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Sohaib Ikram
Sohaib Ikram serves as the Director of Emerhub in Malaysia.
If you’re a foreign investor planning to set up a business in Malaysia, it’s crucial to understand the landscape for market entry, especially in regulated sectors. While Malaysia welcomes foreign investment, many key industries require local participation.
For instance, In sectors such as logistics, education, finance, and manufacturing, forming a joint venture (JV) with a Malaysian partner is often the most effective, and sometimes only, way to operate compliantly and gain market access.
If you are considering this route, this article will walk you through the essentials of how you can set up a joint venture in Malaysia as a foreign investor.
Understanding Joint Ventures (JVs) in Malaysia
To clarify, a joint venture is not a standalone legal entity in Malaysia. Instead, it refers to a collaboration between two or more parties working towards a shared commercial goal. This collaboration typically takes one of two forms:
1. Equity Joint Venture (via Sdn. Bhd.)
This structure involves setting up a new Private Limited Company (Sdn. Bhd.), which will be jointly owned by you and your Malaysian partner(s). The ownership shares, or equity, are determined by the specific regulations of your sector; for example, many regulated industries require structures like 49% foreign to 51% local ownership.
Crucially, all roles, profit distribution methods, and decision-making procedures must be clearly detailed in two key documents: the Company Constitution and a comprehensive Joint Venture Agreement (JVA).
This approach is often used when entering regulated sectors such as banking, education, healthcare, etc.
2. Contractual Joint Venture
Alternatively, you can form a contractual joint venture. This is a collaboration founded purely on a legal agreement, meaning you do not form a new, separate company. Each partner involved retains its own separate legal identity.
This model is often preferred for specific project-based goals, participating in tenders, or engaging in short-term collaborations. In this setup, all roles, responsibilities, and how revenue will be shared are defined exclusively within the contractual agreement. Equity involvement only occurs if explicitly defined in the contract.
Equity JVs offer more control and structure but require careful planning– especially in regulated sectors like banking, education, healthcare, and manufacturing. In contrast, contractual JVs are quicker to set up but carry more risk without an airtight agreement. Emerhub can help you structure both, to match your sector requirements, ownership goals, and risk appetite.
Why Do Foreign Investors Choose JVs in Malaysia?
Certain sectors are simply not accessible without a local partner, while others are so deeply rooted in domestic networks that going it alone would mean starting from scratch.
If you’re looking to enter Malaysia with speed, credibility, and compliance, a joint venture offers several advantages, such as:
- Meeting Local Equity Requirements: Many sectors in Malaysia cap foreign ownership to protect local interests. These include logistics, education, oil and gas, and Halal-certified businesses. A JV allows you to operate legally in these restricted industries.
- Faster Licensing & Approvals: If you have a local partner, it often fast tracks licensing and approval process. In some cases, your partner might already have required licenses and registrations (like with the Ministry of Finance), and regulatory relationships. This can dramatically speed up the process of getting your business operational.
- Sharing Risks & Responsibilities: JVs allow you to share the financial and operational load. This includes capital investment, HR compliance, and daily logistics, reducing the burden on a single investor entering a new market.
Comparison of different Market Entry Structure in Malaysia
Foreign investors typically enter the Malaysian market through one of three structures– each with different levels of control, compliance, and partner involvement.
Choosing the right route depends on your industry, timeline, and whether you’re entering a regulated sector or testing the waters.
Here’s how the most common structures compare:
| Aspect | Wholly Foreign-Owned Company | Equity Joint Venture (Sdn. Bhd.) | Contractual Joint Venture |
|---|---|---|---|
| Legal Form | Sdn. Bhd. | Sdn. Bhd. | Partnership by contract |
| Ownership | 100% foreign-owned | Shared equity (often <50% foreign) | No equity (unless agreed) |
| Best for | Open sectors (tech, SaaS) | Regulated sectors | Short-term projects/tenders |
| Control | Full | Shared (governed by JVA) | Defined by contract |
| Licensing | Direct application (higher scrutiny) | Faster (partner may hold) | Depends on contract |
| Complexity | Standard process | Needs JVA/negotiations | Needs airtight contract |
| Liability | Centralised | Shared | Remains separate |
| Exit Plan | Unilateral possible | Must be contractually agreed | Ends with project |
How to Set Up Your Joint Venture in Malaysia
Setting up an Equity JV (Sdn. Bhd.) typically follows these steps:
1. Partner Selection & Due Diligence
Before drafting any agreements, conduct thorough due diligence on your potential Malaysian partner. Verify their legal, financial, and reputational standing. This is crucial to avoid future disputes.
2. Draft Your Joint Venture Agreement (JVA)
Your joint venture agreement is the foundation of the partnership. It outlines how your business will operate, each party’s responsibilities, how profits and losses are shared, and what happens if one party exits.
If you’re setting up a Sdn. Bhd., this agreement should align with your company’s constitution under the Malaysian Companies Act. Emerhub can help draft and structure your JVA to meet local legal standards and protect your interests.
3. Reserve Your Company Name with SSM
Choose three potential company names and submit them to the Companies Commission of Malaysia (SSM) for approval. Emerhub handles this application, ensuring compliance with naming guidelines to prevent rejections.
4. Register Your Joint Venture Company (Sdn. Bhd.)
Once the name is approved, we proceed with incorporation. We submit the company constitution, shareholder/director details, and JVA. Remember, at least one director must be a Malaysian resident (often your partner), and shareholding must match sector limits.
5. Apply for Licenses and Approvals
This part of the process varies depending on your industry– most regulated sectors require multiple layers of approval, while non-regulated sectors are more straightforward.
Emerhub can help you identify which permits apply to your business and manage the application process from end to end. This includes preparing supporting documents, liaising with local authorities, and addressing any specific conditions tied to foreign participation.
6. Ensure Ongoing Compliance
Once your joint venture is up and running, it’s crucial to stay compliant with Malaysian corporate and regulatory requirements. This includes:
- Appointing a company secretary within 30 days of incorporation
- Opening a bank account to facilitate transactions and tax obligations
- Maintaining accurate financial records and annual returns with SSM, and
- Keeping your licenses valid and up to date.
Emerhub provides ongoing compliance support– from monthly payroll and bookkeeping to company secretarial services, so you can focus on scaling the business in Malaysia with confidence. As part of our compliance service, we can also adapt your JV structure if there are changes to ownership, directorship, or operational strategy down the line.
Ready to set up your joint venture in Malaysia? Fill out the form below and we’ll put you in touch with our local experts.
Frequently asked questions
Yes, foreigners can start JVs, but ownership often needs to comply with sector-specific equity caps. In many restricted industries, partnering with a Malaysian shareholder is essential.
A joint venture is not the same as a merger. A joint venture (JV) is a collaboration between two or more parties to pursue a shared business goal, often by forming a new company or entering into a contractual partnership.
Each party retains its separate legal identity outside of the JV. In contrast, a merger involves one company fully absorbing or combining with another, resulting in the loss of one or more original legal entities.
In Malaysia, joint ventures are commonly used when foreign ownership limits apply, or when a business wants to enter a new market without fully relinquishing independence or brand control.
Joint ventures are common in project-based industries like construction, infrastructure, and consulting, where local know-how is valuable to your operations. They are especially beneficial when:
- You want to test the Malaysian market before committing long-term
- You’re entering a sector that restricts foreign ownership
- You want faster market access through a partner’s licenses or connections
- You’re looking to share startup costs, risks, or operational responsibilities
In some cases, yes but this depends on your industry and the terms of your original agreement. If your joint venture operates in a restricted sector, full foreign ownership may not be permitted unless approved by the relevant authorities. However, in open sectors with no equity cap, you may be able to buy out your local partner’s shares– provided your Joint Venture Agreement includes a clearly defined exit clause.
Emerhub can help you evaluate whether conversion is possible, navigate the necessary approvals, and restructure your company to align with changing regulations or business goals.
