In this definitive guide to start your business in Malaysia, we break down all the necessary steps – from deciding on a business idea to choosing a right business entity – necessary to get your business up and running. This article is written in collaboration with Ashton Corporate Services – our preferred company secretariat services firm
Before you read on, note that this is an extremely in-depth guide and it takes approximately 20 minutes to finish reading this article.
Disclaimer: None of the contents in this article can be construed as legal advice. Information contained in this article are general guidelines that are aimed at pointing you in the correct direction. Once you have decided on a business entity or financing method, please reach out to the relevant legal or finance experts for detailed information
STEP 1: DECIDE ON A BUSINESS IDEA
Generate Your Business Idea
Start off by deciding on a business idea that you feel strongly about.
The core of every strong business idea is that it should solve an underlying problem for a specific group of people
Ideally, your business idea should also be an intersection between your skills, passion, and also experience
Choosing an idea that fits these conditions will ensure that you:
- Take advantage of the skill sets that you already have
- Have the motivation and the willpower to push through challenging situations
- Can spot opportunities more accurately and better anticipate challenges you might face
Validate Your Business Idea
Properly validating your business idea will considerably increase your likelihood of success and save you a lot of time, money, and unnecessary stress
To validate your business idea:
- Research your idea, understand your competitors, and develop a unique selling proposition
- Create a potential customer feedback group
- Fine tune your business idea and build a minimum viable product (MVP)
- Get 10 paying customers
P/S: I have an in-depth article of how to validate your small business idea before diving in here
STEP 2: CREATE A BUSINESS PLAN
Why Do You Need A Business Plan?
A business plan serves as a living document to guide your efforts and decision making throughout your business journey
Having a good business plan gives you an eagle eye’s view of your business allows you to:
- Test your business assumptions
- Evaluate your business options
- Identify opportunities you might have missed out
- Avoid costly mistakes that arise from poor planning
You would have already have some parts of the business plan completed throughout your idea generation and idea validation process, list those parts down in your comprehensive business plan
Steps To Create A Comprehensive Business Plan
- List down the ‘WHY’ of your business
- What core problem does your business solve?
- How does it impact yourself and the people around you?
- Pick a suitable business model
- Some of the business models include office based businesses, home based businesses, food bazaar, co-working space, online selling
- Pick a business niche
- This is a more focused, smaller segment of the market your are in
- Define your products / services
- What products or services are you going to offer?
- Are you going to specialize in one vertical or offer a wider range of products?
- Determine your revenue model
- Is your business a one time billing model? Or are there any possibilities of recurring revenue?
- Determine your ideal customer and develop a customer persona
- What are the demographic and psychographic traits of your ideal customer?
- Estimate your market size
- Is your niche market big enough for your business to not only survive, but to also thrive?
- Conduct a competitor Analysis
- What are the strengths and weaknesses of your competitors? How can you differentiate yourself from them?
- Position your brand
- What do you want people to perceive your brand as?
- Why do people ‘buy’ your brand?
- Determine your marketing strategy
- How do you plan to reach out to your ideal customers?
- Set your business goals
- What does success look like for your business?
- Formulate a budget
- How much money do you need to start your small business?
- What are the different types of expenses?
- What is your break even point?
- Anticipate challenges and prepare for them
STEP 3: CHOOSE A RIGHT BUSINESS ENTITY AND PROCEED FOR REGISTRATION
If you operate a side project or hobby which generates some income, you might be inclined to assume that because of the small scale of your operations, you do not need to officially set up a business
However, according to the Registration of Businesses Act 1956, any sort of business that generates income must be registered. There is no exception
Those who fail to register their businesses with the Companies Commission of Malaysia, also known as Suruhanjaya Syarikat Malaysia (SSM), can be fined a maximum of RM50,000 or jailed up to two years or both upon conviction.
With that in mind, you are probably wondering – what type of business entities are available?
A person who sells homemade pastry will require a different type of business structure from a person who wants to start a construction company. That is where the SSM offers business owners the option of registering different types of business entities
The 5 Types Of Business Entities
Generally, there are 5 main types of business entities in Malaysia, and each have specific characteristics which serve different business needs. Below is an overview of the types of business entities available in Malaysia: –
SOLE PROPRIETORSHIP
Owned by a single individual in business and is one of the simplest entities to maintain, but business owners are not protected from unlimited liability
PARTNERSHIP
An extended version of the sole proprietorship, whereby there is more than one business owner
LIMITED LIABILITY PARTNERSHIP (LLP) OR KNOWN AS PERKONGSIAN LIABILITI TERHAD (PLT)
Hybrid between a partnership and a Private Limited Company. Relatively simple to maintain yet offers business owners limited liability (hence the name)
PRIVATE LIMITED COMPANY, OR KNOWN AS SENDIRIAN BERHAD (SDN BHD)
Most viable and most common type of business entity in Malaysia. Has multiple compliance requirements hence more difficult to maintain but offers business owners limited liability.
PUBLIC LIMITED COMPANY, OR KNOWN AS BERHAD (BHD)
To be brief, setting up a Berhad company is the preferred model for large businesses, where shares are offered to the public. This is an unlikely model for first-time or small business owners and therefore, we will not be discussing the Berhad entity in this guide
Unlimited Liability : Means your financial risk is not capped, and your personal assets and personal wealth can be seized to pay off the business’ debts. For example, Ahmad and Ah Hock start a Partnership and invest RM50,000 each in the business. Over the first year, the business accrues RM220,000 in debt. If the business cannot repay this debt, Ahmad and Ah Hock will need to fork out an additional RM110,000 each on top of their initial investments, to repay the business’ debt
Limited Liability : Limited liability entities restrict the amount of financial risk borne by business owners whereby their personal assets and wealth are not at risk if the company fails. Say Ahmad and Ah Hock registered a Sdn. Bhd. instead, and similarly accrue RM220,000 in debt. Unable to pay off this debt, business goes bankrupt. However, Ahmad and Ah Hock only lose the amount they initially invested into the business, namely RM50,000 each. There are exceptions to these cases though, for example, if they signed personal guarantees
Differences Between The Types Of Business Entities In Malaysia
In figuring out the type of entity that suits your business requirements, there are a few things that you need to consider.
SCALE
How big is the scale of your current operations and how much further do you intend for it to grow? Will it be your main source of income or is it a hobby at the side?
FORECASTED INCOME
For tax purposes, what is your sales forecast for the next few years? Are you starting from scratch or setting up the company with clients already in the pipeline? It would be wise to take into consideration the types of tax rates applicable to different entities.
CREDIBILITY
Will you bid for tenders or projects with certain reputable clients? Do you intend on taking a bank loan for capital? Certain business entities are considered to be more credible, essentially opening more doors for opportunities than others.
START UP CAPITAL
Do you have capital to kick start and run operations assuming you will only generate income after the first few years? The cost of maintaining a business, or in other words, keeping it compliant with the relevant laws, differ according to the type of entity.
Depending on your answers to the questions above, there will be one type of business entity more suited to your needs
Which Type Of Business Entity Should You Consider Registering?
If you are coming out to test the market or explore a new business concept, you can always set up a Sole Proprietorship or a PLT at the start which will require less cost to maintain
Once the business grows, it will be more advantageous and tax-efficient to incorporate a Sdn. Bhd.
However, if you are:
- Already familiar with your target industry and are confident that operations will be fairly stable
- Looking at running a business with the target of it growing into a sizeable operation over the next few years
- Thinking of getting venture capital funding, grants or loans
- Running a business with products or services that have specific liabilities or risks
Then a Private Limited Company (Sdn Bhd) is the most suitable type of business entity for you
Clients usually prefer engaging with Sdn. Bhd. companies as they are considered to be more credible because of stricter compliance requirements, and that it is also much harder to dissolve compared to a sole proprietorship or partnership.
Once you have decided which entity suits your needs the best, the next immediate step would be to get the business registered under SSM
Interestingly, in recent months, the convenience of registering a business has been enhanced by the Covid-19 pandemic. You can now register your business online through SSM’s business portals
How To Register A Sole Proprietorship Or A Partnership
- Registration can be done at any SSM counter or online via Ezbiz Online portal at ezbiz.ssm.com.my
- Business may be registered using a personal name or using a trade name
- Personal Name – Register the business using your personal name as stated in your NRIC (i.e. Siow Ah Thai)
- Trade Name – Register the business using a trade name which must be approved by the Registrar of Business, where you need to complete a business name approval form (i.e. Kedai Dobi Mewah)
- The following details are required:
- Business name
- Commencement date of business
- Principal place of business
- The address of the branch of business (if any)
- Information of owner and partners
- Type of business carried out
- Business Registration can be made for a period of one (1) year and not more than five (5) years
How To Register A LIMITED LIABILITY PARTNERSHIP (LLP), OR KNOWN AS PERKONGSIAN LIABILITI TERHAD (PLT)
- Registration can be done at any SSM counter or through online via MYLLP services at myllp.com.my
- Business must be registered by a minimum of two persons (in whole or in part, an individual or a body corporate)
- The following details are required:
- Proposed name of the LLP
- Nature of business
- Address of registered office
- Name and details of partner
- Name and details of compliance officer
- Letter of approval from professional body (if any)
How To Register A PRIVATE LIMITED COMPANY, OR KNOWN AS SENDIRIAN BERHAD (SDN BHD)
Due to the more stringent requirements of operating a Sdn. Bhd., the recommended step for you to take if you have plans to incorporate this type of business entity is to engage a licensed Company Secretary. He or she will be able to advise you on the requirements and process of incorporating the company
You are free to proceed with the incorporation on your own. However, you will still need to appoint a Company Secretary within 30 days of the incorporation of your company, failing which you would have breached the Companies Act 2016
Furthermore, most Company Secretaries have incorporation packages which include other one-time services (such as the opening of the company’s first bank account), and in most cases, it is more cost-effective to engage them to do the incorporation directly for you
Why Do You Need A Company Secretary
According to the Companies Act 2016, it is compulsory for every Sdn. Bhd. company to appoint a Company Secretary to hold position as an Officer of the company. The Company Secretary (or CoSec for short) ensures that the company remains compliant with the relevant statutory and regulatory laws
It is therefore very important that you choose a reliable and efficient Secretarial firm, as they will basically be your long-term advisory team for most matters related to compliance.
About Ashton Corporate Services : Ashton Corporate Services (M) PLT is a Secretarial Services firm with 40 years of presence in the industry, specializing in the incorporation of Sdn Bhd companies. The firm is made up of a group of professionals providing not only Secretarial services, but also Accounting, Audit, Taxation and Payroll services. If you want to set up a Sdn. Bhd., but also want a team of advisors to handle all your back-end compliance requirements while you focus on growing your business, then this is the team for you. They are basically a one-stop centre and they help you track deadlines, send you reminders, ensuring that the company is on top of all its compliance related obligations. It is crucial that you feel comfortable with your Secretarial services firm so feel free to drop them a call, text or email and they will respond to your questions without any obligation on your end to engage them officially.
STEP 4: SELECTING YOUR BUSINESS PREMISE
If your business model requires you to have a physical presence, now is the time for you to select a suitable business premise
Criteria Of A Suitable Business Premise
Here are some of the factors your should take into consideration when selecting your business premise:
- Accessibility via public transportation & private vehicles
- Availability of parking
- Security
- Foot traffic
- Space for future expansion
- The amount of money you need to invest in renovation or space makeover (If there are fittings or decorations you can inherit for the previous tenant, you can save on renovation costs)
One thing to remember, although it is important to get a business premise that fits into your budget, sometimes it makes sense to set up your business in places where the rental is higher. I talk about it in my other article here
The Tenancy Agreement
After deciding on renting a business premise, the next thing to do is to protect your rights by entering into a tenancy agreement with the landlord
A tenancy agreement is a legal contract drawn up between the landlord and the tenant, and it covers the responsibilities of both parties for the duration of the tenancy.
Landlords typically draft their own tenancy agreements for you to review and agree upon, but it is always advisable that you get the agreement at least reviewed by a lawyer, to ensure the terms and conditions are reasonable and that you are not unknowingly entering an unfair contract.
What should be included in a tenancy agreement?
If you decide to save up on the lawyer’s fees (like many parties do), you are free to draft, review, negotiate and agree upon the terms and conditions of the tenancy agreement.
An important point to consider is that there are no government regulations controlling the scope of a tenancy agreement. Therefore, you do need to be certain that the clauses in the agreement are fair, reasonable, and worded clearly
At the very least, the tenancy agreement should cover the following:-
- Details of the property being rented
- Rental amount and deposits
- Tenancy Period and Renewal
- Landlord’s responsibilities
- Tenant’s responsibilities
- Disputes
What is the process of finalizing the tenancy agreement?
The rental agreement process is standard, and as a tenant you should expect to make several deposits and payments before taking possession of the property such as the Earnest Deposit, Security Deposit and Utility Deposit.
1. Making the “Earnest Deposit” (1 month’s rent)
After all negotiations have been made, you will need to make an ‘Earnest deposit’, otherwise known as the booking deposit. This is usually equivalent to one month’s rent
Once this deposit is made the landlord cannot allow other tenants to view the property or rent it to anyone else. This deposit will either be returned to the tenant, utilized as rental payment for the first month, or become part of the security deposit once the Tenancy Agreement is signed.
2. Signing of the Tenancy Agreement
The tenancy agreement must be signed within seven days from the date the ‘Earnest deposit’ is made.
3. Making “Security Deposit” (2 months’ rent)
Once the tenancy agreement is signed, the tenant should expect to make a Security Deposit equivalent to two months’ worth of rental
The Security Deposit can be considered a deposit that the landlord will be entitled to keep in the event the tenant breaches the tenancy agreement
However, if the tenancy runs its term without any issues, the entire Security Deposit will be refunded to the tenant.
4. Making “Utility Deposit” (1 months’ rent)
This deposit is also made once the tenancy agreement is signed and is equivalent to 0.5 to 1 months’ worth of rental. The purpose of this deposit is to pay any outstanding utility bills at the end of the tenancy period.
5. Stamping of the Tenancy Agreement
The tenancy agreement needs to be stamped by the Malaysian Inland Revenue Authority or Lembaga Hasil Dalam Negeri Malaysia (LHDN) within 30 days of being signed, until which it is not legal in the eyes of the Malaysian court
Generally, this process is handled by the landlord and the tenants will pay for the stamp duty charged by LHDN
STEP 5: DECIDING HOW YOU WILL FINANCE YOUR BUSINESS
With all the information and preparation done before this, you should have a clear idea about all the costs associated with your business, including the costs to keep your business afloat throughout your runway period
The next step is deciding how you will finance your business.
There are various methods to finance your business. Different methods will be suited for different types of businesses and also different risk appetite and characters of business owners
Personal Savings
This is the easiest and most straight-forward way of funding a business
The advantage of using your personal savings to fund your business is that you do not need to incur any debt or take on any partners. Giving you full control of your business and your vision
Joint Venture
Partnering with other people and pooling together a bigger sum of starting capital is another viable method
If critical parts of your business idea requires expertise from other areas, it is worthwhile for you to considering partnering up with experts of those areas to kick-off your business faster
The disadvantage of this is that you have to give up certain control of your business
Borrowing Money From Friends And Family
If your family or close friends believe in your vision and are confident with your business model, you can consider asking them for a loan
Typically, you incur a lower interest and can get better repayment terms and periods when you use this financing method
The biggest disadvantage of this method is that you are putting close relationships at risk. Think it through before you proceed with this method
Credit Card
Tapping into your credit card is also another method of funding your business, provided you have sufficient credit and a the ability to repay your debt on time
Personally, I am against this method. This is because interest rates and also repayment terms of credit cards are not competitive. In other words, the financing cost of a credit card is extremely expensive
On top of that, not being able to repay your credit card debts can lead to a quick snowballing of the money that you owe the banks. This will hurt your credit score and impact your ability to secure loans that might be important to future aspects of your life (such as a house loan)
However, if you have a short term need and are confident that you can repay your credit card debt, this might be a viable option
Pre-Sales
Pre-sales is selling your products to your customers before you start producing them, hence significantly lowering down your risks and startup costs. I talk about securing some pre-sales in my article about validating your business idea
If you have a strong product, combined with an effective business plan and marketing plan, this method can bring your business to another level without you having to incur much costs and risk upfront
However, you need to be sure that you are able to deliver what you promised your customers within the committed timeline. In addition, there are risks involved in customers asking for refunds before you are able to deliver your product to them
Crowdfunding
Crowdfunding is similar to pre-sales, where you sell your products in advance
The only difference is that you are tapping into the platform and global reach of crowdfunding sites, such as Kickstarter and Indiegogo
The disadvantages of this method is similar to that of pre-sales, and with an added percentage of your revenue that is charged by crowdfunding platforms
Business Loans
There are many loans that are offered by the Government and private entities (such as banks) in Malaysia
Government Loans
Some of the government loan options available are:
- TEKUN Nasional
- PROSPER by National Entrepreneurs Corporation Berhad (PUNB)
- SUPERB Teraju
- TERAS TERAJU Funds
- MARA
- SME Business Accelerator Program
You can find more information here
Government loans are usually aimed at helping businesses and ultimately boosting the Malaysian economy. Hence, the interest rates and repayment terms offered by these loans are usually very competitive
The disadvantage of applying for government loans is the limited allocations and also sometimes tedious process
Bank Loans
Almost all of the banks in Malaysia also offer business loans. You can head over to their respective websites or contact them to get more detailed information
In my experience, commercial banks are usually stricter in their requirements for loan approval, especially for a new business. There are also cases where you are required to place a collateral or have a guarantor to get your loan approved
Angel Investors Or Venture Capitalists
Angel investors are individuals who invest their own money into businesses.
On the other hand, venture capitalists are a group of professional investors or a company that invests into businesses
Typically, these investors invest into a company in exchange for a certain stake of equity
While you consider funding from these investors, keep in mind that you will lose sole control of your business and also be under constant pressure to grow your business in order for your investors to get their return on investments
STEP 6: APPLY FOR THE RELEVANT LICENSES
Having your entity registered with SSM is not enough to legally begin business operations, especially if your operations involve setting up a physical business premise
Typically, you will also need to apply for other licenses, depending on the industry, business activity, and state governments depending on where your business is based
Broadly speaking, there are 3 type of licenses
- General licenses
- Sector or industry specific licenses
- Activity specific licenses
As a starting point, you should start off with obtaining General Licenses. The application processes for these are easier and you can either do them on your own or engage a runner to handle the process for a small fee
STEP 7: SETTING UP YOUR BUSINESS’ WEBSITE AND ONLINE PRESENCE
Before you reach out to the general public, you need to make sure that your business has an online presence
Depending on the nature of your business, different types of online platforms may be suitable for you.
However, regardless of which industry you are in, I am a strong advocate of having a website for your business. Having a website allows you to:
- Market your business online and increase your visibility
- Build your business’ credibility
- Scale up your sales ability
- Answer customer questions and overcome initial objections
- Understand your customers better
I write about this in detail in another article here
If you lack the budget to do so, there are many DIY platforms such as Wix and Weebly that will enable you to build a website at a small price. If you need professional help, you can also reach out to website designers, or myself
Apart from your website, you can also consider setting up your online presence in social media platforms such as:
- FB business page
- Linked-In
One thing to take note is to not spread yourself too thin by being present in every social media platform. Pick those who are relevant to your business and your niche, and focus on excelling in them
STEP 8: CREATE A MARKETING PLAN AND START MARKETING YOUR BUSINESS
A marketing plan is a sub-component of your business plan
In your business plan, you address the big picture questions of your business and also your overall marketing strategy. Whereas in your marketing plan, you dive into the more granular details of your marketing strategy
You might also realise that some business owners advocate only creating a business plan, and some, only a marketing plan
Regardless which view you agree with, the overall contents and purpose of these documents remain the same. They act as a living document to guide your efforts and decision making throughout your business journey
Here are some of the items that you will need to consider and include in your marketing plan
- Your marketing statement – 1 sentence to highlight the unique selling or differentiation point of your products
- Your pricing strategy – Are you going to give tiered pricing to different types of customers? Are you providing discounts for bundled purchases? Will you be providing discounts for people who enter into a long term service contract with you?
- Sales and distribution – What channels will you use to get your products out to your customers?
- Advertising and promotion strategies – How much money will you spend on advertising and promotion each month? What kind of key message will you be sending out? The mediums will you be using? What type of creatives is most suited for your customers?
ONWARD
Once you’ve set up your business, what’s left is just to wow your customers, and start to see results
I hope that this document has helped you, and I wish you all the best in your entrepreneurial journey!
