Guide to Filing Annual Returns in Malaysia

Guide to Filing Annual Returns in Malaysia

Guide to Filing Annual Returns in Malaysia

Ensuring your company operates compliantly in Malaysia involves filing annual returns. This legal requirement keeps the Companies Commission of Malaysia (SSM) informed about your company’s current status. This guide simplifies the process for you, providing a step-by-step approach to filing your annual return electronically. This will help you fulfil this important obligation efficiently and maintain the integrity of your business standing in Malaysia.

What Is an Annual Return (AR)?

An Annual Return (AR) is a mandatory document that must be filed with the Companies Commission of Malaysia (SSM) yearly by registered companies in Malaysia. This comprehensive report provides a snapshot of your company’s essential details, ensuring transparency and keeping the authorities informed.

Why Is Filing Annual Returns Important?

Filing annual returns is important for several reasons. First and foremost, it guarantees your business operates compliantly. The SSM utilises these reports to verify your company’s legitimacy and adherence to regulations. Additionally, annual returns promote transparency. By submitting accurate information, you demonstrate responsible business practices, potentially fostering trust with investors, clients, and partners. Finally, timely filing helps you avoid potential penalties imposed by the SSM for late submissions.

Filing Annual Returns

Who Needs to File an Annual Return?

All registered companies in Malaysia are required to file an annual return. This includes limited liability companies (LLCs), private companies limited by shares, companies limited by guarantee, and foreign companies registered to operate in Malaysia.

What Information is Required in an Annual Return?

Your annual return filing in Malaysia should include the following key details:

  • Company Details: This section captures your company’s name, registration number, and registered office address.
  • Business Activities: Briefly describe the core business activities your company undertakes.
  • Director(s) Information: Provide the full names, identification numbers (IC/Passport), and residential addresses of all company directors.
  • Company Secretary Information (if applicable): If your company has a designated company secretary, include their name, IC number, and residential address.
  • Members’ Information (shareholding details): List all company members (shareholders) and their corresponding shareholding details.

How to File an Annual Return?

The company secretary should file, sign, and submit the annual return electronically through the Malaysian Business Reporting System (MBRS) in Malaysia, as this user-friendly system streamlines the process. To ensure accurate filing of annual returns, you should follow the below steps.

Preparation with MBRS Preparation Tool (mTool)
To start with the filing, you should first utilise the MBRS Preparation Tool (mTool) to prepare your annual return. This tool simplifies data entry and ensures consistency. You can download it from the MBRS Portal if needed.

Once you have downloaded the mTool, use it to enter company details, director information, shareholding details, and other relevant information. Then, import your prepared financial statements, if applicable, into mTool for verification.
Submission through MBRS Portal
Once everything is prepared with mTool, you can begin your annual return submission through the MBRS Portal with the following steps:

  1. Log in to SSM4U and access the MBRS Portal.
  2. Create a new annual return submission.
  3. If you use mTool, upload the generated XBRL file directly into the portal. Alternatively, you can manually enter the data into the online form.
  4. Carefully review all information for accuracy before submission.
  5. Submit the annual return electronically and proceed to pay the filing fees online.
  6. Upon successful submission, you will receive a confirmation email with a reference number for your records.

Deadlines and Due Dates of Annual Returns

Companies are required to file your annual return within 30 days of your company’s anniversary date, which is the date your company was incorporated. In the case of a foreign company, the annual return due date will be on the company’s registered date. This deadline is independent of your financial year-end.

It’s also crucial to double-check the deadlines and due dates with the SSM website for any change in regulations.

Deadlines and Due Dates of Annual Returns

Penalties for Late Filing

Late filing of annual returns can result in fines imposed by the SSM. The severity of the penalties depends on the duration of the delay and whether the company is a private or public company.  These penalties must be paid during the delayed submissions of the documents to SSM.

Furthermore, neglecting to file can lead to additional legal consequences, such as the SSM striking the company off the register. This can significantly impact your business operations, making it difficult to open bank accounts, enter into contracts, or maintain good legal standing.

How can BoardRoom help with your Annual Returns Filing?

Filing annual returns is a necessary step for maintaining a compliant and transparent company in Malaysia. By understanding the process and adhering to the deadlines, you can ensure your business operates smoothly and avoids any potential complications.

BoardRoom offers professional assistance with filing your annual returns. Our dedicated team of corporate secretarial specialists can guide you through the entire process, from preparing your documents in XBRL format to filing your annual returns accurately and on time. This allows you to focus your valuable time and resources on running your core business activities with peace of mind.

Contact us today and let us guide you every step of the way with our tailored services and advice.

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10 Advantages of Outsourcing Your Payroll Services

10 Advantages of Outsourcing Your Payroll Services

10 Advantages of Outsourcing Your Payroll Services

Payroll outsourcing is a strategic approach where businesses entrust their payroll functions to external service providers. This arrangement benefits businesses of all sizes by simplifying payroll processes and ensuring compliance with regulations.

In this article, we explore the top 10 advantages of outsourcing your payroll services.

Save Time and Resources

Outsourcing payroll reduces the administrative burden on internal HR teams, allowing them to focus on core business functions. It frees up valuable time and resources that can be allocated to strategic initiatives. With payroll tasks handled externally, HR professionals can dedicate their efforts to talent management, employee development, and other critical areas that drive organisational success.

Cost Reduction

Businesses can potentially save on salaries, benefits, and software for in-house payroll staff by outsourcing payroll services. Additionally, outsourcing eliminates the need for costly infrastructure investments in payroll processing. By leveraging the expertise and economies of scale of external providers, businesses can achieve significant cost savings while ensuring accurate and compliant payroll processing.

Increased Accuracy and Compliance

Outsourced payroll providers specialise in navigating complex tax regulations, reducing the risk of errors and penalties. They also stay updated on compliance changes, ensuring accurate and compliant payroll processing. With stringent quality control measures and dedicated payroll teams with expertise in payroll compliance, outsourced payroll providers helps to mitigate the risks associated with payroll processing errors, ensuring payroll accuracy and regulatory compliance.

Increased Accuracy and Compliance
Enhanced Security

Reputable payroll providers have in place strong data security measures to protect sensitive employee information. Outsourcing payroll reduces the risk of internal fraud or data breaches, enhancing overall security. With advanced encryption protocols, secure data centres, and comprehensive cybersecurity measures, outsourced payroll providers safeguard confidential employee data, providing businesses with peace of mind and mitigating risks associated with data breaches.

Scalability and Flexibility

Outsourced payroll services offer scalability and flexibility to accommodate business growth or fluctuations in staffing levels. Businesses can easily adjust payroll services without hiring or training additional staff. Whether scaling operations to support expansion initiatives or adjusting payroll services to align with seasonal staffing changes, outsourcing payroll provides businesses with the flexibility to adapt quickly to evolving business needs, ensuring seamless payroll operations.

Access to Expertise

By outsourcing payroll, businesses gain access to the expertise of payroll specialists who stay in the know of best practices and industry trends. This knowledge enhances payroll accuracy and efficiency. With dedicated payroll professionals managing payroll tasks, businesses can leverage the expertise of seasoned professionals with specialised knowledge in payroll processing, tax compliance, and regulatory requirements, ensuring accurate and efficient payroll operations.

Payroll processing
Improved Employee Satisfaction

Timely and accurate payroll processing contributes to employee satisfaction and morale. Some payroll providers offer self-service portals, allowing employees to access pay slips and tax documents conveniently. By providing employees with timely and accurate salaries, and access to comprehensive payroll information and self-service tools, businesses can enhance employee satisfaction, engagement, and retention. This fosters a positive workplace culture and strengthens employee relations.

Streamlined Administration

Outsourcing payroll centralises payroll tasks with a single provider, simplifying record-keeping, reporting, and auditing processes. This simplified administration enhances efficiency and compliance. With integrated payroll solutions and automated processes, businesses can streamline payroll administration tasks, reduce manual errors, and ensure consistent payroll processing, optimising operational efficiency and ensuring smooth payroll management.

Reduced Stress

Outsourcing payroll shifts the burden of payroll complexities to dedicated service providers, reducing stress for internal HR teams. It allows HR professionals to focus on strategic initiatives rather than routine tasks. By partnering with experienced payroll providers, businesses can lessen the administrative burden associated with payroll processing, allowing HR professionals to focus on strategic initiatives such as organisational development, talent acquisition and employee engagement.

Focus on Core Business Functions

By outsourcing payroll, businesses can invest time and resources in key areas that drive growth and profitability. This focus on core business functions enhances overall efficiency and competitiveness. With payroll tasks entrusted to external providers, businesses can redirect resources to main functions to drive sustainable business growth.

Tailored support with transfer pricing in Malaysia

BoardRoom's Expert Outsourced Payroll Solutions

Outsourcing payroll services offers numerous advantages, including cost savings, enhanced accuracy and compliance, and improved employee satisfaction. At BoardRoom, we offer comprehensive outsourced payroll services designed to simplify your payroll processes and ensure compliance with regulatory requirements. From payroll calculation and withholding tax to employee record maintenance and statutory reporting, BoardRoom handles all aspects of payroll administration with our team of experienced payroll specialists and cutting-edge technology.

Contact us today to experience seamless and stress-free payroll management.

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IPO Application: A Guide to Listing Your Company in Malaysia

IPO Application_ A Guide to Listing Your Company in Malaysia

IPO Application: A Guide to Listing Your Company in Malaysia

An Initial Public Offering (IPO) marks a significant milestone in a company’s journey, allowing it to transition from private ownership to a publicly traded entity. Malaysia stands out as a compelling listing destination for companies considering an IPO. With a robust regulatory framework, diverse investor community, and vibrant capital market ecosystem, Malaysia offers a conducive environment for companies to unlock their growth potential and thrive in the competitive business landscape.

Benefits of Getting Publicly Listed

Getting your company listed on an exchange provides many benefits, some of which are:

Access to capital
By getting listed, a company can tap into a broader pool of investors in the capital market, enabling it to raise funds for company expansion, research, development, or other strategic initiatives.
Facilitate growth
Listing can provide a pathway for mergers and acquisitions, offering the company access to potential partners or targets for strategic growth and consolidation in the market.
Enhance credibility
Being listed means the company will be imposed with regulatory and reporting requirements by the stock exchange. This in turn foster transparency and good governance practices, which can enhance the company’s reputation and credibility among stakeholders.
Greater visibility and branding
Listing on a stock exchange can significantly increase a company’s visibility, boosting its brand recognition and awareness, and potentially attracting new customers, partners, and opportunities.
Incentive for employees
As a listed company, the business can offer stock options or other equity incentives tied to the company’s performance to align the interests of employees with the company’s long-term success. Employee stock ownership plan (ESOP) is a powerful tool to attract and retain talent. It can also motivate employees to contribute to its growth and profitability due to employees’ ownership in the company.
Liquidity of shares
Listing provides liquidity to existing shareholders by creating a platform where they can easily buy or sell shares, thereby widening the investor base and potentially increasing demand for the company’s stock.

Eligibility and Requirements

When it comes to IPO application and listing your company on Bursa Malaysia, there are a few things to consider:

  1. Listing Boards: Bursa Malaysia offers different boards where companies can list their shares. These include the Main Market for the listing of established companies, ACE Market which is a sponsor-driven alternative market for companies with growth prospects, and LEAP Market which is an advisor-driven market for high-growth potential companies to raise capital and access funding from sophisticated investors.. Each board has its own set of rules and requirements.
  2. Criteria: Companies must meet certain criteria to be eligible for IPO application and listing. This includes showing profitability, having a good track record, and meeting corporate governance standards such as having independent directors.
  3. Minimum Share Capital: There are also requirements for the minimum amount of share capital that a company must have for it to be listed on the exchange.

Understanding these eligibility criteria and requirements is essential for companies considering an IPO in Malaysia.

IPO application

The Listing Process

Embarking on the journey of IPO application and listing your company on Bursa Malaysia involves several important steps.

Overview of the Steps

It begins with initial planning and preparation, where the company evaluates its readiness for going public. This is followed by the submission of the IPO application to the exchange, due diligence processes, prospectus development, and eventually, listing day.

Importance of Professional Advisors

Seeking guidance from professional advisors such as investment banks and solicitors is crucial throughout the IPO application process. These experts provide valuable insights, assist in navigating regulatory requirements, and ensure compliance with listing rules.

Key Milestones During the IPO Application Process

Due Diligence Process
Companies undergo a thorough examination of their financial, legal, and operational aspects during the IPO application process to ensure transparency and mitigate risks. The company’s management team plays a key role in the due diligence process in providing accurate and comprehensive information about the company’s business, operations, financials, legal matters, and other relevant areas to the underwriters, investment banks and external advisors such as the legal and accounting firms.
Prospectus Development and Approval
The prospectus, containing comprehensive information about the company and the IPO, is prepared and submitted for approval by regulatory authorities.
Marketing and Investor Roadshows
Companies engage in marketing activities and roadshows to generate interest among potential investors, showcasing their business prospects and investment opportunities. This is typically managed by the invetsment banks or underwriter. In some cases, companies may engage external public relations or investor relations firms to assist with marketing efforts and investor communications during the IPO process.
Pricing and Allocation of Shares
Determining the offer price and allocating shares to investors are critical steps in the IPO process, balancing the company’s valuation with market demand. An experienced share registrar ensures that accurate records of these shareholders are maintained, including contact information and the number of shares held. In the distribution of shares to investors, the registrar also ensures that shares are allocated correctly according to the IPO offering terms and that investors receive the appropriate documentation confirming their ownership.
By understanding and effectively navigating through these key milestones, companies can successfully execute their IPO application and achieve their growth objectives.
Pricing and Allocation of Shares

Costs and Considerations When Applying For an IPO

Before proceeding with an IPO in Malaysia, it’s essential to consider the following:

Expected Fees for IPO Application

Companies should anticipate various fees associated with the IPO application process, including advisory fees for professionals such as investment banks and solicitors, underwriting fees if the company uses the services of an underwriter to facilitate and manage the IPO, as well as expenses related to regulatory filings and compliance.

Timeline of the IPO Process

Understanding the timeline for a typical IPO in Malaysia is crucial for effective planning. While timelines may vary depending on various factors, including regulatory approvals and market conditions, companies should expect the process to take several months from initial planning to listing day.

Additional Considerations

Tax Implications
Companies need to assess the tax implications of going public, including potential capital gains taxes and other applicable taxes during the IPO application process. Seeking advice from tax professionals is advisable to ensure compliance with tax laws and optimise tax efficiency.
Post-Listing Compliance Requirements
After listing, companies are subject to ongoing compliance requirements imposed by regulatory authorities and stock exchange rules. This includes financial reporting obligations, disclosure requirements, and adherence to corporate governance standards. Being prepared to fulfil these obligations is essential for maintaining regulatory compliance and sustaining investor confidence.

By considering these costs and additional factors upfront, companies can better navigate the IPO application process in Malaysia and position themselves for a successful transition to the public market.

Tips on Your IPO Application Process

Listing your company on Bursa Malaysia offers numerous advantages:

  • Benefits of Listing: It provides access to capital for growth, enhances visibility and credibility, and creates opportunities for expansion and strategic partnerships.
  • Importance of Careful Planning: Successful IPOs require thorough planning and preparation. Companies must assess their readiness, adhere to regulatory requirements, and engage professional advisors to navigate the complexities of the process.
  • Professional Guidance: Seeking guidance from experienced professionals, including investment banks and legal advisors, is crucial for a smooth and successful IPO
  • Alternative Fundraising Options: For companies not yet ready for an IPO, there are alternative fundraising options to consider. These may include private equity investments, venture capital funding, or debt financing. Each option offers its own benefits and considerations, providing companies with flexibility in their capital-raising strategies.

By weighing the benefits, planning meticulously, and seeking professional support, companies can leverage the opportunities presented by listing on Bursa Malaysia to fuel their growth and achieve long-term success in the dynamic business landscape.

    IPO Application Process

    BoardRoom's Expert IPO Application Services

    When it comes to navigating the intricate process of IPO application in Malaysia, BoardRoom emerges as a trusted partner. With more than 50 years of experience and expertise in corporate services, BoardRoom offers comprehensive support and guidance tailored to meet the unique needs of companies venturing into the IPO landscape. From ensuring regulatory compliance to facilitating due diligence and prospectus development, our team of seasoned professionals is dedicated to orchestrating a seamless IPO journey.

    As a full-suite share registry provider, we also provide services such as corporate action services, share registry maintenance and coordination, AGM meeting and scrutineering services , corporate secretarial and corporate governance advisory services.

    Contact us today to help your business navigate the complexities of the IPO application process and increase the chance of successfully listing on Bursa Malaysia.

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    Guide to e-invoicing: A fast track to compliance with Malaysia’s e-invoicing transition

    Guide to e-invoicing A fast track to compliance with Malaysia’s e-invoicing transition

    Guide to e-invoicing: A fast track to compliance with Malaysia’s e-invoicing transition

    E-invoicing was announced in Malaysia as the Inland Revenue Board’s (IRB) solution to combating the issue of the shadow economy and revenue leakage. With the first major deadline in August 2024 fast looming, now is the time for businesses to start preparing for the transition.

    E-invoicing implementation is significant for all businesses, and major changes may be required for systems, processes and even strategic direction. While the rollout will be phased, implementation is essential, with all businesses expected to comply by 1 July 2025.

    What is e-invoicing and how can you maximise the benefits for your business? Our comprehensive guide offers you insight into the requirements, what you need to do to switch over and the benefits it can bring.

    How does e-invoicing work?

    An e-invoice is a digital representation of a transaction between a supplier and a buyer. Many companies already issue electronic invoices, such as PDF invoices. However, having such electronic invoices does not necessarily mean being compliant with Malaysia’s e-invoicing requirements as set out by the Inland Revenue Board of Malaysia (IRBM). The Malaysia e-invoice requirements go beyond to include specific processes and reporting formats.

    E-invoicing works by enabling seller’s accounts receivable to input invoices into their financial system, which then sends them in a structured electronic format directly to the buyer’s system. Upon receipt, the buyer’s e-invoicing system automatically processes and imports the data into their accounts payable system, which streamlines the payment process without the need for manual handling.

    Only two formats of e-invoice are acceptable – XML and JSON. Both of these formats are easy for machines to read, which reduces the time it takes for a machine to translate and process the invoice.

    E Invoicing Infographic

    What is the timeline for implementation?

    There are a number of dates that you need to be aware of in the transition. It’s critical to be mindful of the timeline, as e-invoicing implementation can take up to three to four months to complete.

    The following table provides a breakdown of the key dates for the e-invoicing implementation rollout based on business turnover.

    Annual Revenue of businessesImplementation Date
    Businesses with an annual turnover greater than RM 100 million1 August 2024
    Businesses with an annual turnover greater than RM 25 million and up to RM 100 million 1 January 2025
    All businesses 1 July 2025

    Exemptions from e-invoicing requirements

    Certain types of income expenses do not require an e-invoice.

    These include:

    • Employment income
    • Pensions
    • Alimony
    • Dividend distribution by companies listed in Bursa Malaysia, or companies that are not required to deduct tax under Section 108 of the Income Tax Act 1967
    • Zakat

    While government bodies, local authorities and statutory bodies are exempt from the e-invoicing requirements, they may voluntarily choose to participate. A complete list of exemptions is detailed in the IRBM’s official e-invoice guidelines.

    A step-by-step guide to e-invoicing implementation

    A step-by-step guide to e-invoicing implementation

    E-invoicing implementation is quite complex. The process may include upgrading infrastructure, integrating systems and training staff to ensure a smooth transition.

    Here is a step-by-step guide to help you understand the process and how you can best implement e-invoicing.

    1. Confirm business turnover

    Your turnover will dictate when you must transition to e-invoicing. Refer to your 2022 audited financial statement or tax return to confirm your business turnover.

    If you had a change of accounting year end for financial year 2022, your turnover or revenue will be pro-rated to 12 months. This will be used to determine your implementation date.

    2. Conduct a gap assessment analysis

    Cheong Woon Chee, Head of Tax Services, BoardRoom Malaysia, says that a gap assessment analysis is a critical next step in the process.

    “A gap assessment will help you to determine what you need to do to meet the e-invoicing implementation requirements,” explains Woon Chee. “This should encompass current systems and processes but also the people and the training you’ll need to undertake in preparation for the transition.”

    A comprehensive gap assessment should include the following components:

    Accounting system compatibility
    Evaluate the compatibility of the current accounting system with e-invoicing requirements.
    Invoice format compliance
    Ensure the invoice format adheres to the required e-invoicing standards.
    Self-billing e-invoices
    Determine the need for self-billing e-invoices.
    Transaction management
    Assess how transactions with both B2B and B2C buyers will be managed.
    Legal and contractual review
    Conduct a thorough review of all legal documents, including contracts and employment agreements.

    Once a gap assessment analysis has taken place, a tailored gap closure strategy should be developed that addresses the identified gaps. The strategy should provide detailed recommendations and action plans to ensure a seamless transition to e-invoicing. By understanding the requirements thoroughly, you can plan effectively, working backwards from the implementation date to ensure you are ready on time.

    Having this lead time also gives you the opportunity to start talking to your clients, partners and service providers. They are critical in the transition, so it’s important to engage them early to understand their timelines and requirements.

    3. Determine the best model for your needs

    You have a choice between two e-invoicing models, which will depend on your business needs and size.

    The first model uses the MyInvois portal, hosted by the IRB. This portal is available to all taxpayers, and Woon Chee says that if you’re processing around 20 invoices or less a month, MyInvois is a cost-effective solution.

    “The other option is an application programming interface (API),” explains Woon Chee. “APIs are more suitable for businesses or taxpayers that process a substantial number of transactions.

    “It is likely that your current systems will need enhancements or upgrades to support an API configuration, which comes with an upfront investment.”

    Train staff on the new system

    4. Train staff on the new system

    E-invoicing implementation involves training in the lead up to the transition as well as after the transition to ensure a seamless changeover.

    “E-invoicing isn’t like the standard invoices staff are familiar with,” adds Woon Chee. “Initially, training should focus on awareness before moving to additional rounds of training that go into detail about the new process.”

    Training is crucial and should cover the strategic approaches the organisation is taking to implement e-invoicing effectively across departments, the tax implications and the compliance requirements. Staff must understand the effects e-invoicing will have on existing accounting processes, especially as the new forms now feature over 50 mandatory fields, raising the chance of errors. Post-implementation training can help identify errors and ensure they are rectified moving forward.

    5. Understand the PEPPOL network

    The Malaysian e-invoicing requirement is powered by the Pan-European Public Procurement Online (PEPPOL) network. PEPPOL is not a provider. It is an enabler that allows any organisation to send and receive business documents – in this case, e-invoices – through PEPPOL-accredited service providers.

    While businesses aren’t required to use a PEPPOL service provider for e-invoicing, there are benefits to doing so. Namely, a PEPPOL-enabled solution ensures effortless compliance and security, seamless integration and error-free automation with real-time insights into your e-invoice progress.

    6. Apply for grants and tax incentives

    There are grants and tax incentives available to support you with the costs of investing in the infrastructure required to transition to e-invoicing.

    These include:

    Digital grant
    Micro, small, and medium enterprises (MSME) can apply for a grant of up to RM 5,000 (total allocation of RM 100 million) to upgrade digital sales, inventory and accounting systems.
    Tax deduction
    From YA2024 to YA2027, MSME can receive a tax deduction of up to RM 50,000 for each Year of Assessment (including consultation fees incurred for e-invoicing implementation).
    Capital allowance
    The capital allowance claim period has been reduced from four years to three years. Capital allowance can be claimed on the purchase of ICT equipment and computer software packages, as well as consultation, licensing and incidental fees related to customised computer software development.

    What are the benefits of e-invoicing?

    According to the IRB, the benefits of e-invoicing include reducing manual work and associated human error. It will also help streamline operational efficiency, facilitate efficient tax filing, and digitise financial reporting to be in line with industry standards.

    The Malaysia Digital Economy Corporate (MDEC) shares similar sentiments around the way e-invoicing will increase business efficiency, improve cash flow and facilitate effective tax reporting.

    The BoardRoom team can see a range of benefits for our clients. Eunice Hooi, BoardRoom’s Managing Director Asia, Tax, explains that one of the biggest benefits is the minimisation of inaccuracies thanks to real-time monitoring.

    “Shifting to e-invoicing will reduce inaccuracies, as both income and expenses are verified on the spot rather than retrospectively. This immediate validation allows businesses to promptly address any discrepancies identified by the tax authorities, such as disallowed expenses,” says Eunice.

    What are the benefits of e-invoicing

    The key benefits of implementing e-invoicing include:

    • Seamless compliance through adherence to the e-invoicing mandates, PEPPOL standards and data security.
    • Eliminate errors with automated creation, validation, delivery and archiving of invoices.
    • Smooth integration with existing ERP and business applications, enhancing overall business operations.
    • Gain real-time insights into the status of invoices to ensure timely payments, resulting in visibility and control.
    • Save time and resources by digitising and automating invoicing processes, boosting cost savings and efficiency.

    The switch to e-invoicing is not just a system change. It’s a complete mindset shift. A reliable partner will be a critical part of ensuring a seamless transition and maximising your investment.

    “We are currently working very closely with some of the API and IT solution providers,” adds Eunice. “Aside from tax services and outsourced accounting services, we can provide our clients with an integrated service, including the IT component with a PEPPOL-Enabled Solution.”

    BoardRoom offers a range of services to support you with your e-invoicing implementation. From standalone comprehensive project management service to training workshops or ad hoc consulting, we can tailor a solution to your needs. As your strategic partner, the BoardRoom team will help you to navigate the transition with ease.

    “As outsourced accountants and tax experts, we can work with the finance team to advise them on strategically leveraging the e-invoicing data for tax optimisation,” explains Eunice. “For example, we can identify the deductible expenses immediately and ensure we maximise the tax credit and tax deduction without delay.”

    Your partner in e-invoicing

    With the right experts on your side, you will set your business up with a strategic advantage to leverage the benefits of the e-invoicing requirements. Learn more about BoardRoom’s accounting and tax services to save you time and money for your e-invoicing transition and beyond.

    Contact BoardRoom for more information:

    Eunice Hooi

    Eunice Hooi

    Managing Director Asia, Tax

    E: [email protected]

    T: +60-3-7890 4800

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    An Introduction to AGMs in Malaysia

    An Introduction to AGMs in Malaysia

    An Introduction to AGMs in Malaysia

    The Annual General Meeting (AGM) is an annual meeting where a company’s shareholders and board of directors come together. It plays an important part in facilitating effective corporate governance in Malaysia, acting as a crucial forum for direct dialogue between shareholders and the management team. With AGMs, companies can enable transparent decision-making and strategic direction setting and solidify investor confidence. In this guide, we explore the regulatory requirements, preparation processes, best practices for conducting AGMs in Malaysia, and how to ensure compliance and foster stakeholder engagement.

    Overview of Corporate Governance in Malaysia

    The Malaysian Companies Act 2016, which establishes basic requirements for company formation and permits businesses to specify their control structure in their Memorandum and Articles of Association, defines the corporate governance framework in Malaysia. The Companies Act ensures that local businesses operate within a framework that serves the best interests of all stakeholders by emphasising transparency, accountability, and the protection of stakeholders’ rights.

    Regulatory requirements for AGMs in Malaysia

    The Companies Act 2016 lays the foundation for conducting AGMs. It emphasises transparency, accountability, and shareholder engagement; it ensures companies in Malaysia operate in a manner that is not only compliant but also ethically sound and reflective of stakeholders’ best interests. This backdrop supports a business environment where informed decision-making and strategic foresight are not just encouraged but required.

    Businesses in Malaysia must conduct AGMs within six months after the end of their fiscal year according to the Companies Act. These meetings must take place in Malaysia and can be in physical, virtual, or hybrid modes. The regulation sets quorum requirements, which require at least two members to be present, as well as a minimum 21-day notice period for all participants, while a 28-day notice period is advised to enhance corporate governance.

    Key Agenda Items of AGMs

    AGMs support open communication between a company’s board, management, and shareholders, as well as accountability inside the organisation. Their crucial significance in the field of corporate governance is highlighted by a number of functions and responsibilities.

    Election of Directors
    Electing or re-electing members of the company’s board of directors is one of the primary functions of an AGM. This ensures shareholders’ interests are accurately represented by the board.
    Appointment of Auditors
    AGMs include the appointment of auditors for the coming fiscal year so the company’s financial dealings can be transparently and independently verified, maintaining trust among stakeholders.
    Approval of Financial Statements and Annual Reports
    The company’s annual reports and financial statements are delivered to the shareholders for approval. This gives shareholders a comprehensive view of the company’s financial performance and health while reaffirming the company’s commitment to transparency.
    Approval of Financial Statements and Annual Reports

    Preparing for an AGM

    Before holding an AGM, a company must go through a thorough preparation process, and it usually includes the following steps:

    Agenda Setting

    The board of directors sets a detailed agenda for the AGM with input from the company secretary, covering points such as financial reporting, dividends and election of directors.

    Regulatory Compliance

    The company secretary then ensures the AGM’s compliance with the Companies Act 2016 and relevant securities regulations in Malaysia, and verifies all necessary documents.

    Communication with Shareholders

    The company secretary drafts and sends out AGM notices, which include the date, time, location and agenda, with a minimum 21-day notice period for shareholder preparation.

    Proxy Voting Process

    Shareholders are given instructions on how to appoint a proxy who can vote on their behalf in case of their absence. The company secretary collects and verifies all the proxy forms.

    Enhancing Shareholder Communication

    Several efforts are made to enhance shareholder communication leading up to the meeting, including Q&A forums, dedicated hotlines, or information sessions.

    Conducting an AGM

    Once the preparation stage is completed, the Annual General Meeting (AGM) will be conducted in compliance with a set of formal procedures and protocols, which include:

    Meeting Procedures and Protocols

    The AGM begins with the chairperson opening the meeting, followed by a roll call to establish the presence of a quorum. The meeting agenda guides the discussion of each item in turn.

    Quorum Requirements

    A minimum of two shareholders, either in person or by proxy, constitutes a quorum for an AGM unless the company’s constitution states otherwise.

    Presentation of Reports and Resolutions

    Documents such as the directors’ report and the annual financial report are given to the shareholders. These reports offer a thorough summary of the business’s accomplishments and financial status over the last 12 months. Resolutions are put forward to shareholders for voting after the presentations. These may include the appointment of auditors, the reelection of directors, and the approval of the financial statements.

    Shareholder Rights and Participation

    Shareholder participation is a key element in any AGM in Malaysia, as it enables stakeholders to have a meaningful impact on the company’s operation and development.

    Their participation usually includes the following activities and rights:

    Voting Procedures

    Voting allows shareholders to exercise their rights and influence the company’s decisions. Shareholders can vote in person or via proxy for each resolution. This could be done via a show of hands or electronic voting.


    Resolutions are formal decisions that shareholders vote on during the AGM, which can include the approval of financial statements, election or re-election of board members, mergers, acquisitions, or changes in the company’s constitution.

    Q&A Sessions

    These sessions enable shareholders and the company’s board of directors to communicate directly. In particular, shareholders can raise questions, seek clarifications, and express concerns regarding the company’s operations, financial health and strategies.

    Recent Developments and Best Practices

    In recent years, there have been numerous changes to AGMs in Malaysia. The majority of these have been propelled by simultaneous worldwide developments in technology and increased awareness of Environmental, Social, and Governance (ESG) principles.

    Virtual and Hybrid Meetings

    The adoption of digital formats for has increased significantly around the world, including Malaysia. Even with physical meetings making a comeback in 2023, virtual meetings accounted for 58% of all meetings in Malaysia.

    ESG Prioritisation

    ESG topics have gained prominence in corporate governance. Shareholders increasingly demand transparency and action on issues such as climate change and sustainable business practices through resolutions at AGMs. Bursa Malaysia has also introduced the new enhanced Sustainability Reporting Framework, aimed at facilitating businesses in embracing global standards for disclosing ESG-related information. By strengthening your ESG compliance, companies can help attract investment, improve your corporate reputation and minimise your risk of penalties for non-compliance.

    Best Practice Guide

    Bursa Malaysia has released the Best Practice Guides on AGMs, which provide a thorough framework for navigating the changing environment. These principles assist businesses in adopting international best practices, ensuring regulatory compliance, and organising productive meetings. They address useful issues, including how to improve shareholder involvement, how to employ technology for distant voting, and how to enable open dialogue about ESG issues.

    Environmental, Social, and Governance (ESG) principles

    Challenges and Mitigation Measures

    Companies conducting AGMs often encounter several challenges, including securing widespread shareholder engagement and navigating the logistical intricacies of hybrid meeting formats. To tackle these issues, companies in Malaysia are advised to implement different measures for each area.

    Enhancing Shareholder Engagement
    Companies can leverage technology to make AGMs more accessible, such as digital tools, live streaming, e-voting and interactive Q&A sessions in order to increase shareholder engagement. Companies can also facilitate clear communication by providing agendas and instructions for digital participation in the pre-meeting materials. Last, but not least, mechanisms can be put in place for shareholder feedback so that the AGM procedures can be improved.
    Managing Hybrid Meeting Complexities
    To manage hybrid meetings more effectively, companies should select a reliable platform that enables both virtual and physical participation. The meeting services provider should provide technical support and conduct rehearsals to ensure a smooth AGM execution.
    Ensuring Regulatory Compliance
    To guarantee adherence to rules, companies need to stay informed about the instructions issued by Bursa Malaysia and the Companies Commission of Malaysia (SSM). If there is a need, companies should obtain expert advice from professional corporate secretarial services providers like BoardRoom to ensure that you comply with regulations related to AGMs in Malaysia.

    How Can BoardRoom Offer Support for Your AGM in Malaysia?

    BoardRoom offers comprehensive share registry services, managing more than 350 AGMs and meetings every year in Malaysia. With a strong focus on enhancing engagement, streamlining proceedings, and ensuring regulatory requirements are met, BoardRoom empowers businesses in your AGM preparation.

    Contact us today to discuss your AGM needs and make your next AGM a seamless experience.

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    How to Conduct Effective ESG Due Diligence in Malaysia

    How to Conduct Effective ESG Due Diligence in Malaysia

    How to Conduct Effective ESG Due Diligence in Malaysia

    Businesses today face increasing pressure and expectations from their stakeholders to operate responsibly, ethically, and sustainably. This means that they not only need to consider the financial implications of their activities but also the environmental, social, and governance (ESG) aspects. These factors can have significant impacts on the long-term success and viability of a business.

    How can businesses ensure that they are addressing the ESG aspects of their activities comprehensively and effectively? How can they identify and evaluate the ESG risks and opportunities that they face and take appropriate actions to mitigate the risks or capitalise on the opportunities? How can they demonstrate and communicate their ESG performance and progress to their stakeholders? This is where ESG due diligence comes in.

    What is ESG?

    ESG stands for Environmental, Social, and Governance. These are the three main categories of criteria that measure the sustainability and ethical impact of a business.

    ESG criteria can help investors, customers, employees, and other stakeholders evaluate how an organisation performs on the following aspects:

    This refers to how a business protects the environment and minimises its negative effects on natural resources, climate, and biodiversity. Some examples of environmental criteria are greenhouse gas emissions, energy efficiency, waste management, and water conservation.
    How does a business treat its people and the communities where it operates? The social criteria answer this question by looking at aspects such as labour standards, human rights, diversity and inclusion, health and safety, and customer satisfaction.
    A business that manages and governs itself with integrity and transparency is more trustworthy and accountable. The governance criteria help measure this by looking at elements like board structure, executive compensation, business ethics, anti-corruption, and transparency.

    ESG criteria are not fixed or universal but rather depend on the industry, market, and context of each business. Different stakeholders may have different expectations and preferences for ESG performance and disclosure. Therefore, companies need to conduct ESG due diligence to identify and address the most relevant and material ESG issues for their operations and stakeholders.

    Due diligence

    What is Due Diligence in ESG?

    Due diligence in ESG is the process of identifying, evaluating, and addressing a business’s ESG risks and opportunities. Organisations may do this for various purposes, such as mergers and acquisitions, investment decisions, compliance and reporting, and stakeholder engagement. It helps them understand their ESG performance, liabilities, and potential and align their ESG strategies, policies, and practices with the best practices and standards in their industry and market. Due diligence in ESG also assist companies in demonstrating and communicating their ESG commitment and contribution to their stakeholders and the wider society.

    What Are the Steps Involved in ESG Due Diligence?

    ESG due diligence can vary depending on the scope, objective, and context of the process.

    However, a general framework for ESG due diligence can consist of the following steps:


    Begin by clearly defining the purpose, scope, and timeline of the ESG due diligence Identify key ESG issues, stakeholders, and relevant information sources to shape the direction of the evaluation.


    Initiate the process with a preliminary assessment of the business’s ESG risks and opportunities. Prioritise the most significant and relevant issues, setting the stage for further in-depth investigation and necessary actions.


    Delve into a comprehensive analysis of the business’s ESG performance, identifying gaps and potential areas for improvement. Verify collected ESG information, benchmark against industry standards, and assess alignment with best practices to provide a thorough evaluation.


    Translate findings into a proactive ESG action plan. Develop and implement strategies based on the evaluation, outlining clear goals, indicators, and targets. Allocate resources and responsibilities strategically to ensure effective execution of the action plan.

    Monitoring and reviewing

    Keep a vigilant eye on ESG performance, tracking progress and impact. Regularly review and assess results and communicate outcomes to stakeholders. Adjust and enhance the ESG due diligence process as needed, ensuring continuous improvement.

    Malaysia due diligence process

    What Is the Importance of ESG Due Diligence?

    ESG due diligence is not only a good practice but also a strategic necessity for businesses that want to succeed in the long term.

    It can help organisations to:

    • Enhance their financial performance: ESG due diligence can help businesses identify and capitalise on the ESG opportunities that can improve their efficiency, innovation, and competitiveness. It can also help them mitigate and manage the ESG risks that can affect their profitability, liquidity, and solvency.
    • Strengthen their reputation: ESG due diligence empowers companies to showcase not just their commitment but also their active contribution to ESG concerns valued by stakeholders. It acts as a foundation for building and sustaining trust, loyalty, and satisfaction among stakeholders. Additionally, ESG due diligence serves as a protective shield, averting potential reputational damage and crisis scenarios.
    • Foster their sustainability: ESG due diligence propels organisations towards aligning their operations with ESG principles that support sustainable development. It serves as a guiding force, steering them to create positive ESG impacts. In turn, these benefits not only their immediate stakeholders but also contribute to the broader well-being of the community and the environment.

    Are There Any Tools or Bodies That Help with ESG Due Diligence?

    Various tools and bodies can help businesses with ESG due diligence, including:

    • ESG frameworks and standards: These are sets of guidelines and criteria defining and measuring the ESG performance and impact of a business. Some examples are the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures (TCFD), and the UN Principles for Responsible Investment (PRI).
    • ESG ratings and indices: These are tools that evaluate and compare the ESG performance and impact of a business. Notable examples encompass the Dow Jones Sustainability Indices (DJSI), the FTSE4Good Index Series, the MSCI ESG Ratings, and the Sustainalytics ESG Risk Ratings. For publicly listed companies in Malaysia, having a strong ESG rating can be a useful tool in demonstrating real sustainability action and compliance with exchange regulations.
    • ESG and auditors: These are professionals who provide ESG due diligence services and advice to businesses. They help enterprises conduct ESG due diligence, develop ESG action plans, and report ESG results and outcomes.

    Common Challenges Faced in ESG Due Diligence

    ESG due diligence is not without its challenges.

    Some of the common challenges faced by businesses in conducting ESG due diligence are:

      Data quality and availability
      Companies face challenges due to scarce, inconsistent, or unreliable ESG data, especially in emerging markets or sectors. This complicates data collection, verification, analysis, and accurate reporting of ESG performance.
      Resource constraints
      ESG due diligence, particularly for SMEs or newcomers, is time-consuming, complex, and costly. Balancing ESG objectives with resource constraints requires careful allocation of resources and expertise.
      Stakeholder engagement
      Managing diverse stakeholders—regulators, customers, employees, suppliers, investors, and communities—in the context of ESG is challenging. Identifying, engaging, and satisfying their varied ESG interests demands a nuanced approach, including handling conflicts and trade-offs.
      Importance of ESG Due Diligence

      How Can BoardRoom Help You with ESG Due Diligence?

      BoardRoom is a leading corporate and advisory services provider in Malaysia and the Asia-Pacific region. BoardRoom can help you with ESG due diligence by offering the following:

      • ESG advisory: As a leading corporate services provider in Malaysia and the Asia-Pacific region, BoardRoom provides ESG expertise in multiple APAC jurisdictions . Tailoring strategies to your needs, BoardRoom assists in designing and implementing ESG initiatives, including due diligence, action plans, and reporting.
      • ESG compliance: BoardRoom helps ensure seamless ESG compliance with local regulatory requirements. BoardRoom also aids in preparing and submitting ESG disclosures, keeping your business aligned with evolving requirements.
      • ESG solutions: Access cutting-edge ESG reporting tool through BoardRoom. Facilitating connections with stakeholders, BoardRoom’s ESG Access enhances collaboration, and incorporate functionalities for reviewing, validating, and auditing. Stakeholders can contribute, review, and endorse reporting timelines, all within one platform. Our entity reporting feature allows you to easily organise users into groups (entities) and control/assign ESG metrics specific to each group, so you can improve decision making, identify growth opportunities and manage group risks. .

      If you are interested in ESG due diligence and how BoardRoom can help you, contact us today for a consultaion.

      Contact BoardRoom for more information:

      Tina Thomas_profile

      Tina Thomas

      Head of Environmental, Social and Governance

      E: [email protected]

      T: +60-3-7890 4800

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      ESG Reporting 101: A Definitive Guide for Malaysian Companies

      ESG Reporting 101 A Definitive Guide for Malaysian Companies

      ESG Reporting 101: A Definitive Guide for Malaysian Companies

      ESG reporting is gaining popularity in the business world, especially in the wake of the COVID-19 pandemic and the growing awareness of environmental and social issues. But what exactly is ESG reporting, and why is it important for companies? In this blog, we will answer these questions and provide you with some practical tips on how to do ESG reporting effectively and efficiently.

      What is ESG?

      ESG stands for Environmental, Social, and Governance and constitutes the fundamental pillars for evaluating a company’s performance impact on the environment, society, and its governance structure.

      It encapsulates a diverse array of considerations:

      Scrutinise the company’s management of its carbon footprint, waste, water, energy, biodiversity, and natural resources.
      Examine the company’s treatment of employees, customers, suppliers, communities, and stakeholders. Evaluate commitments to diversity, inclusion, health, safety, human rights, and customer satisfaction.
      Investigate how the company conducts its business with ethics and transparency. Assess measures ensuring accountability, compliance, risk management, anti-corruption, and meaningful shareholder engagement.
      ESG Reporting

      What is ESG Reporting?

      ESG reporting is the process of disclosing and communicating the company’s ESG performance to its internal and external stakeholders. It can take various forms, such as:

      • Sustainability Reporting: A comprehensive document encompassing the company’s economic, environmental, and social performance. It outlines sustainability goals, strategies, and policies.
      • Integrated Reporting: A succinct report that combines financial and non-financial performance. It includes the company’s value creation model, risks, opportunities, and future outlook.
      • ESG Disclosure: A specific report or section focusing on the company’s ESG performance, metrics, and initiatives. This often aligns with recognised frameworks or standards.

      What is the Difference between ESG and Sustainability Reporting?

      While ESG and sustainability are often used interchangeably, they are not the same. Sustainability reporting is the overarching concept that encompasses ESG reporting and covers a wider range of topics beyond ESG factors, including supply chain management, community engagement, human rights and more. On the other hand, ESG reporting is a more focused and measurable approach, assessing and reporting on topics such as carbon emissions, employee diversity, business ethics, etc. to its stakeholders.

      Why is ESG Reporting Important for Companies

      Why is ESG Reporting Important for Companies?

      ESG reporting is not only a matter of compliance or reputation but also a strategic tool that can bring many benefits to companies, including:

      Enhancing trust and credibility
      By showcasing a commitment to sustainability and social responsibility, ESG reporting enables companies to cultivate trust and credibility. Stakeholders, including investors, customers, employees, regulators, and society, witness a transparent dedication to ethical practices.
      Improving performance and competitiveness
      Unveiling ESG risks and opportunities, ESG reporting becomes a catalyst for companies to enhance their market performance and competitiveness. It serves as a dynamic tool to attract and retain talent, customers, and capital, fostering a culture of innovation and sustainable growth.
      Contributing to the global goals
      ESG reporting plays a pivotal role in aligning companies with international aspirations, such as the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement on climate change. It allows companies to showcase their positive impact, emphasising their contribution to global challenges and collaborative solutions.

      ESG Reporting Frameworks

      There are many ESG reporting frameworks and standards available in the market, each with its own scope, methodology, and indicators.

      Some of the most widely used and recognised ones are:

      Global Reporting Initiative (GRI)

      Used by over 10,000 organisations worldwide, GRI is a leading sustainability reporting framework. It offers universal standards and indicators covering economic, environmental, and social aspects, including sector-specific topics. GRI facilitates alignment with other standards like the SDGs, TCFD, and IRF.

      Integrated Reporting Framework (IRF)

      IRF promotes integrated thinking and reporting by connecting financial and non-financial performance. It provides principles guiding the content, structure, and governance of integrated reports, demonstrating how companies create value for stakeholders.

      Sustainability Accounting Standards Board (SASB)

      Focused on ESG disclosure for investors, SASB provides industry-specific standards and metrics, ensuring material, comparable, and decision-useful information. Covering 77 industries across 11 sectors, SASB addresses environmental, social, and governance aspects of ESG.

      Task Force on Climate-Related Financial Disclosures (TCFD)

      TCFD aims to enhance the disclosure and management of climate-related risks and opportunities. Offering recommendations and guidance on governance, strategy, risk management, metrics, and targets, TCFD supports companies and investors in addressing climate-related issues.

      ESG Reporting Best Practices

      ESG reporting can be a complex and challenging process, but it can also be a rewarding and beneficial one.

      Here are some best practices that can help you do ESG reporting effectively and efficiently:

        Define purpose and scope
        Before commencing ESG reporting, clarify your purpose, scope, and objectives. Identify your target audience, stakeholders, and the relevant topics and indicators. Determine the frameworks and standards you want to follow or align with.
        Engage stakeholders
        ESG reporting is a dialogue, not a one-way communication. Engage stakeholders throughout the process, understanding their needs, addressing feedback, and inviting them to join your sustainability journey. Communicate ESG performance transparently.
        Collect and manage data
        Systematically collect and manage qualitative and quantitative data using reliable methods and tools. Ensure accuracy, completeness, timeliness, and comparability. Document data sources, methodologies, assumptions, and limitations. Provide assurance or verification when needed.
        Report and improve
        ESG reporting is an ongoing cycle. Regularly report performance using appropriate formats. Benchmark against peers, industry standards, and best practices. Set goals, monitor progress, and learn from feedback. Continuously improve the ESG reporting process and quality.

        Is ESG Reporting Mandatory?

        In Malaysia, ESG reporting has been made mandatory for all public listed companies since 2016. The Malaysian government and the Securities Commission Malaysia (SC) promote ESG reporting through initiatives like:

        • The Malaysian Code on Corporate Governance (MCCG): This code outlines corporate governance principles for Malaysian companies, including a section on sustainability. It mandates the disclosure of sustainability policies, practices, and performance in annual reports, encouraging an integrated reporting Companies are also urged to use recognised frameworks like GRI standards.
        • The Sustainable and Responsible Investment (SRI) Framework: This framework aims to boost the SRI ecosystem in Malaysia. Providing criteria and guidelines for SRI funds, SRI sukuk, SRI indices, and SRI tax incentives, it supports alignment with SDGs, TCFD, and IRF.
        • The ESG Index Series: This series of indices measures the ESG performance of Malaysian companies using the FTSE4Good Bursa Malaysia Index methodology. Comprising indices like FTSE4Good Bursa Malaysia Index, it serves as a benchmark for investors and companies to assess and enhance their ESG performance.
        Tailored support with transfer pricing in Malaysia

        How Can BoardRoom Help?

        With over 50 years of experience in corporate services, BoardRoom stands as a leading provider in Malaysia, specialising in ESG reporting and sustainability. Whether you require advisory, software, or training, BoardRoom can assist in designing and implementing your ESG reporting strategy. Our expertise extends to aligning your ESG reporting with relevant frameworks and standards, simplifying and automating your ESG reporting process, and tracking and monitoring your ESG performance and impact.

        BoardRoom equips you with the knowledge and skills needed for effective and efficient ESG reporting and sustainability reporting. As your trusted partner, BoardRoom is dedicated to supporting your journey in fostering transparency and responsibility.

        Get a free 7-day trial on our ESG Access reporting software now.

        Contact BoardRoom for more information:

        Tina Thomas_profile

        Tina Thomas

        Head of Environmental, Social and Governance

        E: [email protected]

        T: +60-3-7890 4800

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        Our guide to Performance Share Plans

        Our guide to Performance Share Plans

        Our guide to Performance Share Plans

        Performance share plans (PSPs) are a type of long-term incentive scheme that rewards employees with shares of the company based on the achievement of certain performance goals. In Malaysia, PSPs are becoming more popular among companies as a way to align the interests of employees and shareholders, motivate and retain talent, and foster a culture of ownership and accountability.

        What are Performance Share Plans (PSPs)?

        Performance share plans (PSPs) constitute a type of equity compensation where employees earn the right to receive company shares contingent on meeting or surpassing predefined performance goals across a typically three to five-year period. These objectives span financial, operational, or strategic metrics, such as earnings per share, revenue growth, return on equity, customer satisfaction, or market share. The number of awarded shares hinges on factors like an employee’s role, individual performance, and overall company performance.

        In contrast to stock options that grant the right to purchase shares at a fixed price, performance shares involve no payment from employees. However, these shares are subject to vesting conditions, requiring employees to stay with the company until the performance period concludes and performance criteria are met. Failure to meet targets may result in a reduced share allocation or none at all.

        Understanding Performance Share

        Types of performance metrics used in PSP

        There are three primary performance metrics commonly employed in performance share plans in Malaysia: Total Shareholder Return (TSR), Earnings-Based, and Strategic Goals.

        Total Shareholder Return (TSR) Performance Shares
        TSR performance shares tie the number of awarded shares to the company’s total shareholder return relative to a peer group or market index over the performance period, typically three to five years. For instance, if the company’s TSR ranks in the top quartile, employees may receive 150% of the target shares.

        While aligning employee and shareholder interests, TSR performance shares may be influenced by external factors beyond employee control, including market conditions and investor sentiment. This approach may not necessarily reflect the underlying value creation or long-term strategy of the company, focusing more on short-term fluctuations in share prices.
        Earnings-Based Performance Shares
        Earnings-based performance shares link the number of awarded shares to achieving specific earnings-related metrics like earnings per share, net income, operating profit, or cash flow. This method aims to incentivise employees to improve the profitability and efficiency of the company. It provides a clear and transparent way to communicate and track performance goals and expectations to employees.

        However, earnings-based performance shares may be susceptible to manipulation or distortion by accounting policies, adjustments, or one-off items. They may also fall short in capturing non-financial aspects of performance, such as customer satisfaction, innovation, or social responsibility. Additionally, this approach may inadvertently encourage short-termism or excessive risk-taking as employees focus on boosting earnings in the current period.
        Strategic Goals Performance Shares
        Strategic goals performance shares correlate the number of awarded shares with the accomplishment of specific strategic objectives such as market share, customer retention, product development, or environmental, social, and governance (ESG) criteria. Intended to motivate employees toward the company’s long-term vision, these shares foster a culture of innovation, collaboration, and social responsibility.

        Though flexible to tailor performance criteria to the company’s industry and strategic priorities, strategic goals performance shares may be difficult to define, measure, and verify, leading to a potential lack of comparability or consistency. The performance criteria may also vary across different business units, functions, or regions, which can create conflicts or trade-offs for employees who must balance competing or contradictory goals, such as profitability and sustainability.

        How Performance Share Plans work

        Ever wondered about the inner workings of performance share plans? Let’s lay it out step by step:

        1. Setting the Scene: The company starts by defining the performance period, target shares, and metrics for each employee or group.
        2. Conditional Grants: At the beginning of the performance period, employees receive a conditional right to secure target shares, contingent on meeting specific conditions.
        3. Performance Focus: During the performance period, employees work towards achieving set goals while the company monitors and evaluates progress.
        4. Outcome Assessment: As the performance period concludes, the company calculates the actual shares awarded to each employee, ranging from 0% to 200% of the target.
        5. Delivery Process: The company delivers the shares, either as actual stocks or a cash equivalent, deducting applicable taxes and fees.
        Advantages of Performance Shares

        Advantages of performance shares

        Performance share plans offer several benefits to both the company and the employees, such as:

        Aligned Objectives
        Employees and shareholders unite in the common goal of increasing the company’s value and share price.
        Talent Retention
        A powerful tool for motivating and retaining talent, rewarding employees for contributing to the company’s success.
        Culture of Ownership
        Fosters a culture of ownership and accountability, engaging employees in the company’s performance.
        Tailored Approach
        Offers flexibility and diversity, allowing companies to choose from various performance metrics and customise plans for different employee levels, roles, or situations.
        Enhanced Compensation Package
        Elevates the attractiveness and competitiveness of the compensation package, complementing the base salary and other benefits.

        Performance share restrictions & risk

        It’s important to remember that not all smooth sailing with performance share plans. Here are the constraints and risks to be mindful of:

        • Shareholder Dilution: Issuing new shares may dilute the ownership and earnings of existing shareholders.
        • Administrative Challenges: Implementation involves complexities and increased costs, including designing, monitoring, and complying with accounting, tax, and legal regulations.
        • Uncertainty and Volatility: The value and number of shares are subject to change based on performance and market conditions, introducing unpredictability.
        • Potential Misalignments: Performance metrics may not always align with the true value creation or long-term strategy, potentially incentivising undesirable behaviours or outcomes.

        For expert insights into the implementation and optimisation of performance share plans in Malaysia, consider exploring the services offered by BoardRoom, a leading provider of employee stock options plan services and more. Contact us today to learn more!

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        Comprehensive guide to Employee Stock Ownership Plan (ESOP) in Malaysia

        Comprehensive guide to Employee Stock Ownership Plan (ESOP) in Malaysia

        Comprehensive guide to Employee Stock Ownership Plan (ESOP) in Malaysia

        This Comprehensive Guide to Employee Stock Ownership Plans (ESOP) in Malaysia navigates the intricacies of ESOPs within  Malaysia’s business landscape. From understanding the fundamentals of employee stock option plans to practical implementation, it’s your go-to resource. Whether you’re a business leader, HR professional, or just curious about stock options for employees, we shed light on their significance and how they contribute to organisational success in Malaysia.

        Understanding Employee Stock Ownership Plan (ESOP)

        As Malaysia faces a shortage of skilled labour, especially in the science and technology field, understanding how Employee Stock Ownership Plans (ESOPs) work may be key to attracting and retaining talent in Malaysia.

        An ESOP is a scheme introduced by the company, issuing a share option to eligible employees by giving them the contractual right to acquire shares of the company in the future at a predetermined preferential price. This means employees gain the opportunity to become partial owners of the company, aligning their interests with its success.

        Understanding employee stock options in Malaysia’s competitive landscape

        How does an Employee Stock Ownership Plan (ESOP) work?

        In essence, employees are given the right to purchase or receive shares, often at a predetermined price, also known as the exercise price. This process involves the allocation of stock options, which employees can later exercise, allowing them to become partial owners of the company.

        The allocation and exercise of these share options are intricately linked to the company’s performance. As the company prospers, the share value typically increases, providing employees with a direct financial benefit. This mechanism aligns the interests of employees with the overall success and growth of the organisation.

        ESOPs often include a vesting period, during which employees must fulfil certain conditions, such as completing a specified tenure, to gain full ownership of the allocated stocks. This not only encourages employee retention but also ensures a gradual transition of ownership rights, promoting a sense of long-term commitment.

        Benefits of ESOP

        Employee Stock Ownership Plans (ESOPs) offer diverse benefits for both employees and companies. They serve as powerful motivators, fostering ownership and commitment among employees. This alignment leads to increased productivity and a positive organisational culture. ESOPs contribute to employee retention and can be instrumental in attracting top talent in Malaysia. From the company’s perspective, ESOPs provide a strategic tool for sharing growth benefits, making them a notable example of stock options for employees. Overall, ESOPs create a mutually beneficial relationship between employees and organisations for sustained success.

        Advantages of Performance Shares

        Implementing an ESOP in Malaysia

        Implementing an Employee Stock Ownership Plan (ESOP) in Malaysia requires a strategic and systematic approach aligned with the country’s legal framework. This begins with the careful design of the ESOP, addressing unique organisational goals, participant eligibility, share option allocation, and the vesting period.

        Design of the ESOP
        Designing the ESOP involves structuring the scheme to meet the company’s objectives. This includes deciding on the type of share options offered, whether they are outright grants or options to purchase at a predetermined preferential price. The design phase also considers the overall size of the stock pool, determining how many shares will be available for employees.
        Addressing Unique Organisational Goals
        Aligning the ESOP with organisational goals ensures that the plan serves as a strategic tool. This could involve fostering employee ownership to enhance motivation and engagement or using the ESOP as a retention strategy for key talent. Understanding and incorporating these specific goals into the plan’s design is crucial.
        Participant Eligibility
        Clearly defining participant eligibility establishes who, within the organisation, can benefit from the ESOP. This may involve criteria such as job roles, tenure, or performance levels. Striking a balance between inclusivity and strategic targeting is important to ensure the plan meets its intended purposes.
        Stock Option Allocation
        Determining how stock options are allocated involves deciding the amount granted to each eligible participant. This allocation can be based on various factors, including seniority, performance, or a combination of both. Striking a fair and motivating balance is key to the plan’s success.
        The Vesting Period
        Defining the vesting period outlines the timeline over which employees gain the right to exercise the granted stock options. This can be crucial in retaining talent, as it encourages employees to stay with the company to fully realise the benefits. The vesting period is often structured with a graded approach, providing increasing ownership rights over time.

        A well-considered approach to these elements ensures the ESOP aligns with the company’s vision, engages employees effectively, and complies with legal requirements in Malaysia.

        ESOP administration and compliance

        Ensuring the effective functioning and legal adherence of Employee Stock Ownership Plans (ESOPs) in Malaysia relies on diligent administration and compliance efforts. Administrative excellence involves accurate record-keeping of stock options, allocations, and transactions, with that helps to streamline these processes for real-time access and enhanced efficiency. An online paperless approach also aligns with sustainability efforts and streamlines documentation, enhancing efficiency and cost-effectiveness.

        On the regulatory front, staying informed about Malaysia’s legal framework is important. Adherence to guidelines from bodies like the Capital Markets and Services Act 2007 (CMSA) is essential to minimise risk of non-compliance.

        Implementing robust security measures, such as two-factor authentication and regular updates, is essential to safeguard sensitive personal data. 

        Administration and compliance of ESOPs in Malaysia require a blend of advanced technology that adheres to legal frameworks and a steadfast commitment to data security. This would ensure a smooth and successful implementation for companies considering employee incentive schemes,

        BoardRoom helps companies design, implement and manage effective ESOS and ESOP programs

        ESOP and other forms of employee ownership

        ESOPs represent one form of employee ownership. Other structures include Performance Share Plans (PSP), Restricted Share Plans (RSP), Share Appreciation Rights Schemes (SAR), and Phantom Share Schemes (PSS). Each structure offers flexibility for companies to tailor ownership incentives based on culture, financial goals, and employee engagement preferences. The array of employee stock option plans allows for customisation within the broader spectrum of employee ownership.

        Why is an ESOP good for a company?

        Implementing an Employee Stock Ownership Plan (ESOP) can bring several advantages for a company: 

        Employee Motivation and Productivity
        ESOPs instil a sense of ownership, aligning employees’ interests with the company’s success and boosting motivation and productivity.
        Talent Retention
        ESOPs can be a powerful tool for retaining top talent. Employees who have a financial interest in the company are likely to stay longer, contributing to continuity and reducing turnover costs.
        Attracting Talent
        Prospective employees are drawn to companies with ESOPs, which offer them ownership opportunities. Such companies provide a competitive advantage in attracting skilled and motivated individuals.
        Positive Organisational Culture
        ESOPs contribute to fostering a positive organisational culture. Employees tend to feel a stronger connection to the company, promoting teamwork and a collective sense of achievement.
        Financial Flexibility
        ESOPs allow companies to reward employees without spending cash upfront, offering ownership through stock options. This is particularly beneficial for companies with limited resources for traditional bonus structures.
        Succession Planning
        ESOPs can facilitate smooth succession planning, allowing key employees to take on ownership responsibilities gradually and ensuring continuity and stability during leadership transitions.

        ESOPs can be a strategic tool for enhancing employee engagement, attracting and retaining talent, and contributing to the overall success and sustainability of a company.

        Frequently Asked Questions (FAQs)

        1. What does ESOP stand for?

        ESOP stands for Employee Stock Ownership Plan, allowing employees partial ownership through stock options or shares.

        2. What is an example of an ESOP?

        A notable example of an Employee Stock Ownership Plan (ESOP) is the one implemented by Publix Super Markets, Inc. Publix, a large U.S. supermarket chain, established an ESOP that gradually transitioned ownership to its employees. Through this plan, Publix employees have the opportunity to acquire shares of the company over time, aligning their interests with the overall success and growth of the organisation. This example illustrates how ESOPs can be used as a strategic tool to create a sense of ownership among employees and foster a positive workplace culture.

        3. Are ESOPs good for employees?

        Yes, ESOPs benefit employees through financial ownership, motivation, long-term retention, financial security, and potential participation in decision-making. Effectiveness depends on factors like the company’s financial health and communication strategies. Employees should always carefully consider the details of the ESOP in Malaysia, and companies should ensure clear communication to maximise the benefits for all parties involved.

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        A closer look at Restricted Share Plans

        A closer look at Restricted Share Plans

        A closer look at Restricted Share Plans

        Restricted share plans (RSPs) are a form of equity compensation that grants employees shares of company stock with certain restrictions. It can help employers attract, retain, and motivate talent by aligning their interests with those of the shareholders. RSPs can also provide tax benefits for both employers and employees, depending on the type and design of the plan.

        In this article, we will explore the key concepts of restricted shares, the different types of RSPs, how they function, and their benefits. We will also discuss the legal and tax implications of RSPs and answer some frequently asked questions on this topic.

        Definition of Restricted Share Plans

        RSPs are a specific kind of equity compensation where employees receive company shares as part of their compensation package. These shares come with conditions: they either need time or certain achievements before employees fully own them. Additionally, there might be limitations on selling or transferring these shares, such as a holding period or the company’s right to refuse the transfer.

        RSPs differ from stock options, which grant the right to buy shares at a set price in the future. Unlike stock options that become worthless if the stock price drops, restricted shares maintain value even if the stock price falls. However, there’s more risk involved with restricted shares – employees might lose them if they don’t meet the ownership conditions or violate transfer restrictions.

        Understanding Restricted Shares

        Key concepts of restricted shares

        Some key concepts are essential to understand when dealing with restricted shares, such as:

        • Fair Market Value (FMV): This is the share price in an open market, determined by stock supply and demand. FMV is typically based on the stock’s closing price during grant, vesting, or sale.
        • Grant Date: The day the company awards restricted shares, establishing the plan’s terms.
        • Vesting Date: When employees meet vesting conditions and gain full ownership of shares. It can be a fixed date, a series, or linked to specific events like an IPO or merger.
        • Vesting Schedule: The timetable dictating when and how shares vest. It can be “cliff vesting” (all at once after a set period) or “graded vesting” (gradual portions over time).
        • Taxation: Involves determining and paying taxes arising from restricted share grants, vesting, and sale. Taxation specifics depend on factors like share type, timing, FMV, and relevant tax laws.

        Different types of Restricted Share Plans

        There are two main types of RSPs: restricted stock awards (RSAs) and restricted stock units (RSUs). Both are forms of restricted stock, but there are some key differences between them.

        Nominal Purchase Price
        A nominal purchase price may be required for RSAs, depending on the plan. RSAs entail direct grants of company shares to employees at the grant time, subject to vesting and transfer restrictions.

        RSUs, on the other hand, involve commitments to provide shares or a cash equivalent to employees upon vesting, with transfer restrictions.
        Share Ownership
        Another difference between RSAs and RSUs is the share ownership granted to employees. RSAs confer immediate shareholder status, including voting and dividend rights, unless specified otherwise. Meanwhile, RSUs do not grant actual shares or ownership rights until vesting occurs, and dividend equivalents may or may not be included, depending on the plan.
        How Restricted Share Plans Work

        How Restricted Share Plans function

        In Malaysia, restricted share plans are typically crafted and overseen by the employer, aligning with the company’s compensation strategy. The employer defines eligibility criteria, the quantity and value of granted shares, the vesting schedule, transfer restrictions, and the tax treatment of the plan.

        The employer reserves the right to modify, amend, or terminate the plan, guided by the plan’s terms and relevant laws. Additionally, the employer may exercise discretion to expedite or waive vesting or transfer restrictions under specific circumstances, such as a change of control, termination, or the employee’s death or disability.

        Upon receiving the grant, the employee must accept and adhere to the plan’s terms. If applicable, the employee may need to pay a purchase price for the shares. Compliance with vesting and transfer restrictions is mandatory, and the employee is responsible for reporting and settling any taxes associated with the plan.

        Legal and tax implications of restricted shares

        The implementation of RSPs carries legal and tax considerations contingent upon the jurisdiction, plan type, design, and grant circumstances. Some of the common legal and tax issues that may arise are:

        • Securities Laws Compliance: Complying with securities laws and regulations that regulate the issuance, registration, and trading of restricted stock, such as the Capital Markets and Services Act 2007, the Securities Commission Act 1993 in Malaysia.
        • Employment Laws Compliance: Complying with employment laws and regulations that regulate employment terms and conditions, such as the Employment Act 1955 and the Industrial Relations Act 1967 in Malaysia.
        • Tax Laws Compliance: Complying with tax laws and regulations that regulate the taxation of restricted stock, such as the Income Tax Act 1967.

        Due to the intricate and case-specific nature of legal and tax implications associated with RSPs, seeking guidance from a certified tax advisor before implementing or participating in an RSP.

        How can BoardRoom help

        Restricted share plans are a structured equity compensation method providing employees in Malaysia with company shares under specific conditions. These plans can efficiently meet compensation objectives for both employers and employees, offering mutual tax advantages. However, you must consider challenges like potential share loss, tax liabilities at vesting, and legal compliance and grasp the key concepts, types, functions, benefits, and implications of these plans before implementation.

        If you’re looking for a dependable partner for your restricted share plans in Malaysia, BoardRoom offers professional corporate services. As a leading provider in Malaysia, BoardRoom assists with designing, implementing, and administering various employee share option schemes, including RSPs, stock options, and performance shares. Contact us today to learn more!

        BoardRoom helps companies design, implement and manage effective ESOS and ESOP programs

        Frequently Asked Questions (FAQs) on Restricted Share Plans

        What is the treatment of restricted shares after employment ends?

        Treatment varies based on plan terms, termination reasons, and timing:

        • Pre-vesting termination or voluntary exit: Shares are usually forfeited without compensation.
        • Post-vesting termination or voluntary exit: Employees typically keep shares and pay taxes but face transfer restrictions.
        • Termination without cause, retirement, death, or disability: Pro-rated/full vesting may occur. Transfer restrictions exemptions may apply.

        How do restricted shares influence the ownership structure of the company?

        Restricted shares can alter ownership structure by adjusting the number and percentage held by employees, management, and existing shareholders. They tend to increase ownership for employees and management but may decrease it for existing shareholders due to share dilution. The influence depends on the granted shares’ number and value, vesting conditions, transfer restrictions, and share market prices.

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