For Sole Proprietors (8) (1)

6 Essential Legal Services Your Malaysian SME Will Need


When incorporating a company or setting up a limited liability partnership for the first time, many entrepreneurs in Malaysia overlook the importance of quality legal support.

Until the day they desperately need counsel and it’s nowhere to be found.

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Have fun in your new office!

The average business owner faces daily legal dilemmas and may be in violation of dozens of laws without knowing. Nothing replaces a good corporate lawyer when it comes to navigating the legalities of doing business. In short, legal services are essential for SMEs in Malaysia.

To show just how valuable legal services are to SMEs, here are six extremely common problem areas faced by businesses and the value of having a lawyer so you can call and say, “HELP ME!”

1. Advising on Malaysian Employment Law

Every aspect of employee-employer conduct is covered by Malaysian law, in particular the Malaysian Employment Act 1955 which offers employers and employees statutory rights. This includes:

  • wages
  • salaries
  • overtime rates
  • leave entitlements
  • holidays
  • probation periods
  • social security benefits, and
  • procedures for employee termination

Just to name a few!

It’s no secret that conflicts between employees and employers are common, and a good lawyer will ensure the business conducts itself in compliance with the law regardless of how emotionally volatile a situation becomes.

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Don’t do it!

One particularly uncomfortable situation is when economic pressures force layoffs or termination, which in turn are more likely to be contested by former employees for precisely those reasons. Legal advice will be needed during disputes with trade unions, claims of constructive dismissal, or worse, accusations of sexual harrasment.

2. Reviewing Contracts & Agreements

Every deal in business needs a contract.

Every contract has terms and pages of fine print.

Every line of fine print can hide a maliciously worded clause.

A lawyer can provide end-to-end assistance with a contract or agreement, from determining and negotiating contractual terms of existing contracts, as well as the drafting and reviewing of new ones.

Contractual TermsContract NegotiationsContract ReviewDraft Contract
  • Ensuring terms are enforceable.
  • Maintaining agreement execution.
  • Negotiating clear and mutually beneficial terms.
  • Achieving objectives within budget & timeline.
  • Identifying any loopholes or risk factors.
  • Mitigating legal disputes by revising contracts.
  • Covering all aspects precisely.
  • Eradicating ambiguities for better outcomes over time.

Furthermore, if a business owner accidentally signs a contract with one-sided terms, a lawyer may be able to help prove the terms of the contract are not legally enforceable for various reasons.

At any rate, it’s important to have a thorough overview of relevant laws covering compliance, regulatory requirements and industry guidelines when creating contracts for your SME, and that’s a job for a corporate lawyer.

3. Advising on Foreign Investment / Equity

Foreign ownership of businesses in Malaysia must comply with various requirements by government authorities such as the Ministry of Domestic Trade & Cost of Living and the Malaysian Investment & Development Authority, which regulate foreign investment activities in Malaysia.

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Please stay as long as you want, Mr Franklin.

For example, certain sectors prohibit foreign equity while others restrict it to certain limits. Moreover, foreign-owned businesses are usually subject to higher start-up requirements. Whatever your plan, a lawyer can advise you if it is at all possible and if so, what would be the fastest and most cost-effective way.

Some of you may be thinking this is the Company Secretary’s job, and you’d be right!

There’s definitely an overlap in area of expertise when it comes to regulatory compliance. Truth be told the best Company Secretaries would make pretty decent lawyers and vice versa.

4. Protecting Intellectual Property

If you’ve ever seen the rows of Iron Man and Captain America t-shirts being sold along Petaling Street, you have a good idea of how much people respect intellectual property.

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Something tells us Marvel didn’t build this.

Intellectual Property, usually shortened to just IP, includes:

  • inventions
  • literary works
  • art
  • designs, and
  • symbols

Any intellectual property produced by your business is constantly at risk of being plagiarised by competitors. Many people would love to profit off the likeness of another product, service, or brand identity, and without a patent in place, it’s significantly harder to force them to stop.

Legal experts can provide SMEs with knowledge of frameworks for obtaining international patents or trademarks. Firms even offer services where they help secure national, regional and international copyright protection depending on your market.

5. Winding Up, Strike Off & Corporate Rescue Mechanisms

Every business faces challenges, and many unfortunately get overwhelmed. In these cases, owners will need legal assistance to carry out a winding up and strike off for the company or initiate corporate rescue mechanisms.

Winding up
This refers to the process of closing down a company, typically because it cannot pay its debts or if the company’s shareholders or creditors decide to dissolve it. The company’s assets are sold off, funds raised are used to pay its debts, and leftovers are distributed to shareholders based on equity.

At least your Ferrari is safe thanks to that limited liability protection.

Strike off
This refers to the removal or deletion of a company’s name from SSM’s official register. The company is effectively dissolved and ceases to exist as a legal entity.

Corporate rescue mechanism
Also known as corporate restructuring, this process is designed to help companies reorganise their debts, renegotiate contracts, or implement other measures to improve their financial viability. This allows the company to continue operating so jobs are protected and any creditors can be repaid to the fullest extent.

Across all three processes, a lawyer will be needed to review the company’s records and assess its compliance with legal obligations.

6. Drafting a Shareholders’ Agreement

A shareholders’ agreement is a contract between the shareholders of a company. It outlines their rights, obligations, and responsibilities. It’s vital to have one in place to prevent disputes and protect all parties.

Every shareholders’ agreement will be slightly different, but here’s what’s commonly included:

  • Shareholders’ Rights: Voting rights, dividend entitlements, transfer restrictions.
  • Board Composition: Number, appointment, removal, and powers of directors.
  • Management Duties: Describes duties of each shareholder with respect to management.
  • Dispute Resolution Mechanisms: Mediation or arbitration to save legal fees.
  • Exit Strategies: What happens if a shareholder wants to sell their shares.

Ideally, SME owners should seek professional legal advice to tailor the agreement to their specific needs. If you’re curious to know what it looks like, here’s a sample shareholders’ agreement.

Yup, it’s boring.

But that boring document could save your skin one day!

Too common, we’ve seen friends incorporate a Sdn Bhd without a shareholders’ agreement, thinking it a waste of time and money. Surely a personal relationship is enough to solve any conflict and avoid underhanded tactics, right?

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Over the years (even before we founded MISHU), we’ve seen many friendships end – you guessed it – due to conflict and underhanded tactics.

Our advice: if nothing else, please ensure you get a shareholders’ agreement drafted by a competent lawyer. Even a simple one is much better than nothing.

How much do legal services for SMEs cost?

You just had to make it about the money, didn’t you?

We’re joking, but this question really is impossible to answer with a specific number. Just like any other specialised professional service, quality and speed does not come cheap.

When it comes to legal services for SMEs in Malaysia, costs vary. Factors include the kind of support needed, duration, and level of expertise. Most law firms charge hourly rates or a monthly retainer fee which is usually more cost-effective in the long-run.

Just remember: the only thing more expensive than hiring a lawyer is not hiring one.

FAQs about Income Tax for Sole Proprietors in Malaysia:

  • What legal support services do SMEs in Malaysia need?
    💡SMEs in Malaysia need a range of legal support services including contract review, incorporation and business registration, intellectual property protection, employment law advice, debt recovery, and dispute resolution.

  • What is the importance of contract review for SMEs in Malaysia??
    💡A contract review ensures that contracts protecting the interests of all parties involved are clear, concise, and free from ambiguity. This protects SMEs from any contractual disputes that could arise in the future.

  • What is intellectual property protection and why is it important for SMEs?
    💡Intellectual property protection provides legal protection for patents, trademarks, copyrights, and any other unique business-related creations. This is important for SMEs as it ensures the exclusivity of their unique ideas and prevents competitors from using or copying them.

  • How can SMEs in Malaysia handle employee-related legal issues?
    💡SMEs can handle employee-related legal issues by seeking advice from lawyers who specialise in employment law. These lawyers can provide advice on issues such as employment contracts, employee benefits, and termination and dismissal procedures.

  • What are the legal options available for SMEs in Malaysia when it comes to debt recovery?
    💡For debt recovery, SMEs can seek legal action by hiring a debt recovery lawyer to pursue their claims through the court system. This involves filing a claim, presenting evidence, and seeking a judgment that orders the debtor to pay the outstanding debt.

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