THE Ease of Doing Business Report (DB Report) issued by the World Bank annually noted that there is a minimum capital requirement of RM2 to be paid upon incorporation of a company in Malaysia.
This perception may have arisen from the response received from respondents that at least a minimum of two shares must be subscribed, and in practice, such shares will typically have a nominal value of RM1 each.
Referring to the explanation provided under the DB Report, the paid-in minimum capital requirement reflects the amount that an entrepreneur is required to deposit in a bank or with a notary before registration of the business and up to three months following incorporation and is recorded as a percentage of the economy's income per capita.
The amount is typically specified in the commercial code or the company law. Many economies require minimum capital but allow businesses to pay only a part of it before re-gistration, with the rest to be paid after the first year of operation.
The misconception of the requirement of the minimum paid-up capital has contributed towards unfavourable ranking on Malaysia, in so far as starting a business is concerned.
In this respect, Malaysia has been ranked less competitive compared to other jurisdictions which have similar legal framework.
To address the misconceptions and support Malaysia's submission to the World Bank in their future assessment in the "Starting a Business" indicator, SSM issued Practice Note 15/2012 on December 31 2012 to explain the relevant provisions under the Companies Act 1965 in substantiating that there is in fact no requirement for companies to have a mini-mum paid-in capital upon incorporation.
The provisions are found under subsections 14(1), 18(2), 18(3) and section 54.
SSM wishes to highlight that subsections 14(1) and 18(2) of the Companies Act 1965 merely lay the requirement for a company to have at least two subscribers and in the case of a limited company, that each subscriber must agree to take at least one share each.
The fact that a subscriber is not required to pay the share(s) that he has agreed to take is clarified in subsections 54(1) and (6) of the Companies Act 1965.
At the point of incorporation, there is no requirement for any minimum payment to be made on the amount of shares subscribed as stated in the Memorandum of Association. The amount of unpaid shares, if any, will remain a debt owed by the subscribers to the company.
Based on information contained in the database of the Companies Commission of Malaysia (SSM), there are 4,394 companies with a paid-up capital of less than RM2 at the point of incorporation, proving the point that the minimum paid-in capital of RM2 is a misconception.
In addition, there are a total of 14 companies having partly paid shares at the point of incorporation which shows that shareholders are not required to fully pay the shares they pledge to take when the company is registered.
The current prevailing practice requiring subscribers to pay at least a minimum amount of RM2 as paid up capital for newly incorporated companies is merely an industry practice and one which is not required under the law.