The Companies Act 2016: A Comprehensive Guide for Employers

One important law that every employer should know is the Companies Act 2016.

This Act affects how you run your business, how you hire people, and how you handle company responsibilities.

Whether you are running a small startup or a big company, understanding this Act is very important.

It helps you avoid legal problems, improve your company processes, and build trust with your employees and customers.

The Companies Act 2016 was introduced to make company rules in Malaysia clearer and more modern.

It gives business owners more flexibility, but it also brings new duties.

As an employer, it’s not just about following the rules—it’s also about creating a good work environment that attracts and keeps the best talent.

In this guide, we will explain the important parts of the Act, how it affects HR and hiring, and what steps you can take to stay compliant.

We’ll also share useful tips to help you follow the law more easily. Let’s dive in.

What is the Companies Act 2016?

The Companies Act 2016 is Malaysia’s main company law.

It replaced the old Companies Act 1965 because the government wanted to modernize company laws and make it easier for businesses to operate.

The new Act has three main goals:

To make company formation easier and cheaper.
To strengthen governance and protect stakeholders.
To bring Malaysia’s company laws closer to international standards.

Since its enforcement in 2017, many businesses have benefited from the streamlined rules, but at the same time, it has also brought new duties, especially for directors, shareholders, and HR teams.

When Was the Companies Act 2016 Implemented?

The Companies Act 2016 received Royal Assent on August 31, 2016, and was published in the Gazette on September 15, 2016.

The Act came into force on January 31, 2017, marking a significant milestone in the evolution of corporate legislation in Malaysia.

Who Must Comply with the Companies Act 2016?

The Companies Act 2016 applies to all companies incorporated in Malaysia, including:

Private Limited Companies (Sdn Bhd): Small and medium enterprises (SMEs) with up to 50 shareholders.
Public Limited Companies (Bhd): Larger companies listed on Bursa Malaysia or with public shareholders.
Foreign Companies: Businesses registered overseas but operating in Malaysia.
Non-Profit Organizations: Incorporated entities like charities or foundations.

As an employer, if your business falls under any of these categories, you’re legally obligated to comply with the Act.

This includes startups, family-owned businesses, and multinational corporations.

Sole proprietorships and partnerships, however, are governed by separate laws, such as the Registration of Businesses Act 1956.

Key Provisions of the Companies Act 2016

When the Companies Act 2016 was introduced, it brought several important changes that made company operations simpler.

But, it also added new responsibilities for business owners and directors. Here are the key features you need to know:

1. Single Shareholder and Single Director

Under the old law, you needed at least two directors and two shareholders to start a company.

Now, under the Companies Act 2016, you can start a company with just one director and one shareholder.

This makes it easier for solo entrepreneurs to run their business legally without needing partners just to meet legal requirements.

2. Company Secretary Not Needed at Incorporation

When you first set up your company, you don’t have to appoint a company secretary immediately.

You only need to appoint one within 30 days after incorporation.

This gives you breathing room to focus on setting up your operations first before handling administrative tasks.

3. No More Authorised Capital

Previously, when setting up a company, you had to state an "authorised capital," the maximum amount of capital your company was allowed to issue.

Now, this step has been removed. Your company’s capital can grow according to your actual business needs without needing to update your authorised capital.

4. Superform (Section 14)

The Act introduced something called the Superform.

Instead of filling out multiple forms for different steps like reserving your name and registering your company, everything is combined into one online form.

This reduces paperwork, saves time, and makes starting a business much faster.

5. Solvency Test for Dividends and Share Buybacks

Whenever a company wants to pay dividends, reduce share capital, or buy back its shares, the directors must perform a solvency test.

This means they must be confident and sign a declaration that the company will still be able to pay its debts after the transaction.

This rule protects the company’s creditors, suppliers, and employees.

6. Abolishment of Annual General Meeting (AGM) for Private Companies

Private companies are no longer required to hold AGMs, unless stated otherwise in their constitution.

This simplifies compliance and reduces administrative burdens.

However, financial statements must still be circulated within 6 months of the financial year-end.

7. Written Resolutions Without Meetings

Shareholders of private companies can now pass written resolutions without holding a physical meeting.

This improves flexibility and allows faster decision-making, especially useful for companies with shareholders in different locations.

8. No Constitution Required Unless Desired

Companies are no longer automatically required to adopt a Memorandum and Articles of Association (now called a Constitution).

If no constitution is adopted, the company will operate based on the Companies Act provisions.

This reduces setup costs and complexity for small businesses.

9. New Definition of “Directors’ Duties” (Sections 210–218)

Directors must now comply with clearer and more codified fiduciary and statutory duties, including:

Duty to act in good faith in the best interest of the company
Duty to avoid conflict of interest
Duty to exercise reasonable care, skill, and diligence

Failure to comply may result in civil and criminal liabilities.

10. New Power for Registrar (SSM) to Strike Off Companies (Section 549)

SSM now has broader powers to strike off dormant or inactive companies from the register if they are no longer operating.

This helps maintain a cleaner company registry and encourages compliance.

Key Changes and Updates Compared to the Previous Act

Here’s a table summarizing the key changes and updates in the Companies Act 2016 compared to the previous Companies Act 1965:

Key Aspect	Companies Act 1965	Companies Act 2016
Minimum Number of Directors	Minimum of 2 directors required	Only 1 director required
Shareholder Requirement	Minimum of 2 shareholders	Only 1 shareholder required
Annual General Meeting (AGM)	Mandatory for all companies	Not required for private companies
Company Constitution	Memorandum & Articles of Association mandatory	Constitution is optional
Authorized Share Capital	Required	Abolished
Share Certificates	Mandatory issuance	Optional (unless requested by shareholder)
Company Secretary Appointment	Within 1 month of incorporation	Within 30 days of incorporation
Common Seal	Required for executing documents	Optional
Execution of Documents	Via common seal and witness	By authorized officer or director without seal
Directors’ Duties	General fiduciary duties outlined	Codified in law; stricter enforcement and penalties
Financial Statements & Audit	Financial reporting and audit required	Enhanced disclosure requirements and streamlined filing
Corporate Rescue Mechanism	Limited options	Introduction of judicial management & voluntary arrangements
Penalty for Non-compliance	Generally lower	Heavier penalties and stricter enforcement
Incorporation Process	More documents and longer time	Simplified and faster online process
Use of Technology	Not emphasized	Allows e-lodgement, virtual meetings, and e-voting

Impacts of the Act on Employers and Businesses

The Companies Act 2016 has a big impact on how companies are run:

Easier company formation, where entrepreneurs, including sole founders, can now start a business without needing multiple people to act as directors or shareholders.
Greater responsibility on directors. They must now personally make sure the company is compliant with the law. If something goes wrong, directors can be held responsible.
More focus on corporate governance. Good governance is not optional anymore. Companies must maintain proper records, hold meetings correctly, and file the right reports with SSM.

Roles and Responsibilities Under the Companies Act 2016

Here’s what different parties inside a company need to know:

Directors must act in the best interests of the company. They must avoid conflicts of interest and not misuse company assets.
Shareholders have the right to vote, receive dividends, and inspect certain company documents. However, they must also act fairly and not abuse their powers.
Company Secretaries are responsible for submitting required documents to SSM, keeping company registers, and advising the board on legal compliance.

If a director or company secretary fails to perform their duties, they can face fines or even be disqualified from holding future positions.

How HR and Recruiters Are Affected

You might think the Companies Act 2016 only concerns lawyers or company secretaries, but it also affects HR teams:

Employment contracts must clearly define duties under the Companies Act when hiring directors or senior management.
HR must keep the company records updated, including directorship changes, resignations, and shareholdings if applicable.
When there are changes in the director, maybe new appointments and resignations, HR must coordinate closely with secretaries to document director changes properly and submit them to SSM on time.

Compliance Requirements for Employers

Every company in Malaysia must follow these compliance steps:

1. Annual Return Submission

Companies must file an annual return with SSM within 30 days of their incorporation anniversary.

2. Financial Statements

Private companies must file financial statements separately within 30 days after distributing them to shareholders.

3. Update Company Changes

Whenever there’s a change in directors, shareholders, company address, or company constitution, it must be updated with SSM.

4. Registers Maintenance

Companies must maintain updated registers of members, directors, secretaries, charges, and beneficial owners (under the recent amendments).

Common Mistakes and Penalties

Many companies get into trouble because of simple mistakes. Here are some common ones:

Late submission of annual returns or financial statements.
Forgetting to notify SSM when directors resign, new directors are appointed, or shareholders change.
Submitting forms without full details or without the correct supporting documents.
Missing registers or outdated information can lead to audits and penalties.

The penalties are serious: fines starting from RM10,000 to RM50,000 depending on the offence. Directors can even be banned from acting as directors if violations are serious.

FAQ

Is the Companies Act 2016 mandatory for SMEs?

Yes. Whether you are running a small, medium, or large business, you must comply fully with the Act if you are registered with SSM.

Can a foreigner be appointed as a director?

Yes, but you must have at least one resident director who lives in Malaysia.

What happens if a company fails to submit its annual return?

The company and its directors can be fined. Persistent non-compliance can also lead to the company being struck off.

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