role.
• Exit strategy and termination – Should state the exit strategy of the joint venture, which can include liquidation, put and call option and right of first refusal of an incorporated joint venture.
• Intellectual property rights – A provision should set out the ownership of intellectual property belonging to the joint venture and cover the extent to which a party can use the intellectual property outside the joint venture.
• Dispute resolution and governing law – Parties should agree on the method to resolve a dispute, which can be by negotiation, mediation, arbitration or court.

Joint venture requirements in Malaysia

Directors and shareholders

To set up a joint venture, the company must have at least one director and one shareholder. The director must either ordinarily reside in Malaysia, be a Malaysian permanent resident or have a Resident Talent Pass.

Paid-up and authorised capital

The joint venture should have a paid-up capital of at least RM 350,000 with a minimum authorised capital of RM 500,000.

Tax and accounting requirements

A Malaysian joint venture is liable to tax, including corporate income tax. However, it is exempted from withholding tax on payments to foreign shareholders.

The joint venture is required to submit annual tax returns and financial statements and has to be audited by an accredited auditor.

Setting up a joint venture in Malaysia

To set up a joint venture in Malaysia, you will first need to conduct a name search and reserve the name with the Companies Commission of Malaysia (SSM). You will also need a business premise which is where all formal documents will be sent to.

The documents that are needed to set up the joint venture include:

• Company constitution
• Statutory declaration by a director stating that they are not undischarged bankrupts and have not been convicted of any offence
• Identification card of director
• Company name approval letter from the SSM

The documents must be submitted to the SSM within three months after the approval of the company name.

Post-registration requirements and compliance

Once you have successfully registered the joint venture in Malaysia, you must fulfil post-registration requirements and obligations.

These requirements are:

• Opening a corporate bank account
• Obtaining business licenses and permits
• Registering as a taxpayer
• Registering with the provident fund
• Appointing auditors

Conclusion

Setting up a joint venture in Malaysia is a strategic business arrangement to share expertise, experience and resources to reach a common business goal. Foreign investors can set up a joint venture with a Malaysian partner who will hold at least 50% ownership. We recommend engaging with Acclime’s corporate services to ensure the set up complies with the regulations.