A Guide To Starting An Incorporated Joint Venture In Malaysia
For those who have decided on an incorporated joint venture for their business collaboration in Malaysia, this guide is an overview of how to approach the process.
Here’s how we’ve broken it down:
- choosing between a Sdn Bhd or LLP
- whether to start with an MOU / MOA
- key inclusions of a JV Agreement
- post-incorporation compliance requirements, and
- a summary of the steps involved
Of course, if you already know what you want, you’re welcome to skip the reading and get in touch with us to kickstart the incorporation.
Otherwise, let’s begin.
Table of Contents
Sdn Bhds vs LLPs as Special Purpose Vehicles
Incorporated JVs operate as a ‘Special Purpose Vehicle (SPV)’, which is a fancy way of saying ‘separate business entity’ jointly owned by the parties.to shield themselves from any debts incurred by the venture.
An SPV in Malaysia can exist as one of two structures:
- a Sdn Bhd (private limited company), or
- a Limited Liability Partnership (LLP)
LLPs and Sdn Bhds are very similar, which makes sense as LLPs were introduced to give businesses that cannot operate as Sdn Bhds a comparable structure.
We do a deep dive in our Sdn Bhd vs LLP guide, but here’s a quick side-by-side comparison:
| Detail | Sdn Bhd | LLP |
| Number of Shareholders / Partners | 1 – 50 | 2, with no upper limit |
| Foreign Participation | Yes | Yes |
| Limited Liability Protection | Yes | Yes |
| Tax Rate | 15% – 24% for Locally Owned 24% for >20% Foreign Owned | 19% – 24% |
| Compliance Requirements | Slightly Higher | Slightly Lower |
| Annual Maintenance Costs | Slightly Higher | Slightly Lower |
While the table shows some differences, it’s not enough to definitively say one is better. The key difference is Sdn Bhds are much easier to raise funds for or sell, so, if your plans involve…
- fundraising
- attracting strategic partners, or
- eventually exiting
…then a Sdn Bhd is by far the smarter choice.
On the other hand, if this is a long-term collaboration or passion project, an LLP is probably better thanks to lower setup / operating costs and more relaxed compliance demands.
MOU / MOA or straight to an agreement?
The parties need to decide if they want to go straight into a Joint Venture Agreement or start with a Memorandum of Understanding / Agreement (MOU / MOA).
Let’s start by comparing the purpose, content, and legal enforceability of each.
| Criteria | MOU | MOA | Joint Venture Agreement |
| Purpose | Outline preliminary intentions | Record agreed terms before formal contract | Create enforceable legal obligations |
| Binding Effect | Generally non-binding | More likely to be binding | Fully binding |
| Typical Use | Early-stage negotiations | Transitional phase before signing a formal contract | Finalised, enforceable obligations |
| Legal Enforceability | Only if specific clauses show clear intent to be binding | Yes if document reflects mutual intention and specific terms | Fully enforceable |
As you can imagine, MOUs and MOAs are used when unfamiliar parties want to demonstrate commitment to doing business without the liabilities of a binding contract just yet.
An MOU or MOA is then used to outline high level details of the collaboration, including:
- purpose
- confidentiality
- duration & termination
- responsibilities of each party
- cost allocation
- dispute resolution, and
- exclusivity / non-circumvention
Crucially, they also usually contain a ‘Non-Binding Clause’ which states the MOU / MOA isn’t legally binding save for specific clauses which all parties have agreed to.
After time has passed and everyone has acted in good faith, parties can confidently move forward with a fully binding Joint Venture Agreement.
While most consultants–including MISHU–recommend an MOU as the safest option, we’re not actually part of the JV, so we’re quite happy to let clients decide!
Now let’s move onto the final piece of the puzzle: Your Joint Venture Agreement.
Key clauses in a JV Agreement
A JV agreement is known by a different name depending on the entity you choose:
- Sdn Bhd: Shareholders’ Agreement
- LLP: LLP Agreement
Though the names are different, both have the same standard collection of clauses:
| Clause | Purpose |
| Ownership & Capital Contribution | Defines ownership split and each party’s contributions |
| Initial Contributions | Lists what each party provides (cash, assets, skills) |
| Governance Structure | Sets decision-making rules and board composition |
| Roles & Responsibilities | Outlines each party’s duties and obligations |
| Intellectual Property (IP) | Clarifies ownership and use of IP |
| Dispute Resolution | Provides a method to settle conflicts |
| Exit & Termination | Lays out how a party can leave or the venture can end |
| Deadlock Resolution | Describes how to break major decision-making stalemates |
Collectively, these clauses define the rights, obligations, and responsibilities of shareholders in a Sdn Bhd or partners in an LLP.
Of course, depending on your arrangement or industry, you might need more specific additions.
Post-incorporation requirements
Once you’ve set up your joint venture company, don’t forget it can only start operating after:
- opening a business bank account
- applying for relevant business licenses / permits, and
- registering with various federal agencies (LHDN, HRDC, EPF, etc)
That said, let’s condense everything into a step-by-step overview of the process.
9 steps to setting up an incorporated JV
Here’s an overview of the typical incorporated JV setup using a Sdn Bhd.
- Step 1: Sign NDA
- Step 2: Draft MOU
- Step 3: Prepare JV Agreement
- Step 4: Incorporate company
- Step 5: Apply for business licenses
- Step 6: Open business bank account
- Step 7: Appoint Company Secretary
- Step 8: Hire accountant & tax agent
- Step 9: Set up HR & payroll
If the JV plans to issue Employment Passes for foreign directors or staff, then add ‘Step 10’.
That’s all you need to know for now–all the best with your collaboration and if you need help, MISHU can handle literally every step on this list 🙂
Start a joint venture company in Malaysia with MISHU
Our team can guide you through every step of setting up an incorporated joint venture, from drafting an NDA all the way to applying for the right business licenses. Get in touch today.
💡 FAQs on incorporated joint ventures in Malaysia
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Q: What’s the difference between incorporated and unincorporated joint ventures?
A: An incorporated joint venture is carried out through a separate legal entity that parties jointly own, while in an unincorporated joint venture parties operate as individuals or through their current businesses. -
Q: Is an incorporated joint venture the better choice?
A: Almost certainly for long-term or high-risk ventures due to the limited liability protection, low-risk projects can work equally well under both. -
Q: What are Special Purpose Vehicles (SPVs) in the context of joint ventures?
A: A Sdn Bhd or LLP created solely to carry out a joint venture while shielding parties from financial risk incurred by said venture. -
Q: Should I choose a Sdn Bhd or LLP as my SPV?
A: If your joint venture plans involve fundraising or an exit, a Sdn Bhd is the smarter choice as it’s much easier to raise capital and sell.
But if it’s a long-term collaboration or passion project, an LLP is often better due to lower costs and simpler compliance. -
Q: What is a joint venture agreement?
A: A legally binding contract that outlines rights, responsibilities, contributions, profit-sharing, and exit strategy of each party involved in the joint venture. -
Q: What is a joint venture MOU?
A: Any Memorandum of Understanding (MOU) is a largely non-binding document that outlines preliminary intentions between parties before entering a formal agreement. -
Q: What is the tax treatment for joint ventures in Malaysia?
A: An incorporated joint venture with 20% or more foreign ownership is taxed at a flat 24% corporate tax rate, regardless of revenue. Below this and it ranges from 15% – 24% on a progressive tax scale. -
Q: Is an incorporated joint venture the same thing as a partnership?
A: In the legal sense, no. A partnership is a specific structure governed by the Partnership Act 1961 which carries unlimited liability. An incorporated joint venture would be done through a Limited Liability Partnership governed by the LLP Act 2012 and provides limited liability protection. -
Q: Is an MOU a legally binding contract?
A: Generally, an MOU is not legally binding, but certain clauses like confidentiality or exclusivity may be enforceable if drafted that way. -
Q: Is a joint venture agreement legally binding?
A: Yes, as long as it meets the essential elements of a contract under Malaysian law: Offer, acceptance, intention to create legal relations, and consideration. -
Q: Can a joint venture be cancelled prematurely?
A: Yes, a joint venture can be legally terminated or cancelled if there are provisions for it in the joint venture agreement, usually under an exit or buyout clause.