The new Malaysian Companies Act and Covid 19 challenges to small and medium enterprises

BusinessLegal

  • Author Premkumar N
  • Published May 5, 2021
  • Word count 1,476

THE NEW MALAYSIAN COMPANIES ACT 2016 – a growth stimulus for SMEs’to meet challenges of covid 19 factual circumstances.

SMEs’ are found to play an important part of the engine that propels the growth of a national economy such as Malaysia. SMEs’ can help improve the earnings of the workers. There is a need to understand in depth the sectors that have great potential in the economic growth of Malaysia. Fundamentally, the SME plays an important role in the economy; namely to stimulate growth and rise in the economy, to aid in reducing poverty levels and to increase the basic standards of living of the people.

An increasingly flat world coupled with an internet-set borderless environment seems to, on the face of it, increase and perpetuate the entrepreneurial spirit; a personality which is paid focused attention by the stakeholders of the national economy, predominantly because of the fact that it can be a pertinent driver of the economy without being held back or curtailed by details such as fixed working hours or other constraints of the ordinary working personnel.

I)The New Malaysian Companies Act – introduction for SMEs’ role play

The previous Companies Act 1965 underwent a rigorous change process to keep up with modern business expediencies in the form of the Companies Act 2016 (Act 777). The said Act was passed at the Lower House (Dewan Rakyat) on the 4th of April 2016; and passed by the Upper House (Dewan Negara) on the 28th of April 2016. The Act came into force on the 30th of January 2017 ( save for section 241 and Division 8 of Part III).

The objectives of the new Act is said to be two fold namely : to accord sustainable protection for not just directors but all other stakeholders of a company , as well as to provide an up-to-date regulatory legal skeleton to better enable business start-ups that involve small and medium enterprises ( SME’s).

II) Malaysian Companies Act and SMEs’ – a hindrance or aid to SMEs’?

There is no clear or rather obvious pigeon – hole characterized answers as to what is. It would rather be premature or even dangerous to attempt a generic definition of what is or what should be the role of the new Companies Act 2016 with regard to SMEs’. There are many schools that attempt to answer this question, with various and often contrary viewpoints and outcomes. For example, the Austinian school equate law with force; commands or orders backed up by a ‘sanction’ (a threat of harm) in the event of non-compliance with the command. This ‘black –letter’ approach is equated with the narrow study of legal rules, a perhaps traditional or even gothic semblance of what the laws could or should be in its proper context especially when set within a practical arena, the social context, or in better words for the relevance of this assignment , the business context.

To ensure that laws that govern businesses are best or equitable, the main question that needs answering is ‘what is that makes law into good law for the business context?’ It is necessary at this juncture to limit the scope of argument, lest it is impossible to discuss all ramification within a succinct assignment; that the limits be set only to tarry along the common law. The origins of common law , being rooted in Roman Law and the medieval writ of system of English Law presented law as a series of individual problems or disputes to be given specific answers .Laws are connected to business or businesses in various contexts; such as rules of civil liability for accidental and/or intentional infringements of other people’s liberty and property; legal rules regulating agreements that the court will enforce; and rules governing relationships between owners or original holders of right regarding property and tenants or users who pay monies or other form/s of consideration for legal use of those rights. With regard to civil liability, primarily there are two schools of thought: one grounded in the economic analysis of law that sees law about maintaining efficiency, and the second emphasizing correctional justice aspects i.e. that law is all about wrongdoers compensating victims for the damage the wrongdoers caused. The same arguments described for civil liability; namely the two schools of thought are also applicable with regard to contractual business disputes. There is an idea in legal theory with regard to property that private property (in other words privately owned businesses) has its origin and form in each person and also in his or her own labour. It is also common to see property referred to, not as an isolated right that stands on its own, but as a “bundle of straws” (bundle of rights, a series of claim-rights and duties generally associated with ownership, but where certain aspects may be subject to alteration in different contexts, depending on the public interests. In light of new laws coming into the picture of the realm of businesses, for example the Companies Act 2016; it is all the more necessary to remind and /or educate the stakeholders involved of a potent and better model of laws to govern businesses.

III) Some important provisions for SME’s in the Malaysian Companies Act

Section 196 (1) (a) and (b) of the new Act states the minimum number of directors for public and private companies. The idea here of a “Single Member Company” finds fulfillment in that for a Sdn Bhd, a company can be incorporated by a single member and the former can also be the sole director. Note that for a public company (Bhd) it is similar except for the fact that there need be two directors. This is a great advantage for one-person businesses to convert from being a sole trader to a one-person company , because the latter affords limited liability, which is a viable and sustainably shrewd economic advantage for the SMEs’ having a shield from premature closure in the playing field that can come from having unlimited liability.

The various technical difficulties faced previously by SMEs’ will be simplified with regard to the incorporation process; in that previously many forms ( Form 6, 48A , and a copy of Memorandum and Articles of Association) were required, but now all those forms will be merged into a “Superform” process by the promoters or shareholders. The Memorandum and Articles of Association (see s31 (2) and (3) of the new Act) as well as the appointment of company secretary is optional. These effectively increase the transparency and perceived viability of SMEs’ as a whole.

Section 19 of the new Act state that notice of registration is conclusive evidence. Section 21(1) and 14(2) effectively removed the archaic stringencies of the old Companies Act 1965 which required that any SME company should adhere to the objects clause in the Constitution of a company to determine what a business can or cannot do. With this restriction removed, the opportunities and flexibility of business scenarios for SMEs’ are greatly enhanced. Of course the only restriction that exists is a logical one, namely that the SMEs’ company concerned should not engage or be formed for unlawful purposes.

IV) Conclusion: Companies Act is a viable Social construct for SMEs’

A good way of rebuilding ownership from below is to have more or if possible complete democratization of knowledge; this can be seen to be a doctored version of sustainable socialism; i.e. knowledge being a social product, not a property in any one person’s hands. The question now arises as to how, on practical terms to implement this idea of democratization of knowledge in our economy. It is submitted that where the economy is concerned, the law should not just be a superstructure that protects the upper classes but such production of goods from the SMEs’ should be done in view of the common good as the goal and pivot of all economic law. Such democratization of knowledge, being a third way between sustainable socialism and fragmentation of individual knowledge, characteristic of the market; would prevail over casino capitalism ; as macroeconomic planning would not just rest in the hands of big ideas, but the SME would have a more level playing field in the agenda .

The new Malaysian Companies Act is well equipped to supervise and lead the SME’s enabling them in the process to work together with the Federal Government to build a viable national economy... The SMEs’ would clearly prevail using the concept from the viewpoint of the common good. SMEs’ would be judged of their capabilities for funding from the National Economic Plans as well as the Yearly Financial Budgets using the platform of a work-related productive sphere. This however must not be confused to be an argument for deregulation and more privatization. On the contrary, the black letter of the law in terms of sustainable statutes such as the Companies Act regulation and planning must be held and placed to prevail, guided by a concern for life and the common good.

lecturer in a private university in malaysia. teaching law at present mainly contract law, commmercial law, company law.

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