Business Law 101 for SMEs in Malaysia

SMEs in Malaysia generally start small and are mostly flexible. But essentially, they are still businesses. And businesses are regulated by laws which business owners and entrepreneurs need to be aware of in order to avoid any legal costs. 

In today’s article, we highlight the key issues that surround the realm of business and law for SMEs in Malaysia.


1. Misunderstandings about how the company works

Every company has its unique attributes that differentiates it from the rest. As such, legal rules will inevitably vary from company to company. The most common issue surrounding businesses is the failure of business owners to understand how their company works. It is crucial for founders to comprehend fundamental concepts such as the contents of the Constitution, how decisions are made and selected, the workings of the board members and shareholders. These fundamentals will allow business leaders to understand more complicated issues in the future.

2. Failure to enter into agreements with Co-Founders and Shareholders

Disputes with co-founders, investors, or shareholders could severely impact or even destroy businesses especially when there is a failure to implement proper legal documentation right from the beginning. As such, business owners should take caution and ensure that the fundamentals of the business is in writing. 

3. Signing documents without fully comprehending them

It cannot be stressed enough about how it is extremely important to be clear on what exactly you are signing up for. The most important step  which must be followed is to read the document. You may be surprised just how many entrepreneurs and business owners have suffered the consequences for simply not reading what has been printed on the document. In fact, the failure to read the terms on a document does not protect you from any disadvantageous position that may arise. The law states that:

“when a document containing contractual terms is signed, then, in the absence of fraud or misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”

So, never skip this step. It will save from further distress in the future. 


4. Hiring and firing without comprehending employment laws

The hiring (and firing) processes of a company ought to be bound by the law. For hiring, employers have to take note of job criteria, conduct background research and interviews. They must also address key clauses in employment contracts. For managing, employers should know what are the mandatory benefits, what are subject to discretion, and how they should be documented and managed. For firing, the area of law in which employers are most interested in, employers should be aware of the acceptable reasons for dismissal of employees, and the practical steps that must be taken to ensure that an employee is dismissed fairly. 

Nevertheless, when in doubt, it is best to seek the assistance of legal professionals. 

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