Choosing the Right JV Structure in Malaysia: Equity vs. Contractual Options

For many foreign investors, entering the Malaysian market through a joint venture (JV) is a logical step. A JV provides an opportunity to combine local market knowledge with international expertise, spread risks, and meet regulatory or licensing requirements. Yet there is no single “Malaysian JV model” – investors must choose between forming an equity joint venture through a company or collaborating through a contractual joint venture. Both options are well-recognised under Malaysian law, but they serve very different needs.

The right structure will determine not only how profits are shared but also how liabilities are borne, how control is exercised, and how future exit strategies unfold. In short, getting the structure right at the start saves cost, avoids disputes, and builds a foundation for long-term success.

This article examines the two principal JV structures available in Malaysia – equity JVs and contractual JVs – outlining their advantages, challenges and practical applications, and offering guidance on how foreign investors can make the right choice.

⮕ Do you need to get a better basic understanding on Joint Ventures in Malaysia first? Read our Guide Joint Venture Options in Malaysia for Foreign Investors

Equity Joint Ventures in Malaysia (Company-based JVs)

An equity JV involves incorporating a separate legal entity in Malaysia – most commonly a private limited company (Sdn. Bhd.). The foreign investor and its local partner(s) hold shares in this company, which carries on the joint business.

Advantages

• Separate legal personality: the JV company can enter contracts, hold assets in its own name, sue others and get sued itself. This limits liability to the amount of invested capital.
• Access to licences and incentives: many Malaysian business licences and government incentives are tied to incorporated entities. A JV company is therefore often the only practical vehicle.
• Raising finance: banks and other financiers are generally more comfortable lending to a company with audited accounts and clear corporate governance. Even basic banking matters such as opening a bank account are much easier when there is a local entity.
• Perpetual succession: changes in shareholders do not affect the company’s existence, making it easier to plan long-term.

Challenges

• Regulatory compliance: incorporation under the Malaysian Companies Act 2016 comes with statutory duties, annual filings and audit obligations. These obligations are generally not very burdensome, but do not exist when there is merely a contractual arrangement in place.
• Cost and formality: board meetings, shareholder approvals and secretarial compliance add some overhead, although such costs are very negligible in Malaysia compared to many other jurisdictions.
• Control dynamics: even when majority-owned by a foreign investor, there is no guaranteed control if the company constitution and shareholders’ agreement reserve key matters for supermajority or unanimous consent.
• Resident director requirements: every Malaysian company must appoint at least one director who is ordinarily resident in Malaysia. While this requirement is manageable in practice, it raises important questions of trust, fiduciary duties and potential exposure. Foreign investors often underestimate the significance of this role – careful drafting of the constitution and shareholders’ agreement is essential to ensure alignment and mitigate risks.

⮕ Find further details on resident directors here.

When used

Equity JVs are common in long-term businesses such as manufacturing, services, or regulated sectors. Where continuity, growth potential and external financing are expected, the equity JV is usually the preferred route.

Contractual Joint Ventures in Malaysia (Unincorporated JVs)

A contractual JV is based purely on an agreement between the parties. No separate legal entity is formed. Instead, each party agrees to perform specified obligations, contribute resources, and share profits and risks according to the contract.

Advantages

• Flexibility: the contract can be tailored to the project, with minimal statutory requirements.
• Speed and cost: there is no need for incorporation or ongoing corporate compliance. You can move ahead the moment you have agreed on the contract setting forth each side's rights and obligations.
• Project focus: particularly suited for a defined scope and duration – such as engineering, procurement and construction (EPC) projects, tenders, or research collaborations.

Challenges

• No separate legal personality: the JV itself cannot own assets or employ staff. Each party must contract in its own name or appoint a lead partner to do so on behalf of all.
• Liability exposure: the contractual JV-parties are directly liable to third parties. Depending on how the contract is drafted, this can mean joint and several liability.
• Financing difficulties: banks and investors are less likely to extend credit to a contractual arrangement without a corporate vehicle.
• Operational complexity: practical matters such as opening a bank account, issuing invoices, or securing insurance often require careful contractual workarounds.

When used

Contractual JVs are common in time-bound projects such as EPC contracts, construction consortia, or consultancy collaborations. They allow parties to work together intensively without setting up a permanent corporate structure.

Case Study: Supporting a European Multinational in an EPC Consortium

A practical illustration is our recent work for a leading European full-line supplier of hydropower equipment, technology and services. The company wished to participate in an ESG-driven EPC project in Malaysia. To qualify for the tender, it needed to combine its technological expertise with local partners’ knowledge and presence.

Forming a new company was neither necessary nor efficient – the project had a defined scope and timeline, and most of the assets would remain with the employer. Instead, we assisted in setting up a contractual consortium JV.

Key issues included:

• Risk allocation: ensuring liability for delays or defects was shared fairly, without exposing one party to disproportionate claims.
• Management structure: creating the right consortium structure, to balance the multinational’s technical control with the local partners’ regulatory insights.
• Compliance: foreign investors, especially when they come from the European Union, often have elevated compliance demands. It is not always easy to make these clear to a Malaysian consortium partner.
• Dispute resolution: agreeing on international arbitration with Kuala Lumpur as the seat, ensuring enforceability across borders.

The consortium successfully bid for the project and continues to perform its obligations under the contractual JV framework. This example shows how – for project-specific collaborations – a contractual JV can be more efficient than forming a company.

Practical tip: When entering a JV, always agree on a clear dispute-resolution mechanism early – whether arbitration or Malaysian courts – to avoid surprises later.

Key Considerations in Choosing Between Equity and Contractual JVs

Foreign investors should weigh the following when deciding which route to take:

• Regulatory requirements: will licences or permits require a Malaysian-incorporated entity? If so, an equity JV is unavoidable.
• Duration and scope: for a short, defined project, a contractual JV is often the leaner choice. For an ongoing business, equity is usually better.
• Liability appetite: investors seeking to ring-fence risks often prefer an incorporated JV, while those comfortable with more direct exposure may accept a contractual JV.
• Control and governance: equity JVs provide formal governance through company law, while contractual JVs rely entirely on what is written in the contract.
• Tax treatment: dividends from a company are taxed differently from direct allocations of profit under a contract and generally, there are several tax considerations which foreign investors should make – tax planning should not be overlooked.
• Exit strategy: selling shares in a company is generally more straightforward than unwinding a contractual JV.

⮕ Where a JV company needs to be wound up, investors should be mindful of the legal process and its implications. For further information, see our write-ups on Winding Up Solvent Companies in Malaysia and 7 Common Mistakes Foreign Companies Make When Exiting Malaysia.

Conclusion: No One-Size-Fits-All

Both equity and contractual JVs are established tools under Malaysian law. Each comes with distinct strengths and weaknesses, and the “right” choice depends on the investor’s sector, goals and tolerance for risk.

For long-term market entry, building local presence, or accessing government incentives, an equity JV remains the gold standard. For project-driven collaborations, particularly in construction and engineering, a contractual JV or consortium often – but not always – deliver greater efficiency.

⮕ Foreign investors are best served by assessing these options early, ideally before committing to a local partner. At Aqran Vijandran, we regularly assist clients in structuring and negotiating JVs across sectors, ensuring that the chosen model supports both business goals and regulatory compliance. Feel free to contact us for further information.