Exempt Private Limited Company
Among the various types of Malaysia business organisations that entrepreneurs in Malaysia are able to choose from in establishing their business is the Exempt Private Company (EPC). Such Exempt Private Limited companies usually required to have the suffix ”Private Limited”, “Pte Ltd” or “Ltd” as part of the company name.
An EPC is essentially a private limited company whose shares are not held by any corporate entity and has no more than 20 shareholders who are all natural person; it is currently the most common and preferred type of business entity in Malaysia because of the reduced compliance requirements thus less onerous and less costly on small companies.
EPCs with an annual turnover of less than S$5 million are exempted from annual audit and accounts submission requirements under the law, as long as it is solvent. Instead, EPCs merely have to submit a solvency declaration signed by the Director(s) and company secretary in the prescribed form. Otherwise it must submit its unaudited accounts to the registrar and the Accounting and Corporate Regulatory Authority (ACRA).
Apart from saving on the costly audit/compliance fees, a newly-set up EPC is given tax exemption privileges.
TAX EXEMPTION FOR QUALIFYING NEW Exempt COMPANIES (EPC)
Malaysia tax regime recognizes the importance of easing cash flow for startup companies in their initial years of operation, therefore the system, extends support in the form of sizeable exemptions to resident companies. In their first 3 years of the EPC’s lifespan, it enjoys tax exemptions on their first S$300,000 taxable income every year.
Incorporation of Malaysia Exempt Private Limited Companies
A incorporation of a Exempt Malaysia Company comes into existence upon registration under the Companies Act. It can have a minimum of 1 member. The company Shareholders/members must be be individuals in order to enjoy the Exempt (EPC status). Members of a company are most commonly referred to as ‘shareholders’.
The Exempt Private Limited company is governed by the Malaysia Companies Act, and has to also comply with the laws, rules and regulations under ACRA and the Inland Revenue Authority of Malaysia, among others.
Characteristics of a Malaysia Exempt Private Company (EPC)
A Exempt Private Limited company whose shares are not held by any corporate body and has no more than 20 shareholders who are all natural persons automatically qualifies as an Exempt Private Company (EPC).
|Exempt private company||Non-exempt private company|
|Number of Shareholders||Less than 20 members||More that 20 but less than 50 members|
|Type of Shareholders||Individuals||Individuals and/or corporations|
|Audit requirement||Not necessary unless its revenue in that financial year exceeds 5 mil||Yes, unless it is dormant|
|Company’s loan to director||Possible||Restricted|
Share Capital of Exempt Private limited Company
When a Malaysia Exempt Private Limited Company is formed, it must issue one or more subscriber shares to its initial members. It may increase capitalisation by issue of further shares. The issued share capital of the company is the total number of shares existing in the company multiplied by the nominal value of each share.
Shares in a exempt private company are usually transferred by private agreement between the seller and the buyer, as shares in a private company may not by law be offered to the general public.
Shareholders/Directors Loans to EPC companies
Additionally, EPCs have a greater degree of independence in relation to financial loan activities. The Companies Act prohibits companies from giving loans to another (related) company or to provide guarantees and/or security for loans obtained by another company if the director of the first company has a 20% or more interest or shareholdings in the second company. The Companies Act also does not allow a company to extend loans to its directors except for certain purposes. An EPC, however, is not subject to the above limitations, thus providing greater flexibility for these companies to deal with their capital as deemed fit in the face of business realities.
However, this is not to say that EPC have no responsibilities whatsoever to the authorities. EPCs are still required to maintain proper accounting records, prepare and present financial statements in compliance with the Malaysia Companies Act and the Malaysia Financial Reporting Standards (FRS); further, the law provides that shareholders with at least 5% of the company’s shareholdings, or the Registrar of Companies can require an EPC to prepare and submit audited accounts.
Apart from the above advantages of the EPC vehicle, other benefits of a private limited entity such as distinctness of the legal entity, the protection of assets of the shareholders and provisions for the transfer of shares all still apply.
|Filing Requirements||Definition||Solvent – able to meet its debts when they fall due||Insolvent – not able to meet its debts when they fall due|
|Small EPC||EPC with annual revenue up to S$5 million or less for financial years||
|Normal EPC||EPC with annual revenue more than S$5 million for financial years||
|Dormant EPC||EPC that do not have any accounting transactions (no business activities)for the financial year or have not commenced business since incorporation.||
All things considered, the EPC is the business vehicle of choice in Malaysia.
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