Digital vs Electronic Signatures in Malaysia: a Guide

Electronic vs Digital Signatures in Malaysia

Digital vs Electronic Signatures in Malaysia: a Guide

When a face-to-face meeting is impossible, paperless signatures are a practical option for your business in Malaysia. They are fast, convenient and environmentally friendly.

However, you need to carefully consider the legal implications of using digital or electronic signatures over the traditional ‘wet-ink’ variety. While the terms ‘electronic’ and ‘digital’ are often used interchangeably to refer to paperless signatures, each one is a separate legal concept under Malaysian law.

In this article, we cover the differences between electronic and digital signatures in Malaysia, and explain when they are legally binding, and where you can use them.

What you need to know about electronic signatures in Malaysia

An electronic signature is defined by the Electronic Commerce Act 2000 (“ECA”) as:

 “any letter, character, number, sound or any other symbol or any combination thereof created in an electronic form adopted by a person as a signature.”

Electronic Signature in Malaysia
Are electronic signatures legally binding in Malaysia?

The ECA legally recognises electronic signatures used in commercial transactions either:

  • to fulfill legal requirements; or
  • to facilitate commercial transactions through electronic means.

In Malaysia, electronic signatures are typically used for simple contracts and agreements (such as the ones outlined below) where the risk of legal disputes around document validity is low.

Electronic signatures are legally binding under Malaysian law, where they fulfil the ECA requirements, being:

  1. that the signature is attached to, or logically associated with, an electronic message;
  2. the signer and their approval of the related information can be adequately identified; and
  3. the signature is as reliable as is appropriate, given the purpose and circumstances for which the signature is required.

To be considered ‘reliable’, electronic signatures must also fulfill these ECA requirements:

  1. the means of creating the electronic signature is linked to, and under the control of, that person only;
  2. any alteration made to the electronic signature after signing is detectable; and
  3. any alteration made to that document after signing is detectable.

Some grey areas surround these requirements as they have largely been untested in Malaysia Courts. However, we recommend that companies adopt internal guidelines relating to the use of electronic signatures that outline the approvals process, digital security measures, electronic record keeping policies and compliance and internal audit team procedures. These guidelines can be used to provide evidence that the ECA requirements have been met. Companies may consult their lawyers or corporate secretarial agents for assistance in this regard.

Common electronic signature applications in Malaysia

Common electronic signature applications

There’s a reasonably broad scope when it comes to applying electronic signatures in Malaysia to execute documents. For example, case law suggests that even a text message can be considered a legally binding electronic signature under the ECA.

More typically, electronic signatures are commonly used in:

  • HR documents: Employment contracts, benefits paperwork and new employee onboarding processes;
  • Commercial agreementsbetween corporate entities: Non-disclosure agreements, procurement documents and sales agreements;
  • Commercial real estatedocuments: Lease agreements, and sales and purchase contracts; and
  • Minutes and resolutions:(subject to the company’s constitution).

When deciding whether to use an electronic signature in Malaysia, it is important to note that while electronically signed documents are legally enforceable, wet-ink signatures may still be required for stamping and some filing and registration procedures. Some financial institutions may also require wet-ink signatures.

Where you can’t use electronic signatures

In Malaysia, electronic signatures are not allowed in:

  • Power of Attorney documents as per section 2 (2) of the ECA;
  • Wills, codicils and trusts as per section 2 (2) of ECA;
  • Negotiable instruments, bills of exchange, and promissory notes as per section 2 (2) of the ECA;
  • Any instrument dealing with properties under the Malaysian National Land Code; and
  • Statutory Declarations under the Statutory Declarations Act 1960.

The documents listed above cannot be executed via e-signature or digital signature because they require notarisation or attestation before a public notary or commissioner of oaths. As such, wet-ink signatures are required for these documents.

What you need to know about digital signatures in Malaysia

Digital signatures are considered a subset of electronic signatures in Malaysia and are governed by the Digital Signatures Act 1997 (“DSA“).

A digital signature is defined by the DSA as:

“a transformation of a message using an asymmetric cryptosystem such that a person having the initial message and the signer’s public key can accurately determine:

a. whether the transformation was created using the private key that corresponds to the signer’s public key; and
b. whether the message had been altered since the transformation was made.”

Digital Signature in Malaysia

Electronic signature software providers like DocuSign and HelloSign use certificate-based digital IDs to authenticate each signer’s identity, providing a higher level of security and assurance. Each digital signature is bound to the document via encryption to provide proof of signing, and is validated by licensed certification authorities.

In Malaysia, it is the role of licensed certification authorities to act as a trusted third party in verifying the identity of both the signer and the recipient of electronically signed documents.

Think about it this way, a digital signature requires a process, whereas an electronic signature can be implied – such as in the case of a text message.

Are digital signatures legally binding in Malaysia?

A digital signature that meets the DSA’s validity requirements is as legally binding in Malaysia as a handwritten signature, an affixed thumbprint or any other mark.

When the law requires a seal to be affixed to a document, a digital signature must be used.

Where you can’t use digital signatures

In Malaysia, like electronic signatures, digital signatures are also are not allowed in:

  • Power of Attorney documents as per section 2 (2) of the ECA;
  • Wills, codicils and trusts as per section 2 (2) of ECA;
  • Negotiable instruments, bills of exchange, and promissory notes as per section 2 (2) of the ECA;
  • Any instrument dealing with properties under the Malaysian National Land Code; and
  • Statutory Declarations under the Statutory Declarations Act 1960.
Digital signatures must be validated by select authorities in Malaysia

Currently, there are no foreign certification authorities recognised in Malaysia. Digital signatures can only be validated with one of the following licensed certification authorities:

  • Post Digicert Sdn Bhd;
  • MSC Trustgate Sdn Bhd;
  • Telekom Applied Business Sdn Bhd;
  • Rafcomm Technologies Sdn Bhd;

Optimise your business with digitisation

A smart way to optimise your business processes is to use electronic and digital signatures, particularly when face-to-face meetings are not practical or possible. But – as we covered in this article – you need to fulfill specific legislative requirements in Malaysia to ensure that paperless signatures are legally binding.

Get in touch with our experts today to learn more about how they can help you implement innovative technological solutions to empower your business. 

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Closing Down a Company in Malaysia? Here’s what you need to know

Closing a company in Malaysia

Closing Down a Company in Malaysia? Here’s what you need to know

Change is something that you negotiate every day as a business leader.

It doesn’t matter whether you’re navigating changes in technology, shifting customer preferences or ongoing economic instability, or dealing with a mandatory regulatory update. In every case, the end-goal remains the same: staying competitive.

And irrespective of your company size and success, sometimes the best way to stay competitive is to implement a well-thought-out exit strategy.

Several options are available if your exit strategy involves closing down a company in Malaysia. Below is our guide to three tried-and-tested methods so you can identify the best option for your business.

01 Striking off a company

A simple, cost-effective method to close down an Sdn Bhd or private limited company is to request that the Companies Commission of Malaysia (“CCM”) strike it off from the register pursuant to Section 550 of the Companies Act 2016 (the “Act”).

To be considered for strike-off, your company must:

  • not carry on business/operations (and must not intend to do so);
  • have no assets or liabilities, including any outstanding charges in the Register of Charges;
  • have no outstanding penalties or compounds relating to the Act;
  • have no outstanding tax or other liabilities, and have no debts to any government department or agency;
  • not have made any return of capital to shareholders (including dividends);
  • ensure your information is up-to-date with the Registrar;
  • not be involved in any impending legal proceedings; and
  • not be a holding company or a “Guarantor Corporation”.

Your company needs to meet all of these requirements before you submit your application to the CCM.

A clear advantage of the company strike-off method is the speed of the process: in our experience, it typically only takes one year. This is relatively quick compared to other options for closing down a company in Malaysia.

However, this method does have a couple of potential pitfalls. These include:

  • the CCM having the final say in the strike-off decision;
  • anyone who suffers grievances from the strike-off having an open legal avenue to reinstate the company within seven (7) years; and
  • after a company is struck off the Register, the company will dissolve and cease to exist. The company will no longer be able to conduct any form of business or transactions. However, the liability of every director, officer or shareholder of the company will continue and may be enforced as if the company had not been dissolved. In other words, even if a company is struck off, any past misconduct or breaches of law that relate to a director, officer or shareholder of the company will still be enforceable against them.

In summary, the striking off mechanism provides many advantages to business owners who do not wish to go through the more lengthy and tedious process of winding up a company.

Want to lower your chances of getting caught by these pitfalls? Our experienced corporate secretarial experts in Malaysia combine expertise and local know-how to give you peace of mind. Let them handle all of the compliance and administrative requirements of the strike-off process on your behalf, so that you can stay focused on the bigger business picture.

02 Winding up a company by a Members’ Voluntary Liquidation

Winding up a company – also known as going into liquidation – is longer and more complex than simply striking off a company. So at first glance, it can look less appealing than a strike-off.         

However, in some circumstances, winding up a company may be more appropriate for your business.

For example, your shareholders might want to benefit from the proceeds gained by the company after selling off the assets. But – as we mentioned in the previous section – if your shareholders receive any capital from the company, the company won’t be eligible to apply for strike-off.

In this case, a company wind-up might be your best option.

Generally, the voluntary options for winding up a company in Malaysia are either:

  • a members’ voluntary liquidation (“MVL”); or
  • a creditors’ voluntary liquidation (“CVL”).

While you need to appoint a liquidator for both options, in an MVL (where the company must be financially solvent), the surplus of the company will distribute to members upon the settlement of the debts and expenses. By contrast, in a CVL (where the company is not financially solvent), the proceeds realised from selling off the assets will be paid to the creditors.

To start an MVL:

  • the company must be solvent; and
  • the Board of Directors must adopt a Declaration of Solvency and form an opinion that the company can settle all debts within twelve (12) months from the commencement date of liquidation.

After adopting this Declaration, you will need to convene a members’ meeting, which has two important functions:

  1. to seek shareholder approval to voluntarily liquidate the company; and
  2. to appoint the liquidator.

At this point, you will need to open a bank account specifically for the liquidation process.

From here, the liquidator will notify all relevant parties that the MVL process has started. These parties include the:

  • Board;
  • Company Secretary;
  • auditors;
  • tax agents;
  • Employees’ Provident Fund (“EPF”);
  • Inland Revenue Board (“IRB”);
  • Social Security Organisation (“SOCSO”);
  • Royal Customs of Malaysia (“RCM”); and
  • Human Resource Development Fund Malaysia (“HRDF”)

Then, during the liquidation process, the liquidator must prepare and submit “Liquidator’s accounts” to the CCM and the Official Receiver every six (6) months.

If the liquidation process takes more than a year, an annual meeting of members will be held to report on the winding-up processes undertaken to date. An MVL typically takes between 1-2 years to complete, depending on how long it takes to obtain tax clearance from the IRB.

However, after receiving tax clearance, the liquidator shall prepare the final account and convene a final meeting to finalise the liquidation process.

If you believe an MVL is the right option for your company, save time and skip the complexity by using our professional liquidation services. Our team of corporate secretarial experts in Malaysia will help you to dissolve your company quickly and effectively.

03 Closing a foreign company’s branch office in Malaysia

This option is only available if you have established your business in Malaysia as a foreign company (known locally as a “branch office”).

You can close your foreign company’s branch by lodging Form 578 (1) – Notice by Foreign Company of Cessation of Business with the CCM within seven (7) days from ceasing of its operation. Upon the expiration of twelve (12) months after lodging of the said form, CCM will remove the branch office name from the register.

If this option applies to your business, we can help you settle any outstanding branch office operational matters such as:

  • employee payroll
  • filing of statutory forms with the relevant government authorities
  • notifying of tax agents, auditors and other regulatory authorities (if applicable) that the branch has closed
Take advantage of our exit strategy expertise

Before you decide on a company exit strategy, you need to carefully consider any compliance, regulatory and tax implications that may be unique to your business.

BoardRoom’s experienced team can advise you on the best course of action for closing down a company in Malaysia. More than that, we can also take care of all the formalities and guide you step-by-step through the complexities.

Get in touch with our corporate secretarial experts to learn more.

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