Updated: Apr 19, 2021
As an entrepreneur, you are already overwhelmed with ensuring business successes with strategies, operations, and finances.
On top of that, you have the legal side of things to take care of.
That is why we have created this article to simplify things for you.
This article will talk about the difference between corporate law and commercial law and how you need to understand both for your business.
Knowing the basics is vital in the long-run despite hiring a lawyer.
Understanding the rules governing the formation of your company will help you in planning your corporate strategy.
For instance, if you belong to one of the categories below, you need to have a basic understanding of corporate law.
Planning to start a private limited company (Sendirian Berhad)
Filing for an Initial Public Offerings (IPO) to turn your company into a listed company
Applying for delisting (turn your public stock into privately traded)
And knowing where you stand or how to address a conflict or dispute will help resolve the matter and avoid costly consequences.
For instance, a consumer is suing you for a misleading advertisement or when a competitor stole your private & confidential information or R&D design.
What is Corporate Law?
Loosely interpreted as
“The rules, regulation, and practices involving the rights, relations, and conduct of persons, companies, organisations and businesses.”
So then, what constitutes corporate law, and who is it for?
Incorporation of companies
Directors’ and shareholders’ rights
Article of associations
Delisting of companies
Merger & Acquisition
This means corporations that normally require a corporate lawyer are multinational corporations, investment banks, and privately held companies.
It could also be for any small and medium-sized businesses, or regulatory bodies and government as well.
However, business transactions and deals are not always the same.
Factors involved in the differences may include industry type, single or multi-market businesses, and your company’s size.
Therefore, corporate lawyers will need to customise their legal services to your needs.
Crucial Reasons Why You Need to Understand Corporate Law for Your Business
For company formation & liquidation
Following the Companies Act 2016, which governs Malaysia’s corporate law, matters being regulated are listed below.
These are the reasons why understanding corporate law will help you in the proper and legal formation of your company.
Registrar of Companies: the people responsible for managing your company register
Constitution of Companies (previously referred to as Article and Memorandum of Association): the rules regulating the activities of the company, the shareholders, and directors
Share: the portion of your company’s capital for your shareholders to share profits
Debenture: a document that either creates a debt or acknowledges it
Charge: a security interest given to a creditor over a company's assets.
Management and Administration: the procedural aspects of running your company
Account and Audit: the appointment of auditors, their rights, duties, and remuneration, your compliance with tax and auditing standards, types of accounts, and penalties
We will provide you with detailed information and customised guidance before starting the incorporation, should you appoint us to help you.
For company management & control
If your entity is a private company, then you need to be aware of the following restrictions.
Restrictions: No transference of the shares
Shareholder Limitation: Up to 50 shareholders
Prohibition of Public Invitations:
The public is not allowed to subscribe to your company’s shares or debentures.
The public is not allowed to deposit money with your company.
As for the name of your company, you should observe the following.
You must use the abbreviation “Bhd.” at the end of the name you have chosen for a public limited company.
You must add the abbreviated “Sdn” as part of the company name you have selected for a private company.
You will be required to reserve your company name for three months with the Registrar (which is Suruhanjaya Syarikat Malaysia, or in short SSM).
If you want to change your company name, you will need to invoke a special resolution and meet certain conditions.
You will be guided accordingly on all the necessary information by our lawyer so the process of incorporation is as smooth as possible for you.
What is Commercial Law?
Commercial Law, on the other hand, is also known as trade law or mercantile law.
Like corporate law, it covers the rules, regulations, and practices that apply to persons’ and businesses’ rights, relations, and conduct.
But the scope of engagement is in commerce, merchandising, trade, and sales.
In other words, it is a subsection of corporate law.
An essential legal area for your business if your company is involved in commerce, trading, and purchase or sales of goods or services.
It may also cover employee contracts, consumers, business contracts, financial transactions, and more.
Crucial Reasons Why You Need to Know Commercial Law for Your Business
For resolving conflict & disputes
For outlining legal responsibilities between a business and consumer
For more information regarding commercial law, disputes and resolution, you may check our previous article on common commercial litigations and dispute resolutions.
Unless you receive formal legal education, you may find the entire process of setting up your company or handling disputes or conflicts overwhelming.
So we hope this article has helped you gain a basic understanding of what it takes to start a company or how to approach or avoid commercial litigations.
If you need more specific legal advice, don’t hesitate to contact us.
Or you can leave your comments below to share with us your legal experience as an entrepreneur.
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each case will differ and, therefore, will require specific legal advice. Feel free to contact us for complimentary legal consultation.