A Public Limited Company, also as “Berhad”, is one of the two types of Companies limited by shares available in Malaysia. The establishment, conduct, and closure of these Companies that under the regulation of the Company Act 2016.
Large-scale businesses in Malaysia usually adopt a Public Limited Company entity. The key characteristics of a public Company are:
- A minimum of two (2) natural persons who are at least eighteen (18) years of age and shall ordinarily reside in Malaysia by having a principal place of residence in Malaysia.
- A minimum of one (1) shareholder either an individual or corporate (local or foreign is acceptable).
Maintain a registration office in Malaysia to which all communications and notices shall be open and accessible to the public during ordinary business hours. - Appointment of a Company Secretary who is certified and qualified as enacted in the Company Act 2016.
Reasons for Private Limited Company (Sdn. Bhd.) venture into Public Limited Company (Berhad) in Malaysia
Most of the regulations in a private limited Company (Sdn. Bhd.) apply to a public limited Company (Berhad) except:
- You can sell the Company shares to the public as an alternative to raise funds.
- Strict compliance such as holding annual general meetings and filing audited reports is compulsory.
- A more complex administration can also lead to a slow decision-making process.
However, despite the differences, there are advantages for a Ltd Company (Sdn. Bhd.) who wishes to expand its business and convert to a public limited Company (Berhad):
- Institutional investment – It is easier for public companies that in the list to attract institutional investment without having to go through hassle negotiations.
- Enhanced corporate profile and improved valuation – Listed companies can greatly elevate the Company’s profile which automatically enhances and increases business opportunities due to trust and credibility.
- Employees’ shareholding scheme – This scheme can boost the employee’s morale, retain long-serving and loyal employees as well as attract best-in-class employees.
- Profitable exit strategy – Making the Company public will provide a mechanism for owners to nurture and expand the business, working towards improving the entity’s share price performance and selling it before an exit, as it offers a potentially high payout.
As a starting point, entrepreneurs may venture into a Private Limited Company (Sdn. Bhd.) for them to explore and sustain the business within the market. However, once the business is sustainable and wishes to expand, converting a private limited Company (Sdn. Bhd.) to a Public Limited Company (Berhad) is the long-term solution to being profitable.
Advantages of Public Limited Companies in Malaysia
When venturing into a Public Limited Company (Berhad), numerous advantages await large-scale businesses. These include:
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Opportunity for higher share capital
The main advantage of Public Limited Companies is raising share capital, particularly through the public stock exchange. As the Company shares are open to anyone, they can invest their money, resulting in higher capital compared to a Private Limited Company (Sdn. Bhd.).
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Increased number of shareholders
As the Company has shares available to the public, there will be a diverse and large number of stakeholders who invest into the Company. In other words, this provides the opportunity for the Company to spread the risk of Company ownership. Also, early investors can make a profit by selling off their shares while maintaining a substantial stake in the Company.
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Other finance opportunities
Listing on the stock exchange enhances a company’s creditworthiness, lowering investor returns required for corporate debt issuance. This puts Public Limited Companies (Berhad) in a favourable position when it comes to exploring other sources of finances.
When needing financial assistance, bankers are more likely to offer help because such entities are usually in a better position to negotiate good interest rates and repayment terms on loans. -
Growth and expansion opportunities
With more finances secured, the Public Limited Company (Berhad) can:
- Venture into a new market, develop new products or kickstart new projects
- Furthermore, make capital expenditures to support and enhance the business in the long run
- Execute research and development (R&D) plans and strategies
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Esteemed brand image & enhanced public confidence
As a Public Limited Company (Berhad), the perception from investors is that the company since its establishment is reputable, improving the brand image when compared to Private Limited Companies (Sdn. Bhd.).
Disadvantages of Public Limited Companies (Berhad) in Malaysia
Starting a Public Limited Company (Berhad) offers advantages but may compromise confidentiality or public affairs.
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More regulatory requirements
For a Public Limited Company (Berhad), compliance requirements are inherently stricter than those for other business entities in Malaysia, thus ensuring that stakeholder interests are well under protection.
- Annual returns must be with the Registrar each calendar year not later than thirty days from the anniversary of the incorporation date. Example: The Company incorporation date is 01.07.2023, and the annual return must be between 01.07.2020 to 30.07.2024. Any later is subject to penalty.
- Financial statements and reports must be audited by an appointed external auditor. Normally, the financial statement will be from the Malaysia Financial Reporting Standard (MFRS) or International Financial Reporting Standard (IFRS) side. This is to ensure the reporting standard is to ensure with internationally to accept reporting standards for investment purposes.
- The financial statements must circulate to the Members (Shareholders) of the Company within six (6) months of the financial year-end date. After that need to sign and approve from the Board of Directors and Members, it must be with the Registrar within thirty days from circulation to its members. Example: Financial year end is on 31.12.2019. The sign date for the financial statement is 31.05.2020. The report must be between 01.06.2023 to 30.06.2023. Any later is subject to penalty.
- Annual General Meeting (AGM) is mandatory for all Public Limited Companies (Berhad). It must held within 18 months from its incorporation date for first-timers, and within 6 months for preceding years.
- Once AGM is done and the audited financial statement is lodged, the appointed tax agent must then file the annual corporate tax filing within seven (7) months from the end of the accounting period. Example: The financial year ends 31.12.2023, the date the audit report date is 30.06.2024, and the final date tax submission should be before 30.07.2024. Any later is subject to penalties
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A higher level of transparency is required
Annual compliance for a Public Limited Company (Berhad) necessitates public disclosure of detailed business and performance data.
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Ownership & control issues
Stakeholders of a Public Limited Company (Berhad) are typically more open, thus making it challenging to control the identification of stakeholders within the Company. Therefore, the initial owners of the Company before it was made public might have the potential to lose their power, face disputes, and spend more time managing the shareholders’ expectations.
Institutional shareholders can wield particularly high levels of influence, moreover, they often expect consultation and adoption of particular policies or standards in return for their investments.
Our Insights
A Public Limited Company (Berhad) in Malaysia does have its perks and enjoys certain rights and privileges that are not made available for other types of business entities.
If the owner isn’t ready for complexity and strict regulations, a Public Limited Company (Berhad) isn’t advisable. We know that incorporating a company in Malaysia can be challenging and choosing the right business entity is crucial to set up your business to success.
FAQs
A public limited company or Berhad company is to possesses a minimum of two shareholders. In order for one to become the shareholder of such a company, the first step is to engage in the trading of stocks on Bursa Malaysia. This can be done only through investing in the stock market for the carrying out of research. One may also choose to engage a broker to do the same. Shareholders also need to open a CDS account to start trading and must also check share prices before placing their orders to share the market of listed public limited companies. After acquiring the shares of the Berhad company, one can engage in the buying and selling of the shares during the company’s trading hours.
Foreigners are not permitted to own a public limited company in Malaysia. They are also not allowed to start either a limited liability partnership or a sole proprietorship. Only Malaysian citizens may own any of the preceding types of companies. Foreigners are only allowed to incorporate a Sdn Bhd or a private limited company in the country according to the regulations imposed by the Companies Commission of Malaysia (SSM). The reason for this rule is that private limited companies provide foreign business owners with complete foreign ownership. They are only to open companies in specific sectors which are the following: petroleum, oil, and natural gas; education; outbound tourism and ticketing agencies; banking and finance companies; and agriculture. However, the list is subject to change depending on the type of foreign investment which the government of Malaysia intends to attract. Foreigners are encouraged to open unique businesses which are rare in Malaysia. However, before doing so, foreigners have to obtain the necessary licenses and trade permits to open such a company in Malaysia.
