Establishing a Joint Venture in Malaysia

Joint ventures (incorporated and unincorporated) are a form of business vehicle used in Malaysia.

A joint venture (JV) is usually a joint effort between two or more parties who pool their resources to achieve desired business goals. In Malaysia, both incorporated joint ventures and unincorporated (contractual) joint ventures are common.

Foreign investors usually sign joint venture agreements with local partners to achieve specific business goals in Malaysia or abroad. The benefits of this include:

- Knowledge, risk and cost sharing.

- Increase the ease of working in foreign jurisdictions (in terms of language and cultural customs).

- Shared contacts and markets.

The two types of joint ventures are:

Incorporated joint ventures (Companies)

These require the establishment of a joint venture company in Malaysia in accordance with the company regulations in which both parties purchase shares to reflect their ownership agreement. The company is usually a private limited company.

The two parties to a joint venture usually also sign a separate joint venture agreement to regulate the relationship (their rights and obligations) between the parties, although this is not a legal requirement under Malaysia law.

Incorporated joint ventures are advantageous because all parties enjoy the benefits of limited liability. Compared with unincorporated joint ventures, the main disadvantages of registered joint ventures are registration costs and the administrative burden of complying with disclosure requirements.

Unincorporated joint ventures

It is a purely contractual relationship between the parties to the joint venture. Generally, unincorporated joint ventures will be bound by the joint venture agreement and any required supporting documents. When a joint venture is an isolated project with a short duration, unincorporated joint ventures are usually used because they are easy to establish and require minimal disclosure. Unincorporated joint ventures can also be used in some cases so that the parties to the joint venture can apply more favorable tax treatment to their investments.

Apart from obtaining a business registration certificate before starting business in Malaysia, there are no other statutory requirements for the establishment of unincorporated joint ventures.

If you would like to know more in the formalities for setting up a joint venture, please contact Bestar.