58782
Business Registration
Reform Case Studies
Malaysia
John Olaisen, Norway Registers Development AS
June 2009
Investment Climate Advisory Services
World Bank Group
With funding from FIAS, the multidonor investment climate advisory service
About the Investment Climate Advisory Services of the World Bank Group
The Investment Climate Advisory Services of the World Bank Group helps governments
of developing and transition countries improve and simplify business regulations, attract
and retain investments, helping clients foster growth and create jobs. It is funded by
three World Bank Group members--the International Finance Corporation (IFC), the
Multilateral Investment Guarantee Agency (MIGA), and the World Bank--and by several
donor partners who collaborate with us through the multidonor FIAS platform.
The findings, interpretations and conclusions included in this note are those of the
author and do not necessarily reflect the view of the Executive Directors of the World
Bank Group or the governments they represent.
Malaysia Business Registration Reform
INTRODUCTION 3
METHODOLOGY 4
RESULTS OF THE REFORMS 4
LESSONS FROM THE CASE STUDIES 5
SUMMARY AND KEY CHARACTERISTICS OF THE REFORM 7
A. INSTITUTIONAL AND ADMINISTRATIVE FRAMEWORK 9
A.1. History 9
A.2. Creation of New Business Registration Agency 10
A.3. Characteristics of SSM 11
B. REFORM PROCESS 13
B.1. Legal Framework Reform 14
B.2. Public Service Delivery Reform 14
B.3. Stakeholder Involvement 15
B.4. Reform Costs 16
C. POST-REFORM BUSINESS REGISTRATION PROCEDURES AND PROCESS 17
C.1 Business Registry 18
C.2 Post-registration 19
D. RESULTS ACHIEVED THROUGH THE REFORM 19
D.1. Quantitative Measures 19
D.2. Qualitative Measures 21
E. CONCLUSION 21
ANNEX 1: KEY PERSONS CONTRIBUTING TO THE REFORMS 23
ANNEX 2: INSTITUTIONS AND PROCEDURES FOR BUSINESS START-UP IN MALAYSIA
IN 2008 24
Malaysia Business Registration Reform
Acronyms
ASEAN Association of Southeast Asian Nations
CBIS Company and Business Image Service
CBS Company and Business System
CBSRoB Company and Business System for Registry of Businesses
CBSRoC Company and Business System for Registry of Companies
CDPD Corporate Development and Policy Division
CEO Chief Executive Officer
CLRC Corporate Law Reform Committee
CLRP Corporate Law Reform Project
CPCF Corporate Practice Consultative Forum
FMS Financial Management System
HRMS Human Resources Management System
IT Information Technology
M&E Monitoring and Evaluation
RM Malaysian Ringgit (Malaysian currency)
RoC Registry of Companies
RoB Registry of Businesses
SDP Strategic Direction Plan
SSM Suruhanjaya Syarikat Malaysia, or Companies Commission of Malaysia
2
Malaysia Business Registration Reform
Introduction
Over the last twenty years, a number of countries have recognized the importance of smooth
and efficient business start up procedures. A functioning business registration system is now
viewed as an important regulatory requirement of any economy, and a predictable, transparent,
and modern business registration system is acknowledged to help promote private sector
growth and job generation.
Increasingly, governments around the world have undertaken efforts to streamline their
business registration systems in order to gain whatever advantage they could in creating growth
and jobs. Representatives among developed nations, countries in transition, and developing
countries have explored and implemented varied approaches to transforming their business
registration regulatory requirements.
While the approaches have varied, the foundation of all business registration reform is
redesigning the legal and institutional regulatory framework that underlies the business
registration process. Stable and professional business registration institutions help establish
standards of trust, transparency, and predictability, and ensure that the public is informed of
the facts as quickly as possible.
Tools that have been employed to implement reforms also have not been uniform. Some
governments have created one-stop shops, while others have not; some have introduced
technology and modern management techniques, while others have relied on traditional
methods; some have empowered registration bodies to focus on service, while others have
imposed penalty regimes on delinquent companies. Practice shows that in order to achieve
sustainable reform, the menu of specific changes is not nearly as important the overall goals of
reform. Countries who have achieved more business friendly environments and, consequently,
larger formal private sectors following implementation of reforms, all set out to simplify the
system and remove burdens on companies while focusing on protecting third parties by
maintaining accuracy and encouraging compliance.
Business registration gives businesses formal status and formal operation in the marketplace. It
is a dynamic process that impacts the life of its stakeholders, commercial counterparties, and
employees by introducing new responsibilities, opportunities, and challenges.
3
Malaysia Business Registration Reform
Methodology
This collection of case studies describes experiences and draws lessons from varied business
registration reform programs in economies in vastly different stages of development: Bulgaria,
Estonia, Ireland, Madagascar, and Malaysia. The case studies were written based on a desk
study of reforms in each country discussed. Then, more detailed information was gathered by
field-based researchers. In some cases, detail on the business registration process that was in
place prior to implementation of reforms was unavailable. As such, data on the number of
businesses registered and the time required to completed registration before and after the
reforms cannot be compared and contrasted.
Not all of the stories are of comprehensive reform programs that were widely successful. Most
countries took different approaches to implementing the reforms. In fact, one of this paper's
most important findings is that reforms of business registration processes can be implemented
in a variety of legal, institutional, and cultural settings, and while most countries share common
desired reform outcomes, there is no single model for achieving these results.
Whatever their range of success, all of the reforms discussed in these case studies sought to
improve the instruments, processes, and institutions underlying all forms of business
registration and related services. In all five countries, the broad goals of reforms were to
increase economic growth and bring as many businesses as possible into the formal sector.
Given the varied nature of the countries, the reform programs focused on achieving different
aspects of the desired outcomes--simplified and reduced numbers of procedures, reduced
costs, increased availability and transparency of information, increased compliance rates,
increased protection of third parties.
Results of the Reforms
Bulgaria: Prior to reforms, business registration was handled in the 28 district courts. While a
registration agency was created to take over business registration, the reform process was only
partially successful due to problems in four areas: lack of strong legislative will, insufficient
financial support by the government, inappropriate organizational structure of the new business
registration agency, and weak human resource management.
Estonia: The government-led initiative to reform business registration introduced an
experimental approach to e-registration. However, this approach achieved real reductions in the
time required to register businesses only after the Minister of Justice set a requirement that
business registration be completed in two hours. The actual time required was one day, but in
addition to the time savings, the reforms led to a 130 percent increases in the number of
enterprises registered from 1998 to 2008.
Ireland: During the economy's high-growth period of 1980s and 1990s, a low rate of company
compliance with the annual return obligations contributed to a large backlog in registry updates.
Although Parliament discussed this problem on numerous occasions over these two decades,
improvements occurred only following a direct initiative from the Prime Minster in 1999 to
4
Malaysia Business Registration Reform
introduce an enforcement and penalty regime. Perhaps in part due to the fact that the registry
in Ireland is not legally binding, companies saw little incentive to change their behavior prior to
the introduction of penalties for failure to update the registry. However, as of 2008, compliance
with filing annual returns is above 90 percent and still improving.
Madagascar: While the donor-initiated reform program led to the establishment of a one-stop
shop for business registration failed to achieve any recognizable improvements of the business
registration process and services, the President's instruction to create the Economic
Development Board of Madagascar (EDBM) resulted in significant simplification of registration
requirements and procedures. When the EDBM began managing one-stop-shop procedures,
registration of companies in Antananarivo was able to be completed in one step and within 5-7
days. This led to a 158 percent increase in the number of new businesses registered from 1998
to 2007.
Malaysia: The Cabinet established the Companies Commission of Malaysia in order to facilitate
growth of the private sector economy. The top-down supported reform was implemented by
this autonomous agency that adopted a service orientation and utilized IT and modern
management tools to improve performance while the steps in the process of business
registration remained unchanged. Through the electronic system, registration time dropped to
one day, and the number of new enterprises registered increased by 58 percent from 2001 to
2008.
Lessons from the Case Studies
Despite lack of similarity among the case studies, some themes emerge as important lessons
about business registration reform.
1. Top-level support improves results. Results are most likely to be achieved if they are
supported by and even led from the highest levels of government. This is particularly true if
the reforms are occurring in a tumultuous or high-growth period for the country.
2. Legal concept and principles matter.
� Legally valid business registries are most likely to be kept up-to-date by companies and
therefore also provide third parties who access the information the best protection from
inaccuracies.
� Simplification of pre-registration procedures, such as notarization requirements and
publishing business registration publicly for a period of time have substantial impact on the
time and costs of starting of a business.
3. Technology leads to efficiency.
� The use of information technology can facilitate the simplification of registration procedures
and consolidation of steps in the registration process; however, recognition of an electronic
signature is required to make e-registries equal to other solutions.
� An electronic registry is a prerequisite for an efficient information service.
5
Malaysia Business Registration Reform
4. Impact of one-stop-shops depends on the approach. While institutional cooperation and/or
a one-stop-shop will reduce the burden on the business, the impact to the efficiency, costs,
and quality of registration procedures will differ depending on whether the approach to the
one-stop-shop is a postal, physical, or network service or a single-point registration.
Postal services allow businesses to business file the registration dossier in once place, and
physical services co-locate staff of the different institutions in one place. In the network
service registration materials are electronically distributed to and from the necessary
institutions, and in a single-point system, which represents the best practice approach, the
registration mandate is delegated to one institution that perfects the registration on behalf
of collaborating institutions.
5. Information service must consider public access. Registry frameworks and reforms not
including public access to legally binding information do not represent good practice for
providing protection of third parties.
6
Malaysia Business Registration Reform
Summary and Key Characteristics of the Reform
In 1999, the Malaysian Prime Minister Mahathir Mohamad's Cabinet initiated discussion of
business registration reform in the context of its broad goals of facilitating economic growth and
private sector development and supporting entrepreneurship. Prime Minister Mohamed's
government viewed a simplified business registration process as a cornerstone to increased
formalization of the economy, and increased formalization as a precursor to economic growth
and private sector development.
Particularly in light of advances in information technology (IT) and liberalization of world trade,
including the establishment of the ASEAN Free Trade Area in 1992, business registration reform
was a way to lock in gains from the period of rapid economic growth that began in Malaysia in
the 1990s. The economy in Malaysia had grown in size, volume, structure and commercial
diversity. Companies had been privatized, and incentives had attracted leading multinational
and foreign companies. Reducing the time and costs of formalization would encourage all
Malaysian businesses to operate professionally, and help enable them to compete both in
Malaysia and globally.
The first steps in the reform process occurred in 2001; much of the groundwork was laid from
2001 to 2003; and in 2004 a comprehensive reform program began. The scope of the work
included reform of the:
� Institutional and administrative framework, including the creation of a new entity in charge
of all types of business registration,
� Legal framework for business registration, including the legal provisions for the introduction
of electronic filing for registration of companies,
� IT framework, including the introduction of an electronic business registration system.
While the Mohamed Government set no specific targets for this reform, both qualitative and
quantitative results of the process overwhelmingly were positive. Qualitatively, reforms
increased efficiency of the registration process. The government eliminated the two entities
that split responsibility for different types of business registration and created a self-funding,
autonomous body with a mandate to streamline the business registration process for all types
of businesses. This new entity, the Companies Commission of Malaysia, or Suruhanjaya Syarikat
Malaysia (SSM), introduced e-Lodgement, an electronic registration system that played a central
role in driving quantitative results.
Quantitative improvements were achieved in the total number of registrations, the time
required to compete registration, and the compliance rate for filing annual returns. The total
number of registrations increased 58 percent from 2001 to 2008. Registration time was cut from
30 days in 2002, to one day for sole proprietors and one day for corporations through e-
Lodgement or 24 days1 under standard manual procedures in 2008. Compliance rates for filing
annual returns increased from 44 percent in 2003 to 91 percent in 2007.
1
See the Doing Business 2008 report. Please note that the 24-day period includes all institutions and procedures
involved in business start-up, going beyond the simple incorporation of a company to encompass tax, social
security, and labor registration. The full list of institutions and procedures is available in Annex 2.
7
Malaysia Business Registration Reform
The table below highlights key reform characteristics.
Key Reform Characteristics
Aspects: Characteristics:
Background Cabinet-initiated reform program was motivated by broad
governmental goal of facilitating private sector growth.
Baseline data Number of enterprises2 registered: 171,469 (2001)
Time to complete registration: approx. 30 days (2003)
Compliance rate (annual returns): 44% (2003)
Post-reform performance -Number of enterprises registered: 270,747 (+ 58%
indicators compared to 2001)
-Time to complete e-Lodgement registration: 1 day
-Compliance rate: 91%
Scope Institutional:
-Elimination of two institutions and merger of their
functions into a new entity � SSM.
-Development of strategic plans and management systems
for registration body.
Legal: Establishment of Corporate Law Reform Committee
Process and IT:
-Migration from mainframe to Web-based
-Introduction of e-info, e-Lodgement, Mobile Counter;
cooperation with Pospantas3
Funding Self-funded through fees collected for SSM services
Important attributes of the - Committed top management
reform -Strong M&E and project reporting systems
-Government oversight with well-distributed office network
-Commitment to Client Charter
Approach and methodology -Service-oriented
-Risk-oriented, particularly in relation to the introduction of
e-registration
Monitoring Prime Minister's Office ran monitoring and evaluation
committee, Working Group on Efficiency Issues
Training -Staff capacity building and training
-Corporate directors training program
Awareness building -Organizational rebranding program
-Country-wide information program based on
demonstration
2
Companies and businesses
3
Pospantas is the name of Malaysia's one-stop agency for revenue collection.
8
Malaysia Business Registration Reform
A. Institutional and Administrative Framework
A.1. History
The Malaysian Companies Act and other provisions on company registration were built on the
1946 British Companies Ordinance and 1948 Companies Act. Registration procedures were
implemented by two entities that had been set up prior to the passage of these acts-- the
Registry of Companies (RoC), established in 1898, and the Registry of Businesses (RoB),
established in 1939. These two registries were organized as two separate but integrated
divisions of the Ministry of Domestic Trade and Consumer Affairs. Operations were funded by
the Ministry's budget, and revenues were channeled back to the Treasury.
The RoC and RoB split business registration responsibilities. The RoC handled "company"
registration, administered and enforced the 1949 Trust Companies Act, the 1965 Companies
Act, and the 1971 Kootu Funds (Prohibitions) Act. The definition of company is a public or
private entity registered in Malaysia to conduct business and limited by shares, private or public
limited by shares or guarantee, or a firm without the word "Berhad,"4 unlimited liability
companies, or a branch of a foreign company.
The RoB handled "business" registration, administered, and enforced the 1956 Registration of
Businesses Act. The definition of business is a sole proprietorship, wholly owned by a single
person or trade name, or a partnership, a business owned by at least two persons but not more
than 20 partners.
The RoC and RoB made attempts to be more efficient and service-oriented. In the early 1980s,
the RoC began to store business registration information on a mainframe and individual records
on microfilm. Information supplied in response to inquiries was made available either in the
form of a computer print-out or photocopy.
In April 1996, the RoC launched a Web site containing an updated list of companies registered
with the RoC as well as information regarding RoC policies.
The RoC and the RoB also published a Client Charter, which set forth benchmark turnaround
times for their services. The performance standards specified in the 1996 version are illustrated
below.
Client Charter 19965
RoC Services (under the Companies Act 1965) Time Required
Issue letter of approval of company name 5 days
Issue certificate of incorporation of a new company 5 days
Issue certificate of conversion of status 5 days
4
"Berhad" is a public limited liability company under the Malay Law.
5
There is no information available regarding whether the Client Charter was honored by the RoC and RoB staff.
9
Malaysia Business Registration Reform
Issue certificate of change of company name 5 days
Issue certificate of commencement of business 5 days
Issue certificate of registration of charges 5 days
Issue certificate of approval of trust deed/prospectus 14 days
RoB Service (under the Registration of Businesses Act 1956) Time Required
Register business 3 days
Renew business registration 1 hour
Register termination of business 1 day
Supply information (company & business) not available
Produce computer print-outs 1 hour
Source: Clients' charter of RoC/RoB 2006
A.2. Creation of New Business Registration Agency
The first concrete step toward business registration reform occurred in early 1999 when the
Ministry of Domestic Trade and Consumer Affairs proposed the establishment of a new
statutory body that would have sole responsibility for all forms of business registration.
Over the next two years, the Cabinet continued discussion on this idea and developed and took
steps to put legislation into place to serve as the foundation for such a change. On June 30,
1999, the Cabinet approved the proposal, and on March 28, 2001, the Companies Commission
of Malaysia Act established the legal framework for the SSM. The Act was passed by the Dewan
Rakyat (House of Representatives) on July 19, 2001, and by the Dewan Negara (Senate) on
August, 7, 2001. The Companies Commission of Malaysia Act 2001 (Act 614) became law on
September 27, 2001. In order to synchronize the new law with existing legislation, the House of
Representatives amended the Registration of Businesses Act 1956 and the Companies Act 1965
by enacting two new pieces of legislation--the Registration of Business (Amendment) Act 2001,
and Companies Amendment (No. 2) Act 2001. Both laws entered into force as of April 16, 2002.
Created as a result of a merger between the RoC and the RoB, SSM officially began operations
on April 16, 2002, as an agency under the Ministry of Domestic Trade and Consumer Affairs with
a mandate to streamline the business registration process. Autonomous in matters of human
resources and financial management, SSM pays 50 percent of the gross revenues generated by
the services to the treasury.
According to SSM's Annual Report, the establishment of the agency as an autonomous, flexible,
and responsive regulatory authority was designed to: i) stimulate rapid economic growth
through increases in company incorporations, business registrations, privatization, foreign
investment and the systemic expansion of the private sector; ii) enhance the national corporate
governance framework and encourage businesses to act in accordance with principles of good
governance; iii) enhance the public service delivery system; and, iv) support globalization.
10
Malaysia Business Registration Reform
A.3. Characteristics of SSM
A.3.1. Structure and Mandate
SSM, which is headquartered in Kuala Lumpur, has offices in each of the 14 Malaysian states.
Some state offices also have multiple locations or branch offices. SSM has 1,160 staff--500
based in Kuala Lumpur and 660 in state offices.
The map below shows the geographic distribution of SSM's offices.
PERLIS
LABUAN
KELANTAN
SABAH
KEDAH
TERENGGANU
LANGKAWI
MIRI
PULAU PINANG PAHANG
PERAK
TAWAU
SELANGOR
SARAWAK
NEGERI SEMBILAN
MELAKA
JOHOR
SSM Copyrights Reserved 2007
While SSM's main activity is incorporating companies and registering businesses, its complete
list of statutory functions under the SSM Act includes a broader mandate.
SSM's core functions are: i) to ensure that the provisions of the Companies Commission of
Malaysia Act (SSM Act) and laws are administered, enforced, carried out, and complied with;6 ii)
to act as agent of the government and provide services in administering, collecting, and
enforcing payment of fees or any other charges; and, iii) to regulate matters relating to
corporations, companies, and businesses.
In addition to these core functions, SSM performs policy and research roles. SSM is responsive
to requests from the Minister of Domestic Trade and Consumer Affairs and carries out the broad
tasks of advising the Minister and carrying out research and commissioning studies on any
matter relating to corporate and business activities.
6
Including business registration pursuant to Section 17 of the SSM Act.
11
Malaysia Business Registration Reform
SSM also has a mandate to promote corporate governance and to disseminate info information
about business registration laws and about companies that have completed business
. ing
registration. SSM sets out to influence corporate governance by encouraging proper conduct
managers rporations,
among directors, secretaries, managers, and other officers of corporation self-regulated
bodies.
corporations, companies, businesses, industry groups and professional bodies.
The chart bellow shows the institutional and administrative organization of the SSM:
A.3.2. Governance and Monitoring and Evaluation
systems.
From its inception, SSM had in place robust governance and reporting and monitoring s
fficer (CEO),
As mandated in the SSM Act, SSM is managed by a Chief Executive Officer (CEO) who reports
Affairs,
directly to the Minister of Domestic Trade and Consumer Affairs and is administered by a
board.
oard oard
Both the CEO and the board are appointed by the Minister. The board is comprised of a
chairman, the SSM CEO, and from five to seven other members, three of whom must be public
r
servants. The public servants are required either to be registered lawyers or to possess relevant
knowledge or experience in commercial or company matters.
SSM uses a balanced scorecard management approach.7 Its reporting and monitoring system
cycles.
supports this approach through annual, quarterly, and monthly review cycles Approval of
occur ;
strategy, projects, and budgets occurs annually; Reports on organizational activities are issued
as
quarterly. Meetings to monitor specific projects and activities are held on a periodic, as-needed
basis.
7
The Balanced Scorecard is a conceptual framework that enables an organization to clarify its vision and strategy,
acti
thus effectively translating these into action.
12
Malaysia Business Registration Reform
SSM management also monitors and reports on performance metrics. For example, agency-wide
performance against the benchmarks put forward in the Client Charter are measured on a
monthly basis and reported to the Prime Minister's Working Group on Efficiency Issues. SSM
also tracks the compliance rate of companies' submission of annual returns.
In 2002, SSM's Strategic Direction Plan (SDP) enhanced the organization's governance structure
and systematized its approach to monitoring projects by establishing the Project Management
and Monitoring Office and the Risk Management Office within SSM's Corporate Development
and Policy Division (CDPD). It also formed the Information Technology Governance Council to
oversee all information technology initiatives.
B. Reform Process
When SSM was established, no reform timeline had been set. Despite the mandate for reform,
no transitional guidelines for implementing new services or modifying services had been
provided by RoC and RoB.
From April to July 2003, SSM management developed the document that provided the strategic
foundation for reform. The Strategic Roadmap 2004-2008, which was endorsed by the board in
2003, spelled out SSM's vision and mission as well as strategic objectives for business
registration reform. The vision centered on creating a responsive center of excellence for
corporate information, regulation, and development that would enhance national economic
competitiveness. To drive day-to-day operations toward this vision, SSM leadership articulated s
clear mission statement. To further guide the staff, SSM management published eight strategic
objectives that echoed the vision and reinforced priority areas for the reform.
SSM Mission
� To promote and cultivate a conducive and dynamic business and regulatory
environment;
� To provide timely, accurate, and value-added information and services enabled by
technology; and
� To instill good corporate governance through continuous education and effective
surveillance and enforcement.
SSM Strategic Objectives
1. Achieve operational excellence in providing services through innovation and use of
technology and delivery channels.
2. Attract, develop, and retain competent and multi-skilled human resources;
3. Initiate, develop, and implement a comprehensive regulatory framework in
tandem with changing business environment;
4. Instill good corporate governance through continuous education;
5. Ensure compliance through effective surveillance and enforcement;
6. Enhance revenue and operational efficiency to ensure sustainable growth in
financial performance;
7. Collaborate with professional bodies, other regulatory agencies, and other
international corporation administrators.
8. Develop and sustain an excellent corporate image. 13
Malaysia Business Registration Reform
Following the release of The Strategic Roadmap 2004-2008, SSM went through a period of
organizational transformation and corporate restructuring. During this time, SSM implemented
an organizational rebranding program and developed a plan for introducing new and enhancing
existing services.
Central to the rebranding effort was the establishment of SSM's corporate identity, including an
organizational logo, a new Web site, and branded publications. SSM created a public affairs
section and more actively engaged the media in order to enhance information dissemination
efforts and increase awareness of SSM among the general public.
Beginning in 2004, SSM initiated a comprehensive reform effort based on a two-pronged
approach: revision of the legal framework for business registration and introduction of a more
responsive public service delivery system.
B.1. Legal Framework Reform
Legal reform was implemented through the Corporate Law Reform Program (CLRP). In
December 2003, SSM created the Corporate Law Reform Committee (CLRC) to execute the
CLRP. The CLRC, which was chaired by a retired Court of Appeals judge, had 18 members who
had experience as regulators, legal scholars, legal practitioners, accountants, and corporate
officers.
SSM set up a Secretariat in its CDPD to support the CLRP. A consultant, three full-time research
managers, and an administrative staff person coordinated and monitored the CLRP for the CLRC.
The original timeline for the CLRC's work was December 2003 through December 2006.
However, implementation was slower than expected. The delay in the CLRC's commencement
of operations from December 2003 to July 2004, led to missed deadlines for other outputs.
CLRP's Strategic Framework was published in 2004.
Although consultative documents and reports on the different aspects of the Companies Act
were issued periodically from 2004 to 2008, the final report was delayed from November 2006
to June 2008. The CLRC requested an extension on the first draft until November 2007 in order
to accommodate completion of relevant work carried out by the Working Group on e-Sanctions
and Enforcement, which was established in April 2007.
The CLRC completed the draft, or interim report, in November 2007, but then requested
another extension until March 2008 to finalize its report. The CLRC requested a final extension
until June 2008 to allow time for copyediting.8
B.2. Public Service Delivery Reform
The second aspect of the comprehensive reform was to implement a new, more service-
oriented approach to public service delivery. SSM management introduced work process
8
This report was not available prior to the completion of this case study.
14
Malaysia Business Registration Reform
changes, notably in the area of human resources, and the SSM technology department
introduced IT system changes.
Making changes to work processes was essential in the restructuring of SSM from a new entity
into a dynamic organization capable of achieving the strategic objectives outlined in The
Strategic Roadmap 2004-2008. Structural changes to human resources and related processes
facilitated the introduction of new products and services. Following the introduction of a new
organizational structure and corporate values, a performance competency modeling system was
introduced, and an integrity and discipline section was created. These mechanisms served the
dual purpose of monitoring performance and empowering staff in their new roles.
IT systems changes enabled efficiency gains in both the new electronic business registration
system, e-Lodgement, and in the retrieval of information about businesses that were already
registered. The IT department led the migration of all systems from a mainframe to a Web-
based server. This required developing a master plan, re-engineering business processes,
cleaning the data, and performing risk management and monitoring activities. The IT
department not only led the development and implementation of this project, but also
performed all system maintenance.
Other IT changes introduced included the upgrade of the imaging system, the introduction of a
wireless internet system, and the implementation of new human resources and financial
management systems.
In 2007, SSM publicly demonstrated its commitment to service orientation by adopting the
motto "doing the right things right." This motto guided relationships with stakeholders and
underpinned SSM's corporate culture. Internally, SSM reinforced this motto through the
adoption of five new corporate values:
1. Teamwork--Work together collectively towards a common goal, learn from each other, and
share the skills and resources for stakeholders' benefits.
2. Integrity--Subscribe to superior work ethics and apply them in all areas of duties.
3. Continuous knowledge and skill enhancement--Encourage employees to enhance
competencies, skills, and knowledge with emphasis on the pursuit of continuous learning to
promote creativity, quality, and innovativeness.
4. Results orientation--Set high standards and strive to exceed them as well as recognize and
reward those who have produced superior results.
5. Customer orientation--Determine to render outstanding service delivery to all customers
for long-lasting and mutually beneficial relationships.
B.3. Stakeholder Involvement
When reform began in earnest in 2004, SSM introduced two regular structures for stakeholder
involvement: the Annual Dialogue and the Quarterly Corporate Practice Consultative Forum.
Both of these structures are still in place. In addition, in 2006 SSM held an SSM Day, which was
designed to raise public awareness and attracted more than 1,000 visitors.
SSM describes the Annual Dialogue as a primary means to engage stakeholders in an open
discourse about the business registration process. The main objectives are to: i) promote
15
Malaysia Business Registration Reform
understanding among and build relationships with industry and professional bodies; ii) exchange
ideas and clarify matters pertaining to operational issues in order to enhance SSM's efficiency;
iii) disseminate information to participants and the public in order to promote widespread
knowledge about business registration; and, iv) collaborate on the formulation of guidelines in
certain specific areas.
The Corporate Practice and Consultative Forum (CPCF) provides a platform for its members to
specifically discuss matters related to the 1965 Companies Act and its bylaws. The CPCF, which is
chaired by SSM, includes members of professional bodies and selected organizations. The CPCF
promotes discussion and recommendations from the participants on issues related to company
law through active consultation, cooperation, and assistance between CPCF members and SSM
senior officers. The CPCF also discusses and provides input on how to improve SSM's service
delivery.
In addition to these two regular stakeholder fora, SSM participates in other events organized by
Ministry of Domestic Trade and Consumers Affairs and other relevant government agencies to
create public awareness about SSM's products and services.
B.4. Reform Costs
All reform costs were financed by the revenue generated from SSM's fees and services. SSM
received no financial or technical assistance for implementation of the reform from either the
Malaysian government or donors.
From 2002 to 2007, SSM invested MYR 47.0 million9 in software and hardware to improve
service delivery and automate work processes. Additional costs for training, a public awareness
campaign, and the CLRP amounted to about MYR 4.9 million. The table below shows the
breakdown of the MYR 4.9 million.
Detail on Additional Costs of Business Registration Reform, 2003�08
2003 2004 2005 2006 2007
Training Programs No breakdown on IT training MYR MYR
125,804 141,167
Public Awareness MYR 6,786 MYR MYR MYR MYR
Campaign 234,879 337,272 401,711 639,290
CLRC SSM allocated MYR 3 million to review the Companies Act 1965
(Dec 2003�June 2008)
SSM undertook a number of other IT projects for which costs cannot be specified, including
migration of the registries from a mainframe to a Web-based server, upgrade of its imaging
system, introduction of mobile wireless internet connectivity, and implementation of electronic
systems for human resources and financial management.
9
By march 2009 USD 1 was equal to 3,6 MYR, so MYR 47.0 million was equal to USD 12, 7 million.
16
Malaysia Business Registration Reform
C. Post-Reform Business Registration Procedures and Process
To register a business under the Registration of Business Act 1956, two forms must be filed:
Form PNA 42, in order to obtain approval of the business name (if the business is using a specific
trade name), and Form A, which records name and nature of business, particulars of owner(s),
partnership agreement, and commencement date and locations of business operations.
To incorporate a company, a person must first file Form 13A in order to determine if the
proposed name of the intended company is available. If it is, the application will be approved,
and the proposed name reserved for the applicant for three months. Under e-Lodgement, this
step is instantaneous.
Once the name has been reserved, the person must lodge incorporation documents, along with
the original Form 13A, a copy of the letter from SSM approving the name of the company, and a
copy of the identity card of each director and company secretary.
Incorporation documents include:
� Form 6, Declaration of Compliance: This declaration states that all requirements have been
met. It must be signed by the company secretary who handles the registration and is named
in the Memorandum and Articles of Association.
� Form 48A, Statutory Declaration by a Person before Appointment as Director, or by a
Promoter before Incorporation of Corporation: In this form, the director or promoter
declares under oath that he or she is not bankrupt and has not been convicted and
imprisoned for prescribed offenses. It is not mandatory to swear this document when filing
through e-Lodgement.
� Memorandum of Association and Articles of Association: The memorandum and articles of
association must be stamped and duties paid at the Stamp Office. These must be signed by
the subscribers in front of a witness and filed. The Memorandum of Association describes
the company's name, the objects, the amount of its authorized capital (if any) proposed for
registration and its division into shares of a fixed amount. The Articles of Association
describes the regulations governing the internal management of the affairs of the company
and the conduct of its business.
Forms can be lodged either manually or through an electronic e-Lodgement system. Manual
filing may occur in person or via the post. In the case of manual filing, SSM staff enters the
information into the database, where it is cross-checked against existing data. They then verify
all information and supplementary documentation, and scan the material. Finally, they issue a
certificate of incorporation.
Filing through e-Lodgement requires company representatives to register via the SSM Web site,
subscribe to SSM's e-Services, and pay a registration fee. Then, company representatives may
file their information, and the system will automatically cross-checking this with the current
database. Following final verification and approval by an SSM office, the registration certificate
is sent via e-mail.
The registration workflow is as follows:
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Malaysia Business Registration Reform
C.1 Business Registry
The business registry maintained by SSM is a stand-alone system that is not integrated into
other institutions. The registry, which is a national database that covers all of Malaysia, is the
official source of legal information on companies and businesses. The Companies Act of 1965
and Registration of Businesses Act of 1956 specifically state that information or documents
extracted from the business registration entity under the seal of the registrar carry evidentiary
value and shall be admissible in the court of law.
The system is based on legal principles of positive and negative reliability, which means that all
third parties obtaining information from the registry are deemed to be acting in good faith.
18
Malaysia Business Registration Reform
As the custodian of corporate and business information, SSM is dependent on the integrity of
the information supplied by companies and businesses who register. Therefore, it is a criminal
offense to lodge false or misleading information through the business registration process.
Registering with SSM has a constitutive effect. The Certificate of Incorporation/Registration that
is issued upon completion of the registration process is legally binding as confirmation of the
business' name and form. The original certificate is delivered to the company, and duplicates are
issued by SSM upon request. A new original will be issued only if there is a change in the
company's name or legal form.
C.2 Post-registration
Businesses and companies are obliged to notify SSM of any changes in the previously filed
information. Forms for filing amendments are available on SSM's Website. Most forms can be
filed through the e-Lodgement service.
Companies also are obliged to file an annual return, Form 56, which verifies registry
information. If there are any discrepancies between information filed through the annual return
and the registered details, SSM will reject the annual return and notify the company to file the
correct information in the proper form.
Public companies limited by shares, which have more than 500 shareholders, also are obliged
also to submit annual financial statements along with Form 56.
D. Results Achieved through the Reform
Reforms led to increased efficiency of the registration process rather than a reduction in the
number of steps. Both quantitative and qualitative performance measures show that the reform
yielded positive results.
D.1. Quantitative Measures
The number of new registrations increased year on year over the period 2001�07. The annual
number of new companies registered was stable, but there was a steady increase from 2001 to
2007 in the number of new businesses registered. In the three years following comprehensive
implementation of reforms (2005-2007), there was a 19 percent increase--from 227,785 to
270,747--in the aggregate number of new business and company registrations. From 2001 to
2007, there was a 25 percent increase, and over that same period, the number of foreign
investors registered grew 13 percent, from 53 to 60.
19
Malaysia Business Registration Reform
The table below shows data on registrations from January 2001 to May 2008.
Year Number of New Number of Number of New Number of
Companies Registered Companies Businesses Registered Businesses
in SSM in SSM
2001 31 967 139 502
2002 34 757 155 419
2003 36 082 642 292 180 950 2 682 405
2004 38 579 680 871 189 206 2 871 611
2005 37 740 717 953 193 095 3 064 706
2006 38 293 756 245 216 147 3 280 853
2007 43 337 799 592 227 410 3 506 539
May 2008 18 530 818 176 112 099 3 537 618
Reforms led to an improved rate of companies complying with the annual return obligation.
Following the start of the comprehensive reform program in 2004, there was a 28 percent
increase in the compliance rate of filing annual returns to 91 percent in 2007.
Year Annual Return Compliance Rate
2003 44
2004 64
2005 71
2006 80
2007 91
There also were improvements in the metric of amount of time required to register. The reform
process led to a reduction in the time required to complete a number of business registration
procedures. The factors believed to have the largest impact were the adherence to the Client
Charter and the e-Lodgement service. The table below compares data before and after the
reforms.
10
Data on Time to Complete Selected Registration Procedures, 2002 compared to 2008
Procedure 2008 2002
Manual e-Lodgement
Approval of Business Name 1 day 1 hour 3 days
New Registration of Business 1 day 1 hour 5 days
Registration Renewal 15 min 15 min 1 hour
Registration of Termination of 15 min 15 min 1 day
Business
Post-Registration Amendments Filing 1 day 1 hour 5 days
Company Name Approval 1 day 1 hour 5 days
New Company Incorporation 1 day 1 hour 5 days
10
This data are taken from the SSM web site, available at http://www.ssm.com.my/en/services_charter.php. Please
note that the Doing Business 2008 report provides a different number of days for the manual services.
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Malaysia Business Registration Reform
D.2. Qualitative Measures
The reform program's qualitative achievements relate to the enhancement of corporate
governance and introduction of a more efficient and customer-responsive public service delivery
system. The reforms increased access to services, stimulated growth in the private sector by
streamlining the business registration process, and led to the establishment of an autonomous,
flexible, and responsive regulatory authority.
The introduction of the Web-based, e-Lodgement system increased transparency and improved
capacity to respond to requests for information about already registered companies and
businesses.
The volume of requests for registry information increased by 33 percent from 2005 to 2007.
Detailed information on increases by product is illustrated below:
Product 2005 2006 2007 As at Jun 2008
Company profile 416 184 432 182 481 644 252 474
Business Profile 148 409 175 500 203 562 111 889
Business Reg. Certificate 12 924 12 986 16 956 14 851
E- info * N/A 16 819 85 847 85 556
Idaman search N/A 127 469 82 918 39 135
Document - CTC 89 513 72 839 88 751 47 271
Document - Non CTC 844 425 930 722 1 043 820 524 567
Duplicate certificate 1 888 1 934 1 749 728
Total 1 513 343 1 770 451 2 005 247 1 076 471
* e-info w.e.f 1st July 2006
E. Conclusion
Malaysia's business registration reform program was not a revolutionary change from one
system to another. It did not achieve dramatic savings in the time required to complete the
process, nor did it cut costs significantly. The program was not implemented quickly. However,
reform did lead to a more efficient and transparent system: the government merged two
existing institutions into one self-funding, self-sustainable, client- oriented and autonomous
business registry. The new institution launched an IT reform which allowed on-line registration
and access to data, and developed a decentralized network of regional offices. Moreover, the
SSM, which has a mandate to continue streamlining the business registration process for all
types of businesses, is still carrying out reform.11 Indicators show that the number of
registrations and the availability of information about registered companies increased, and
measured implementation led to sustainable improvements.
11
See the Doing Business 2009 report that the Starting a Business indicator has dropped to 13 days from 30 in 2003
and 24 in 2008.
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Malaysia Business Registration Reform
Although initially designed and driven by the top levels in the government, throughout the
reform implementation process, the newly formed registration entity actively sought input from
the private sector and took steps to ensure that changes were shared with key constituency
groups and the general public. The result was change that was understood widely and accepted
broadly among stakeholders.
The focus on introducing up-to-date IT tools both to aid the management of the registration
entity and to complete steps in the registration process puts the system in good stead for future
process-oriented changes. The technology that was put into place increased responsiveness and
facilitated a more rigorous approach to customer service.
The scope of Malaysia's business registration reform process was far-reaching long-lasting
enough to serve as a model of a conservative approach to successful business registration
reform. The focus of the reform on developing viable frameworks--institutional and
administrative, legal framework, and technological--led to permanent and tangible benefits to
the private sector.
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Malaysia Business Registration Reform
ANNEX 1: Key Persons Contributing to the Reforms
SSM contacts:
Office: Level 17, Putra Place, 100 Jalan Putra, 50622 Kuala Lumpur, Malaysia
Phone: +603 4047 9600
Fax: +603 4047 9617
Homepage: www.ssm.com.my
Key staff:
Abdul Karim Abdul Jalil, CEO
Zahrah Bt. Abd Wahab Fenner, Deputy CEO; E-mail: zahrah@ssm.com.my
Rokiah Mhd Noor, Director Registration Services; E-mail: hrokiah@ssm.com.my
Mohammad Redzuan Abdullah, Director Legal Services
Azryain Borhan, Director Corporate Development and Policy; E-mail: azryain@ssm.com.my
Private sector contacts are:
Professional service providers:
Peter Wee, Executive Director, PricewaterhouseCoopers; E-mail: peter.wee@my.pwc.com
Phone: +603 2173 1188; Homepage: www.pwc.com/my
Catherine S.C. Mah, Manager Secretarial Services, Symphony Corporatehouse Sdn Bhd
E-mail: catherine.mah@symphony.com.my; Phone: +603 9195 1688
Home page: www.symphony.com.my
Ariff Izwan Che Mohd Hashim, Manager Strategic Planning, Small and Medium Industries
Development Corporation; E-mail: ariff_izwan@smidec.gov.my; Further information is available
at: http://www.ssm.com.my.
23
Malaysia Business Registration Reform
ANNEX 2: Institutions and procedures for business start-up in Malaysia in 2008 12
Procedures Days Costs
1. Approval of company name 7 (1 MYR 30
hour)
2. Stamping of documents 1 MYR
220
1
3. Registration with SSM 9 (1
day)
4. Procurement of company seal 1 MYR
150
5. Procurement of statutory and share certificates 2 MYR
books 200
6. Registration with Income Tax Department 1 0
7. Registration with Employment Provident Fund 1 0
8. Registration with Social Security Organization 1 0
9. Notification of the Director General of Inland 1 0
Revenue Board
1
Total 24 (10
days)
1
Depending on the amount of the authorized share capital.
Procedure 1. Approval of company name
The promoter must apply and receive from SSM the pre-approval of the intended company
name. The pre-approval will also function as the reservation of the name being valid for a
period of three months. The pre-approval process will be completed within minutes when
the e-Lodgement services are used.
Procedure 2. Stamping of documents
The memorandum and articles of association must be stamped and duties paid at the Stamp
Office while the Form 48A has to be sworn in front of a Commissioner of Oath. Form 6 has to
be declared and signed by the company secretary.
Procedure 3. Registration with SSM
Filing of the registration dossier and payment of the registration fee by the Company
Secretary with the SSM. The registration process within SSM is concluded and the Certificate
of Incorporation issued within four working days. The process is concluded within one day.
Procedure 4. Procurement of company seal
It is compulsory for the company to have a company seal which may be delivered within one
day.
Procedure 5. Procurement of statutory and share certificates books
12
The Doing Business 2008 report does not` reflect the impacts of the newly introduced e-services.
24
Malaysia Business Registration Reform
The statutory and share certificate books to be kept by the company secretary must be
procured at specialized shops.
Procedure 6. Registration with Income Tax Department
The company when incorporated must register by filing a specific form and documentations
with the Tax Department to get a tax file number.
Procedure 7. Registration with Employment Provident Fund
The company when incorporated must register by filing a specific form and documentations
with the Employment Provident Fund to get its registration number.
Procedure 8. Registration with Social Security Organization
The company must register by filing a specific form and documentations information about
employed staff with the Social Security Organization. It will receive a specific registration
number for future reporting and updating of information.
Procedure 9. Notification of the Director General of Inland Revenue Board
The company must notify the Inland Revenue Board on all staff employed.
25