Aiming for more competitive SMEs
THE new Companies Act 2016, which is being implemented in stages starting from Jan 31, will help SMEs improve on governance and be more competitive even as it increases the ease of doing business in Malaysia.
As economies are increasingly liberalised, Incorp director Kong Ming Enn says local businesses must be reformed to compete with other companies when they move out to other countries as well as be able to compete with foreign companies coming into Malaysia.
“We are not just competing among ourselves. We are also competing with businesses from other Asean countries and even China. If we cannot compete with them, at least with the proper structuring, we can work together with the other countries,” he says.
Kong notes that the Companies Act 2016 is among the economic reforms carried out by the Government as part of the country’s vision to become a high-income nation.
The new Act draws its lessons from various Commonwealth jurisdictions including the UK, Canada, New Zealand, Australia, Singapore and Hong Kong.
Kong is optimistic that the changes implemented under the new Act will put SMEs on a better footing to compete with businesses from other countries.
Among the major changes introduced under the new law include the introduction of a single director company, which enables a company to be incorporated with only one member who can also double up as the sole director of the company.
This would mean easier incorporation and lower cost of running a business with higher flexibility.
However, Kong cautions that this does not equate to the ease of expanding a business.
Under the new law, a company could also replace the memorandum and article of association from the previous Act with a constitution lodged with the registrar.
Under the Companies Act 2016, private companies are also no longer required to hold annual general meetings. Instead, company decisions can be fully made through circular resolutions.
Additionally, a company is no longer required to state its authorised capital and newly-issued shares will no longer be tied with the nominal value when the company was incorporated.
Instead, a company is required to notify its issued share capital and paid-up capital and the related changes through the return of allotments. A company may also issue shares at a price depending on the factors affecting the current circumstances and needs of the company.
“Under the new law, dividends are only paid out of profits if the company satisfies the solvency test, which generally relates to its cash flow solvency and balance sheet solvency,” says Kong.
A director has to ensure that the firm would be solvent immediately after the dividend was paid to safeguard the company from financial loses.
“The Companies Act 2016 eases doing business in Malaysia and offers flexibility but the fines for offences and non-compliances are higher,” Kong notes.
This keeps SMEs on their toes, he says, adding that directors now have a bigger responsibility to act in the interest of shareholders and the company.
A company director who breaches the newly-implemented Companies Act 2016 will face a heavier fine of up to RM3mil and a maximum five-year term of imprisonment, or both, if found guilty.
Company directors can no longer claim ignorance, says Kong.
Kong adds that the new Act will also see more existing sole proprietor businesses being converted into private limited companies over the next two to three years.
“We also foresee more new companies being set up,” he adds.
Incorp is looking at helping some 1,000 companies start up this year compared to about 200-300 companies previously.