Exempt private companies (“EPC”) are a distinct category under the Companies Act 2016 (“CA 2016”), defined by their ownership structure and regulatory privileges. EPCs benefit from specific regulatory exemptions that set them apart from other private and public companies, particularly in areas such as financial reporting and corporate governance. A notable advantage of EPC status is the exemption from the prohibitions under Sections 224 and 225 of the CA 2016 relating to the provision of financial assistance and security. As such, understanding the scope and legal implications of EPC status is crucial for professionals involved in corporate compliance, documentation, and statutory obligations.

.

Part 1: How to be an EPC under the laws of Malaysia?

Under Section 2(1) of the CA 2016, an EPC is defined as a type of private company that meets the following criteria, collectively referred to as the “Qualifying Conditions”:

1. a. its shares are not directly or indirectly owned by any corporate entity; and
2. b. the total number of shareholders does not exceed twenty (20).

Prima facie, based on the definition above, it is easy to have the misconception that a company will automatically be qualified as an EPC once it fulfils the prescribed Qualifying Conditions. However, this is not the case. To be qualified as an EPC under the laws of Malaysia, a company must carry out certain procedural steps and satisfy the requirements imposed under the CA 2016. Thus, the status of an EPC is not an automatic entitlement but one that must be properly established.

The procedural steps for a company to be classified and maintained as an EPC are as follows:

1. a. Unlike ordinary private companies that must submit full audited financial statements, an EPC is required to lodge a certificate annually with the Companies Commission of Malaysia (“CCM”) within thirty (30) days after circulating its financial statements to its members (“Certificate of Status”) according to Section 260 of the CA 2016.
2. This Certificate of Status must be duly signed by the company’s directors, auditors, and company secretary, confirming that:

• • i. the company continues to satisfy all the Qualifying Conditions;
  • ii. the duly audited financial statements and reports have been circulated to its members; and
  • iii. the company remains solvent and able to settle its debts as and when the liabilities fall due.

1. b. Secondly, Section 261(1) of the CA 2016 complements the requirement to lodge the Certificate of Status by mandating the submission of a statement signed by the company’s auditor (“Auditor’s Statement”). This Auditor’s Statement serves as an independent confirmation that the company has maintained proper accounting records, that its financial statements have been audited in accordance with the CA 2016, that the audit qualifications (if any) have been duly disclosed with the CCM, and the company appears able to meet its liabilities as and when the liabilities fall due.

The imposition of these additional requirements maintains the balance that, while EPCs are exempted from the public lodgement of their audited accounts, shareholders continue to receive the full audited reports, and the CCM remains assured of the company’s solvency and compliance. Accordingly, it is important to note that, beyond merely fulfilling the Qualifying Conditions, an EPC must also comply with the procedural requirements set out under the CA 2016. Specifically, the company is required to lodge both (i) a Certificate of Status and (ii) an Auditor’s Statement, within the prescribed timeframe under the CA 2016.

.

Part 2: What are the Common Legal Obligations of an EPC?

Aside from the above, an EPC is required to maintain copies of its financial statements and accompanying reports at its registered office pursuant to Section 47 of the CA 2016. In the event there is any change to the location of these records, the company shall promptly notify the CCM. This requirement ensures that the company’s financial records remain readily accessible for inspection and regulatory purposes.

In addition, Section 257 of the CA 2016 imposes a duty on directors to distribute the company’s financial statements and reports to its members, auditors, and any debenture holders whereas non-compliance with such obligation shall constitute a serious offence and may result in a fine of up to RM50,000.

.

Part 3: What are the Benefits and Limitations of being an EPC?

EPCs are generally the preferred structure for family-owned or owner-managed businesses seeking to maintain exclusivity, streamlined management, and full compliance with the CA 2016. While the EPC framework offers several advantages, it also comes with certain restrictions that companies should consider:

Part 4: Conclusion

In a nutshell, the EPC structure provides small, closely held businesses in Malaysia with privacy, flexibility, and reduced compliance obligations. The replacement of public lodgment of audited financial statements with a Certificate of Status and an Auditor’s Statement safeguard the sensitive company information while ensuring accountability. Understanding the obligations of being an EPC is crucial, as compliance promotes both transparency and regulatory adherence, safeguarding the company’s reputation and the interests of its members. Therefore, companies should carefully weigh the advantages and limitations of the EPC structure to ensure it aligns with their growth objectives and long-term investment plans.

About the author

Loong Shi Yi
Associate
Real Estate
Halim Hong & Quek
syloong@hhq.com.my

More of our articles that you should read:

• • New Duty Holder, New Liabilities: OSHA’s Wake-Up Call for Principals
• • Corporate insiders must become fortune tellers? Events after trading can be evidence of insider trading
• • Differential Maintenance Charges and Sinking Fund Contributions During the Developer and JMB Periods: Powers under the Strata Management Act 2013