“Must private-sector businesses close and grant employees a paid holiday?”

The answer is: not necessarily.

The legal position depends on the provision under which the holiday is declared, the employer’s annual public-holiday arrangements, and the terms of employment applicable to the employees.

Section 8 and Section 9 Holidays Are Different

Under the Holidays Act 1951, special or additional public holidays may be declared through different statutory mechanisms.

Holidays declared under Section 8

Section 60D(1)(b) of the Employment Act 1955 provides that a public holiday appointed under Section 8 of the Holidays Act 1951 must be observed as a paid public holiday.

Such a holiday is generally additional to the 11 paid public holidays employees are ordinarily entitled to receive each calendar year.

Where a holiday is declared under Section 8, a private-sector employer must generally do one of the following:

• grant employees the paid public holiday;
• require eligible employees to work and pay the applicable public-holiday rate; or
• grant another paid day in substitution.

Under Section 60D(1A) of the Employment Act, the employer may grant another day as a paid public holiday in substitution for a Section 8 holiday.

Holidays declared by a State Authority under Section 9

Section 9 of the Holidays Act 1951 allows a State Authority to appoint a day as a public holiday within that State.

A State announcement may be made through a Gazette notification, official statement, media announcement or another method considered appropriate by the State Authority.

However, Section 60D(1)(b) of the Employment Act specifically refers to holidays appointed under Section 8. It does not state that every State holiday declared under Section 9 automatically becomes an additional compulsory paid holiday for private-sector employees.

Accordingly, the fact that a State Government has announced a special holiday does not, by itself, mean that every private-sector business must close.

When a State Special Holiday May Still Be Binding

Although a Section 9 holiday may not automatically become an additional compulsory holiday under Section 60D(1)(b), an employer may still be required to observe it where:

• the holiday has been selected as one of the employer’s six chosen public holidays;
• the employment contract provides that employees are entitled to all State public holidays;
• the employee handbook or collective agreement provides for all gazetted State holidays;
• the employer has already announced that the company will observe the holiday;
• the employer has consistently observed similar holidays as part of an established employment practice; or
• a specific law, licence condition or official directive applies to the particular industry or business.

Employers should therefore review their annual public-holiday notice, employment contracts, employee handbook, collective agreements and previous staff announcements before deciding whether to operate as usual.

Substitution of a Public Holiday

The substitution rules depend on the type of holiday involved.

For a holiday declared under Section 8, Section 60D(1A) allows the employer to provide another paid day in substitution.

Where a State holiday has been selected as one of the employer’s six chosen public holidays, any substitution should be managed in accordance with Section 60D, the employer’s policies and the applicable employment terms.

As a matter of good practice, any replacement holiday should be communicated clearly to employees in writing.

Payment Where Employees Work on a Paid Public Holiday

Where an employee is entitled to statutory public-holiday premium pay and is required to work during normal working hours on a paid public holiday, the employee is generally entitled to:

Holiday pay plus an additional two days’ wages at the ordinary rate of pay.

Where the employee works beyond normal working hours, the excess hours must generally be paid at not less than three times the hourly rate of pay.

For monthly-paid employees, normal holiday pay is usually already included in the monthly salary. The practical additional payment for working normal hours on the public holiday is therefore generally two days’ wages at the ordinary rate of pay.

Employees Earning More Than RM4,000 Per Month

Employees earning more than RM4,000 per month are generally excluded from certain statutory premium-payment provisions under the Employment Act.

However, certain categories of employees may remain protected regardless of salary, including:

• manual workers;
• commercial vehicle operators; and
• employees who supervise manual workers.

For other employees earning more than RM4,000 per month, additional payment for working on a public holiday will usually depend on the employment contract, collective agreement, employee handbook or company policy.

What Should Employers Do?

Whenever a special holiday is announced, employers should not rely solely on the headline or social-media post.

They should first confirm:

1. whether the holiday was declared under Section 8 or Section 9 of the Holidays Act 1951;
2. whether the Ministry of Human Resources or the Labour Department has issued any clarification;
3. whether the holiday is already included in the company’s annual public-holiday list;
4. whether the employment contracts or company policies require the holiday to be observed; and
5. whether any industry-specific requirement applies.

Conclusion

A special-holiday announcement by a State Government does not automatically mean that all private-sector employers must close or grant employees an additional paid holiday.

The legal obligation depends on the statutory basis of the declaration and the employer’s existing contractual, policy and public-holiday arrangements.

Employers should verify the legal basis of the holiday and review their employment documents before issuing any announcement to employees.

Disclaimer: This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought based on the facts and structure of each transaction.

Whether the employee can retract the resignation at that stage is not as straightforward as many would assume. Under Malaysian employment law, the answer turns on a crucial issue: whether the resignation has been accepted by the employer.

1. An Employee Has the Right to Resign

Section 12 of the Employment Act 1955 recognises an employee’s right to terminate his or her employment by giving the required notice, or by making payment in lieu of notice where permitted.

In general, an employer cannot compel an employee to remain in employment or refuse to recognise a resignation that has been validly tendered.

However, this raises an important question: When does a resignation actually become effective?

2. Is a Resignation Effective the Moment It Is Submitted?

Many employees assume that once a resignation letter or email has been sent, the employment relationship automatically comes to an end.

The legal position is more nuanced.

In Universe Digital Library Sdn Bhd v Mahkamah Perusahaan Malaysia & Anor [2016] MLJU 1786, the High Court affirmed and adopted the trite law that a resignation is only complete once it has been accepted by the employer. In reaching that conclusion, the Court cited the Industrial Court’s decision in MST Industrial System Sdn Bhd v Foo Chee Lek (1993) 1 ILR 202, which held:

“…The employer-employee relationship under the common law on resignation or termination is settled. Just as an employer has the right to terminate the service of an employee, similarly an employee has a right to put an end to his contract of employment by intimating to his employer of his intention to quit by way of resignation. An employee who makes known his intention to resign the job to his employer who accepts his resignation, the contract of employment comes to an end, ending the employer employee relationship. However, the resignation is not complete until it is accepted by the employer and before such acceptance an employee can change his mind and withdraw his resignation. Once his resignation is accepted the contract comes to an end…                                                                                                                        (Our emphasis)

The principle is straightforward. While an employee is free to resign, the resignation is not regarded as complete until the employer communicates its acceptance.

This naturally leads to the next question: What If an Employer Chooses to Withhold Acceptance of a Resignation?

3. Can an Employee Leave if the Resignation Has Not Been “Completed”?

Yes. As stated above, an employee has the right to terminate his or her employment under Section 12 of the Employment Act 1955. The law does not, as a general rule, require an employer’s acceptance for a resignation to take effect.

Accordingly, once the employee has served the requisite notice period (or paid salary in lieu of notice, where applicable), the employee is entitled to leave the employment relationship. This position applies notwithstanding the absence of any formal acknowledgement or acceptance of the resignation by the employer.

4. Why Does Acceptance Matter?

The timing of an employer’s acceptance can have significant legal consequences.

Where an employee withdraws a resignation before the employer has communicated its acceptance, the withdrawal may be legally effective. In such circumstances, the employer may no longer be entitled to rely on the original resignation.

This was the position adopted in MST Industrial System Sdn Bhd (supra). In that case, the Industrial Court held that an employee may withdraw a resignation at any time before the employer communicates its acceptance. However, in this case, because the employer had accepted the resignation on the same day it was submitted, the employee was no longer entitled to unilaterally withdraw it.

The converse scenario is equally important. What if the employee withdraws the resignation before it has been accepted, but the employer nevertheless insists on treating the resignation as effective?

The Industrial Court considered this issue in Lunar Venture Sdn Bhd v Encik Mohd Noor Khan bin Mohammad Khan [2005] ILJU 29. The Court held that an employer could not accept a resignation that had already been validly withdrawn. If the employer nevertheless proceeded to end the employment, such conduct amounted to a dismissal, potentially giving rise to a claim for constructive dismissal.

In other words, once a resignation has been validly withdrawn before acceptance, the employer cannot simply ignore the withdrawal and continue to rely on the original resignation.

Conclusion

For employees, resignation should never be an impulsive decision. If you have second thoughts, acting quickly may make all the difference. A resignation that has not yet been accepted may, depending on the circumstances, still be withdrawn.

For employers, resignation letters should be dealt with promptly and communicated clearly. Delays or uncertainty over whether a resignation has been accepted can create unnecessary disputes and may expose the employer to legal claims.

Ultimately, whether a resignation can be withdrawn depends on the specific facts of each case, including when the resignation was submitted, whether it was accepted, and whether that acceptance was communicated. Both employers and employees should seek legal advice before taking further steps where there is any uncertainty.

Disclaimer: This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought based on the facts and structure of each transaction.

That is where the Small Claims Court comes in. Designed for straightforward, lower-value claims, it offers a faster, simpler, and more affordable way for individuals to resolve disputes without the need for lengthy legal proceedings.

1. Small Claims Court Jurisdiction

The defining feature of a Small Claims Court is its limited jurisdiction. This means the court only has the authority to hear specific types of cases up to a strictly enforced monetary ceiling.

• Monetary Thresholds: Under the Malaysian legal framework (Order 93 of the Rules of Court 2012), the limit is tightly capped at RM5,000. If your claim exceeds the limit, you must either waive the excess amount to fit the criteria or file your case in a standard civil court.
• Subject Matter: These courts handle purely monetary remedies. Common disputes include unpaid personal loans, breach of basic contracts, outstanding invoices for freelancers or sole proprietors, security deposit disagreements between landlords and tenants, and minor property damage.

What it cannot do: Small Claims Courts cannot grant equitable remedies. They cannot order someone to perform a specific action, issue an injunction, or handle complex matters like divorces, wills, and defamation lawsuits.

2. Who Can Go to Small Claims Court?

The Small Claims Court is fundamentally designed for the public. It acts as an equalizer, ensuring that financial constraints do not lock ordinary citizens out of the legal system.

The Plaintiff

Any regular citizen or individual who is aggrieved can file a suit as a plaintiff. This also includes sole proprietors and members of business partnerships trying to recover commercial debts. However, strict limitations exist for larger entities: in many jurisdictions, incorporated private limited companies (Sdn. Bhd.) or Limited Liability Partnerships (LLPs) are completely barred from initiating a small claim as a plaintiff.

The Defendant

You can file a claim against almost any individual, business, or corporation that you believe owes you money. While a corporation usually cannot sue in this court, they can absolutely be sued as a defendant.

The “No Lawyers” Rule

The most unique rule of Small Claims Court is the ban on legal representation. Both the plaintiff and the defendant must step up and speak for themselves. You are fully permitted to consult a lawyer outside of court to prepare your case, but during the actual hearing, attorneys are not allowed to stand up and argue on your behalf.

3. How Do the Proceedings Work?

Because the goal is speed and accessibility, the entire timeline moves significantly faster than a traditional trial.

The process begins when the plaintiff completes a claim form (Form 198). This form requires a clear, concise statement of the facts, the exact amount owed, and supporting documentation. After paying a nominal filing fee at the court registry, the plaintiff must formally serve the sealed papers to the defendant via personal delivery or prepaid registered post.

Once served, the clock starts ticking. The defendant generally has 14 days to respond using a defense form (Form 199). If the defendant ignores the notice or fails to show up, the court can instantly issue a Judgment in Default in favor of the plaintiff.

If a defense is filed, both parties are called to a hearing before a Magistrate. The atmosphere is structured but informal. The Magistrate acts inquisitorially—asking direct questions to cut through the noise. You must bring all your evidence: receipts, text messages, contracts, and any witnesses. After listening to both sides examine the evidence, the Magistrate will make a final decision. In this venue, the decision is typically final, leaving no room for a costly appeal process.

4. What Can I Do After I Get the Judgment?

Winning your case and getting a piece of paper signed by a Magistrate is a victory, but the court does not automatically collect your money for you. If the losing party (the Judgment Debtor) refuses to pay voluntarily, you must initiate enforcement proceedings.

The Small Claims Court strips away the intimidating jargon and high costs of standard litigation. By understanding these core operational pillars, you can confidently navigate the system to recover what is rightfully yours.

Disclaimer: This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought based on the facts and structure of each transaction.

Step 1: Identify the Document

Before you panic, you need to understand exactly what you are holding. Not every court document means you are being sued right this second, but you must look for three key pieces of information:

• The Court of Origin: Look at the very top of the document.

• Is it from a Magistrates’ Court, a Sessions Court, or the High Court? The level of the court tells you the severity and financial scale of the matter, and it dictates where your response must be filed.

• The Type of Document (Writ vs. Originating Summons): This is a critical distinction.
  • A Writ (Writ of Summons) means there is a substantial dispute of facts between you and the plaintiff, and the case will likely involve witnesses and a full trial.
  • An Originating Summons (OS), on the other hand, is usually used when the dispute is strictly about the interpretation of law, meaning it will likely be decided based on written affidavits without a full trial.
• The Contents: Flip past the cover pages to read the “Statement of Claim” or the “Affidavit in Support”.

• What is the plaintiff accusing you of? How much money are they claiming? Pinpointing the exact nature of the claim is your foundation for defense.

Step 2: The Critical First Move — Entering Appearance (For a Writ)

If you determine that the document is a Writ, a strict legal countdown begins immediately. Your absolute priority is to Enter an Appearance. This is a formal notification to the court and the plaintiff that you acknowledge the lawsuit and intend to defend yourself.

The 14-Day Rule: You generally have exactly 14 days from the date you received the Writ to enter your appearance (not including the day of receipt).

You can complete this step in two ways:

1. Retaining a Lawyer: A qualified advocate and solicitor will handle the formal filing through the court’s e-filing system on your behalf.
2. Acting In Person (Self-Represented): If you choose to represent yourself, you must physically go to the court registry or use the proper legal portal to file the Memorandum of Appearance yourself.

The Danger of Inaction: Do not miss this deadline. Failure to enter an appearance within the 14-day window gives the plaintiff the right to apply for a Judgment in Default of Appearance (JID). If a JID is entered, the plaintiff wins the case automatically without ever having to prove their claims at trial, and the court can order enforcement actions against you.

Step 3: Drafting and Filing Your Defence

Once your appearance is securely entered, the next clock starts ticking—usually giving you 14 days after the appearance deadline to file your formal Defence.

Your Defence is a paragraph-by-paragraph response to the plaintiff’s Statement of Claim. For every single allegation the plaintiff makes, you must choose one of three responses:

• Admit: You agree that the statement is true. (Use this sparingly, only for indisputable facts like your own name or address).
• Deny: You state that the allegation is false and put forward your own version of the facts.
• Not Within Knowledge: You state that you cannot confirm or deny the claim because you genuinely do not have the information. Legally, this forces the plaintiff to strictly prove it.

If you have a claim against the plaintiff arising from the same issue, this is also the stage where you file a Counterclaim alongside your Defence.

Step 4: Case Management and Trial

Since the paperwork (the “pleadings”) is exchanged, the court will also step in to manage the timeline of the lawsuit through Case Management.

During Case Management, a judge or registrar will call both parties together to set timelines for sharing evidence, filing bundles of documents, and finalizing witness lists. They may also suggest mediation to see if the matter can be settled out of court.

If a settlement cannot be reached, the case moves to the final stage: The Trial. This is where your case is argued in open court. Witnesses will be called to testify, evidence will be examined, and lawyers will make their final submissions. Ultimately, the judge will weigh the evidence and deliver a final judgment.

Receiving a court document is serious, but it is not an immediate defeat. By understanding the nature of the document, strictly observing the court’s strict timelines, and seeking professional legal advice early, you can systematically build your defense and ensure your voice is heard.

Disclaimer: This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought based on the facts and structure of each transaction.

A Long-Term Incentive Plan, commonly known as an LTIP (and often casually referred to as an ESOS), is an incentive structure where a company rewards selected employees, directors, or key management personnel (“Employees”) with free shares or share options over a period of time.

The Employees will only enjoy such benefits after meeting certain conditions, such as remaining with the company for a fixed period, achieving performance targets (KPIs), or helping the company reach specific business milestones.

The LTIP may also be structured to apply not only to the Employees of the company itself, but also to the Employees of its subsidiary companies. This is particularly useful for a group structure where the parent company wishes to reward and retain key talents across different subsidiaries under the same group.

A. Why does a company need an LTIP?

An LTIP is commonly used to:

1. Retain key employees/talents – Employees are more likely to stay when part of their reward is tied to future vesting.
2. Align employee interest with company growth – When employees are given shares or share-based rights, they may think more like business owners instead of merely employees.
3. Reduce immediate cash burden – Instead of paying everything in salary or cash bonus, the company can use equity-based incentives as part of the reward structure.
4. Reward with conditions – The company can impose conditions before the employee is entitled to receive or keep the shares.
5. Prepare for future corporate exercises – For companies planning for IPO, fundraising, merger, acquisition or succession planning, an LTIP can be used to lock in key talents before the next stage of growth.

B. How does the company give shares to Employees?

There are a few common structures, but the two main structures are Share Grant and Share Option.

Option 1: Share Grant / ESGP / Free Shares

Under a Share Grant structure, the company grants shares to the Employee after the Employee satisfies the vesting conditions.

For example, the company may grant 10,000 shares to a key Employee, but the shares will only vest over a period of 3 years. If the Employee resigns before the vesting date, the unvested shares will be forfeited.

This structure is commonly understood as giving “free shares” to the Employee, but the Employee will only enjoy the shares after fulfilling the required conditions.

Option 2: Share Option / ESOS / Right to Buy Share

Under a Share Option structure, the company gives the Employee the right to subscribe for shares in the future at a fixed price.

For example, the Employee may be given an option to subscribe for 10,000 shares at RM0.50 per share. If the company grows and the value of the shares increases, the Employee benefits from the increase in value by exercising the option at the agreed price.

This structure is commonly understood as giving the Employee a “right to buy shares”, rather than giving free shares immediately.

C. Key documents required for an LTIP

To implement an LTIP properly, the company should prepare the following documents:

(1) LTIP By-Laws

The By-Laws are the main rulebook of the LTIP. They set out the rights, obligations, conditions and procedures of the scheme.

They typically cover:

• • eligibility of employees;
  • maximum number of shares available under the scheme (commonly capped at around 10% to 15% of the company’s issued share capital or total shares on a fully diluted basis);
  • type of award, such as (i) share grant, (ii) share option;
  • good leaver and bad leaver provisions;
  • forfeiture and clawback provisions;
  • transfer restrictions;
  • administration by the board or LTIP committee;
  • amendment and termination of the scheme.

(2) Offer Letter, Confirmation Letter, Notice of Exercise, and Vesting Notice

These documents are used for actual implementation.

• • Offer Letter: Issued by the company to the eligible Employee to set out the award offered, such as the number of free shares or share options, the vesting period, performance conditions (KPIs), exercise price, if applicable, and the deadline for acceptance.
  • Confirmation Letter: Records the Employee’s acceptance of the LTIP award.
  • Notice of Exercise: Given by the Employee to the company to exercise the vested share option and subscribe for the shares in accordance with the terms of the LTIP By-Laws.
  • Vesting Notice: Issued by the company when the Employee has fulfilled the vesting conditions and becomes entitled to receive the free shares granted under the ESGP.

(3) Constitution

The company’s Constitution should be lodged, reviewed and, if necessary, amended to support the implementation of the LTIP.

This is important because once an Employee becomes a shareholder of the company, the Employee will generally be bound by the company’s Constitution in his or her capacity as a shareholder. Therefore, the Constitution should contain clear provisions to regulate the rights, restrictions and obligations of employee shareholders

D. Can an SME or Sdn. Bhd. adopt an LTIP?

Yes, an SME or Sdn. Bhd. can adopt an LTIP.

LTIPs are commonly seen in Berhad companies, especially public listed companies, because they usually have a larger management team, clearer share value, and may be subject to formal shareholder approval, Bursa requirements and disclosure obligations.

However, the concept of an LTIP is not limited to Berhad companies. It may also be adopted by SMEs, provided that the structure is carefully designed. This is because an SME is usually incorporated as a private company (Sdn. Bhd.), and is subject to the 50-shareholder limit applicable to private companies under Section 42(1) of the Companies Act 2016.

That said, Section 42(3)(b) further provides that, in determining the number of shareholders in a private company:

“a shareholder who is or was an employee of the company or its subsidiary when they became a shareholder shall not be counted.”

This means that employee shareholders are not counted towards the 50-shareholder limit, provided they became shareholders while they were employees of the company or its subsidiary.

In practice, although the law provides this exclusion, the company should still structure the LTIP in a clean and well-documented manner. This is to avoid the arrangement being misunderstood as a public offer of shares, an uncontrolled expansion of shareholders, or a scheme that is inconsistent with the nature of a private company.

Conclusion

LTIPs are commonly used as part of a formal employee incentive structure. For SMEs and Sdn. Bhd. companies, the same concept can also be adopted, provided that the structure is carefully designed to suit the company’s shareholding structure and future business plans.

However, an LTIP should be properly structured from the beginning. The company should be clear on the type of award, eligibility criteria, vesting conditions, leaver provisions, transfer restrictions and the rights attached to the shares or options. The company should also consider the relevant tax and accounting treatment before implementing the LTIP.

When structured properly, an LTIP is not merely about giving shares. It becomes a structured framework to reward the right people, retain key talents, and support the sustainable growth of the company.

Disclaimer: This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought based on the facts and structure of each transaction.

Most individuals only begin to consider bankruptcy when legal action has already been initiated against them. At that stage, the situation is often more complex, available options are limited, and the consequences are significantly harder to manage.

In reality, bankruptcy is rarely a sudden event. It typically develops over time, arising from accumulated financial pressure, business exposure, or personal guarantees.

Understanding how the process works, and more importantly, when to act, can materially affect the outcome.

What is Bankruptcy in Malaysia？

Bankruptcy is a legal status where an individual is unable to repay debts owed to creditors. Once the court makes a bankruptcy order, the individual’s financial affairs are taken over by the Director General of Insolvency (DGI), who will manage the person’s assets and oversee repayment to creditors.

In Malaysia, bankruptcy is governed by the Insolvency Act 1967.

Bankruptcy Threshold

At present, a creditor can only start bankruptcy proceedings if the total debt owed is at least RM100,000.00. This threshold has been in place since 2020 and remains the current legal position.

How a Person Becomes Bankrupt？

Bankruptcy does not arise automatically upon non-payment. There is a legal process involved.

(A) Creditor-Initiated Bankruptcy

The most common route is through a creditor:

(a) The creditor obtains a court judgment

(b) A Bankruptcy Notice is issued

(c) The debtor fails to comply within the prescribed period (generally 7 days from service)

(d) The creditor files a bankruptcy petition

(e) The court may then make a Bankruptcy Order

(B) Debtor’s Own Petition

Less commonly, an individual may also voluntarily apply to be adjudged bankrupt by filing a debtor’s petition in court, typically where:

(a) the individual is unable to meet multiple obligations; and

(b) bankruptcy is viewed as a structured way to deal with creditors collectively.

In practice, the stage at which advice is sought often determines the range of available solutions.

At earlier stages — particularly before or shortly after a judgment or Bankruptcy Notice — there may still be viable options such as:

(a) negotiated settlements

(b) structured repayment arrangements

(c) strategic financial restructuring

Once a bankruptcy petition is filed, these options become significantly more limited and more costly to implement.

Consequences of Bankruptcy

The impact of bankruptcy goes beyond just owing money.

Once a bankruptcy order is made, the bankrupt’s financial autonomy is substantially curtailed.

(a) Assets are placed under the control of the DGI

(b) Bank accounts are typically controlled or monitored

(c) The individual may be required to make monthly contributions based on income

There are also travel restrictions, where a bankrupt cannot leave Malaysia without approval.

From a business perspective:

(a) A bankrupt is generally restricted from acting as a company director without approval

(b) Access to financing becomes difficult

(c) Business operations may be disrupted

Bankruptcy is also a matter of public record, which may affect reputation and future dealings.

Can You Be Discharged from Bankruptcy?

(A) Annulment of Bankruptcy

An annulment effectively cancels the bankruptcy order, as if it never existed.

This may occur where:

(a) The debt is fully paid

(b) A settlement is reached with creditors

(c) The bankruptcy order ought not to have been made (e.g. procedural defect)

Annulment is typically obtained through a court application.

(B) Discharge by the Director General of Insolvency (DGI)

The DGI has the power to grant a discharge without going to court.

In recent years, this has been exercised more actively under administrative initiatives often referred to as the “Second Chance Policy”.

In practice, this may apply to individuals who:

(a) have relatively lower levels of debt (commonly around RM200,000 or below)

(b) are first-time bankrupts

(c) have not engaged in fraud or misconduct

(d) have cooperated with the DGI

(e) have complied with contribution and reporting obligations

This is not an automatic right, but a discretionary process.

(C) Automatic Discharge

Under the law, a bankrupt may be discharged automatically, generally after a minimum period of 3 years from the submission of the Statement of Affairs, subject to statutory conditions being satisfied.

These include:

(a) full cooperation with the DGI

(b) proper disclosure of financial information

(c) no concealment or improper disposal of assets

(d) compliance with required contributions

The DGI retains the right to object, which may delay the discharge.

(D) Discharge by Court

A bankrupt may apply to the court for discharge.

The court will consider factors such as:

(a) conduct of the bankrupt

(b) efforts made to repay creditors

(c) objections (if any) from creditors or the DGI

This route is often relevant where:

(a) there are disputes

(b) the DGI does not grant discharge

(c) special circumstances exist

(E) Settlement with Creditors

A negotiated settlement with creditors may also lead to discharge or support an application for annulment.

This is often a strategic option, particularly where:

(a) creditors are open to restructuring

(b) there are identifiable recovery sources

(c) early intervention is possible

Conclusion

Bankruptcy is usually the result of a situation that has been building for some time. By the time legal action starts, the room to manoeuvre is already limited.

In many cases, there are still options available, whether to negotiate, restructure, or manage the situation more effectively, but timing is critical.

The earlier the issue is addressed, the more flexibility there tends to be.

If you are facing financial pressure or potential bankruptcy, it is worth getting a clear view of your position early. A short discussion can often make a meaningful difference in how the situation is handled.

Disclaimer: This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought based on the facts and structure of each transaction.

“Should I set up a Sdn Bhd, Berhad or LLP?”

The answer is not about which structure is “better”, but what you are trying to achieve, whether it is running a business, structuring a deal, or scaling for growth.

In practice, we often see business owners setting up the wrong type of entity from the outset, usually based on cost or convenience rather than long term planning. This only becomes an issue later when the business expands, investors come in, or disputes arise.

Getting the structure right at the beginning is not just a legal step. It is a business decision that affects control, funding and future growth.

(1) Key Features of Each Entities

To better understand the differences, the key features of each entities are summarised below.

(2) Practical Structuring Approach

While the differences above set out the legal distinctions, the more important question is how these entities are actually used in practice.

In practice, these entities are not mutually exclusive and are often used in combination, depending on the stage of the business.

A useful starting point is to ask: What is the objective of the business at this stage?

(a) Sdn Bhd is the default choice for most businesses.

At the startup stage, where the focus is on running day to day operations, hiring employees and building the business, a Sdn Bhd remains the most practical and widely accepted structure.

It is also suitable where funding is raised privately from persons already connected with the company, including family members, existing shareholders, employees or existing debenture holders (s 44(4) of CA 2016).

Where funding is sourced from friends, it is not specifically recognised under the CA 2016, and whether it constitutes private or public funding may be determined by the court on a case to case basis.

That said, the limitation on the number and nature of members may restrict fundraising flexibility, which may in turn limit the pace of expansion.

(b) Berhad is a strategic structure for growth.

Even where unlisted, a Berhad is commonly used as a holding or pre-IPO vehicle, particularly where there is an intention to raise funds from a wider pool of investors or prepare for a future listing.

However, the compliance and regulatory requirements applicable to a Berhad may be burdensome for SMEs, MSMEs and early-stage startups. As such, it is not typically adopted at the initial stage of a business.

(c) LLP is typically used for specific arrangements.

LLPs are more commonly used for professional firms, as well as collaborations or project-based structures, where flexibility in profit sharing is required.

Structuring an LLP as a special purpose vehicle may help address certain limitations of a Sdn Bhd, particularly in situations involving limitations on members or bespoke commercial arrangements.

Conclusion

There is no single “correct” structure. The appropriate approach depends on the business objectives, funding strategy and long term plans.

From our experience, a well considered combination of Sdn Bhd, LLP and Berhad at the appropriate stages can provide the necessary balance between operational efficiency, flexibility and scalability.

Getting it right from the beginning can save significant time and cost in the future.

Disclaimer: This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought based on the facts and structure of each transaction.

Many Malaysian companies remunerate their directors through a mixture of monthly salaries and director fees. While this is common practice, the tax treatment is often misunderstood, particularly when the director is both a shareholder and part of management.

The Court of Appeal’s recent decision in Datuk Oh Chong Peng v Inland Revenue Board [2024] 2 ILR509 now provides welcome clarity on how director salary and director fees should be classified for tax purposes. This article explains the distinction and what companies should do to remain compliant.

1. Director Salary vs Director Fees – What Are They?

A director salary is typically paid to an executive director who takes part in daily management, supervises teams, makes operational decisions and functions like a senior employee. Because of the employer–employee relationship, a director salary is treated as employment income, subject to PCB, EPF, SOCSO and EIS, and must be reported in Form EA.

Director fees, however, are payments made for services performed in a board capacity, such as attending meetings, reviewing papers, or sitting on committees. These fees must be approved by shareholders at the AGM and may be paid to both executive and non-executive directors.

Importantly, director fees become taxable at the point they become receivable, which is the moment the shareholders approve the fees (usually during the AGM), even if payment is only made later.

2. The Legal Framework Under the Income Tax Act (Section 4(a) vs 4(b))

The Income Tax Act 1967 places great emphasis on the nature of the relationship between the individual and the company.

Classes of income on which tax is chargeable

4. Subject to this Act, the income upon which tax is chargeable under this Act is income in respect of—

(a) gains or profits from a business, for whatever period of time carried on;

(b) gains or profits from an employment;

…

Section 4(b) governs employment income, which covers salary, remuneration and any payment arising from an employer–employee relationship. Executive directors fall squarely within this category because they perform day-to-day operational roles and are subject to employer control.

Section 4(a) deals with professional, vocational or business income, which applies when a person provides services independently and not under an employment relationship.

This distinction is crucial because the classification determines not only how the income is taxed, but also whether the recipient may deduct business expenses, claim capital allowances, file CP500 instalments and carry forward business losses.

3. The Oh Chong Peng Case — Clarifying Director Fees

The turning point came when the Court of Appeal ruled in Oh Chong Peng v Inland Revenue Board that an independent non-executive director is not an employee, and therefore the director fees he received were properly classified as business income under Section 4(a).

The Court reasoned that independent directors do not engage in management, do not report like employees and are not under employer control. Their role is advisory and supervisory, not operational.

The Court also confirmed the opposite scenario: an executive director, even if paid “director fees”, remains an employee in substance. The title of the payment does not change its nature. Any director fee paid to an executive director is still treated as employment income under Section 4(b). This decision creates a clear and practical distinction between the two categories.

Conclusion

The classification between Section 4(a) and 4(b) has real practical implications. Executive directors must be placed on normal payroll, their remuneration (including any director fees) must be subject to PCB and statutory contributions, and no business deductions are allowed in their personal tax filings. Independent non-executive directors, however, may treat their director fees as professional income, deduct relevant business expenses, claim capital allowances and manage tax instalments under CP500.

Equally important is the timing of taxation. For both executive and independent directors, director fees are taxable when they become receivable, which is the date the shareholders approve the payment. Many companies mistakenly tax director fees only when actually paid, exposing themselves to unnecessary compliance risks.

Understanding these rules helps companies avoid audit issues, prevent misclassification, and design remuneration structures that comply with the law while supporting good governance.

Disclaimer: This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought based on the facts and structure of each transaction.

In Malaysia, companies issue two main types of shares: Ordinary shares and Preference shares. But what sets them apart?

Dividend Rights:

• Preference shareholders get priority for dividends over ordinary shareholders.
• Ordinary shareholders receive dividends after preference shareholders.

Voting Rights:

• Preference shareholders typically don’t have general voting rights but may vote on matters affecting their rights.
• Ordinary shareholders have voting rights, usually one vote per share, influencing company decisions.

Importance Of Voting Rights

Voting rights allow shareholders to influence crucial decisions like choosing the board of directors and major moves such as mergers. More voting rights mean more influence on the company’s direction.

What Are Dual-Class Shares (A/B Shares)?

Dual-Class Shares (DCS) structure is common among publicly traded companies in the United States. It divides ordinary shares into Class A (for the public) and Class B (for founders), offering different voting rights.

• Class A shares have limited voting rights, while Class B shares grant more voting power.
• For example, Class A shares might offer one vote per share, while Class B shares might offer ten votes per share.

Can SMEs In Malaysia Implement A DCS?

Yes, small and medium-sized enterprises (SMEs) in Malaysia can adopt DCS. While more common among larger corporations in the United States, SMEs can benefit too. Seeking professional advice is wise to align this approach with their objectives.

Can A Company With DCS Be Listed On BURSA Malaysia?

Yes. The Malaysian government announced plans to allow the listing of dual-class shares on Bursa Malaysia to encourage high-growth tech companies to list locally.

Company Example

Grab Holdings Inc. is a notable example. Despite owning only 3.6% of ordinary shares, co-founder Anthony Tan maintains majority voting power, empowering strategic control while accessing public capital markets.

Conclusion

Dual-class shares offer a structure where certain shareholders, often founders, have more voting power, ensuring control over company decisions.

Disclaimer: This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought based on the facts and structure of each transaction.

The Companies Act 2016 explicitly restricts private companies from raising funds through public markets. Section 43 states “a private company shall not— (a) offer to the public any shares or debentures of the company; or (b) allot or agree to allot any shares or debentures of the company with a view to offering them to the public…” Any breach of Section 43 incurs significant penalties, including fines up to RM3 million, and personal liability, potentially leading to imprisonment for promoting unlawful public offers.

Determining when an offer shifts from private to public is a crucial distinction. Section 44 makes it clear that an offer to any part of the public is considered public. However, it outlines exceptions for what constitutes a private offer between the company and specific individuals, such as existing members, employees, family members of past or present members, or debenture holders.

There are legal precedents that highlight the consequences of breaching these rules. In the PP v Huang Sheng Chang (1983) case, where 390 individuals and 17 companies were invited to subscribe for shares, Huang faced charges for inviting the public, pleading guilty. A similar case, AG v Derrick Chang (1985), reinforced that an invitation to a large number of people constitutes an offer to the public, as seen in the Huang case.

The court’s interpretation often considers the number of people invited. If the invitees are numerous, the court might consider it an offer to a section of the public. It’s crucial to note that the intention of the promoter and the offer’s effect play a pivotal role. The offer must solely be intended for the specific offeree mentioned in the invitation to avoid breaching the regulations.

Navigating these regulations demands expert guidance to avoid severe consequences.

Compliance with securities regulations offers clear paths to access larger capital pools. Converting to a public “Berhad” company is one option, though it comes with increased statutory burdens. Alternatively, Equity Crowdfunding (ECF) platforms, licensed by the Securities Commission under the Capital Markets and Services Act 2007, can legally facilitate public engagement.

In essence, Malaysian founders have the right to seek funding from supporters beyond friends and family. However, choosing the compliant structural path, whether through careful planning or bold conversion, is crucial despite urgent growth needs. Understanding these legal complexities can mean the difference between staying on track with your vision and encountering major obstacles. Getting advice from corporate experts can help you navigate these challenges seamlessly.

Disclaimer: This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought based on the facts and structure of each transaction.