Tests of doing business and penalties for unregistered entities considered as doing business in Malaysia

1) What is considered doing business without registration?

In Malaysia, every business established must undergo registration with the Companies Commission of Malaysia, known as Suruhanjaya Syarikat Malaysia (SSM). Registration of business not only confirms the legality of the entity but also ensures compliance with the country's regulations. Operating without the required registration is considered doing business without registration and is an offense punishable by fines up to RM50,000-00 or up to two years of imprisonment.

2) What are the key indicators of doing business?

The main key indicators for doing business in Malaysia include economics and government factors as well as the infrastructure and its location. Malaysia has a robust legal system, a skilled and multilingual workforce with a competitive employee wage rate. Malaysia also offers a very outstanding cost for the business environment and focusing on growing high-scale value sectors like digital technology and manufacturing. Malaysia has signed numerous Free Trade Agreements (FTA) with giant economic countries and offers access to the larger ASEAN market as a regional hub for South East Asia  of over 600 million people.

3) What are the legal consequences of doing business without registration?

The primary legislation governing business registration in Malaysia is the Registration of Businesses Act 1956 (ROBA 1956). Operating a business in Malaysia without proper registration with the Companies Commission of Malaysia (SSM) is a serious offense that carries significant penalties, including fines up to RM50,000, imprisonment for up to two years, or both. 

Key legal consequences include: 

Fines and Imprisonment: Any person who carries on a business without registering it within 30 days of commencement, or continues to operate after the registration has expired, is liable upon conviction to a fine not exceeding RM50,000 or imprisonment for a term not exceeding two years, or both.

Business Closure/Seizure: Authorities, including SSM and local councils, have the power to order the immediate closure of the business, seal the premises, or confiscate goods.

Legal Inability to Enforce Contracts: An unregistered business may face difficulties in enforcing contracts in court. While other parties can sue the unregistered business, the unregistered business may need to seek special court approval to enforce its own rights through counter-claims or set-offs.

Reputational Damage and Loss of Opportunities: Most legitimate organizations, such as banks and suppliers, will refuse to do business with an unregistered entity, making it difficult to open business bank accounts, apply for loans, or participate in formal tenders.

Unlimited Personal Liability: For sole proprietorships and partnerships, operating without registration means there is no legal distinction between the business and the owner(s). The owner(s) face unlimited personal liability, meaning personal assets can be seized to cover business debts.

Local Council Fines: In addition to SSM penalties, local councils may issue separate compound fines for operating without the necessary local authority licenses and permits.

4) What is the penalty amount in 2025?

Operating a business in Malaysia without the required registration with the Companies Commission of Malaysia (SSM) is a serious offense under the Registration of Businesses Act 1956. The penalty upon conviction can be a fine not exceeding RM50,000, imprisonment for a term not exceeding two years, or both.

5) Is criminal liability possible?

Yes, criminal liability is possible for operating an unregistered business in Malaysia. Operating without proper registration is an offense under the Registration of Businesses Act 1956 (ROBA 1956) and the Companies Act 2016, which can lead to fines, imprisonment, or both.

6) Who identifies unregistered business activity?

The Companies Commission of Malaysia (SSM) is the primary agency responsible for identifying and monitoring unregistered business activity in Malaysia. It is a statutory body that oversees the incorporation of companies, registration of businesses, and enforcement of related laws.

7) What should be done if the activity is already ongoing without registration?

If a business activity is already ongoing without registration in Malaysia, the owner must immediately register the business retrospectively with the Companies Commission of Malaysia (SSM or Suruhanjaya Syarikat Malaysia) to become compliant with the law and minimize potential penalties. Operating an unregistered business is an offence under the Registration of Businesses Act 1956 (ROBA 1956) and carries significant penalties.

8) What obligations arise after registering a business?

After registering a business in Malaysia with the Companies Commission of Malaysia (SSM), a range of legal, financial, and operational obligations arise. These requirements vary slightly depending on the business structure (sole proprietorship, partnership, private limited company (Sdn. Bhd.) or Limited company (Berhad).

Mandatory Post-Registration Actions :

1. Appoint a Company Secretary:  For Sdn. Bhd. companies, a qualified, SSM-licensed company secretary must be appointed within 30 days of incorporation. This person handles compliance and statutory filings.

2. Open a Corporate Bank Account:  A separate bank account is essential for managing business finances and maintaining financial transparency.

3. Obtain Necessary Licenses and Permits:  Registration with SSM does not automatically grant permission to operate. You must apply for specific licenses, permits, and approvals from relevant local authorities and government agencies based on your industry and business activities (e.g., a business premises license, an F&B license from the Ministry of Health, or an environmental permit). 

Ongoing Compliance and Reporting:

1) Display Business Information:  The company name and registration number must appear in legible Romanised letters on all business letters, statements of account, invoices, official notices, publications, cheques, and the company website.

2) Maintain a Registered Office and Proper Records:  A registered office address in Malaysia must be maintained to receive all official communications and notices. Proper accounting records that explain transactions and the financial position must be kept for at least seven years.

3) File Annual Returns (AR) : All businesses must submit an Annual Return to SSM within 30 days of the anniversary of incorporation each calendar year.

4) Prepare and Lodge Audited Financial Statements:  Sdn. Bhd. companies must prepare financial statements and have them audited annually. The first statements are due within 18 months of incorporation, and subsequently within six months of the financial year-end. These must be lodged with the Registrar within 30 days of circulation to members.

5) Notify SSM of Changes Any changes to business particulars, such as a change of address, business type, or director details, must be notified to SSM within the specified timeframe (usually 14 or 30 days).

9) From what income level must an individual register as an entrepreneur?

In Malaysia, there is no minimum income threshold that mandates an individual to register as an entrepreneur company. Instead, any individual who carries on a business must register it with the Suruhanjaya Syarikat Malaysia (SSM) within 30 days of commencing business operations, regardless of their income level.

Author: Yusrizal bin Zainol Abidin