Usharani Balasingam

Business Succession in Malaysia

The Malaysian legal system is much shaped by her historical ties with England, and her multi-ethnic society. Different sets of general principles on succession are applicable to a person who dies a Muslim and to a person who dies a non-Muslim respectively. In addition, native customary law has an impact on the succession rights of natives residing in East Malaysia. The Islamic law of inheritance is restrictive as a Muslim may bequest only one-third of his/her estate to persons who are not his/her Koranic heirs. The deceased Koranic heirs will receive prescribed entitlements. In contrast, a non-Muslim can bequest his/her entire estate subject to making reasonable provisions for dependants who otherwise may make a claim under the Inheritance (Family Provision) Act 1971. Apart from this restriction, the right of a person to plan the succession of his/her interest in a business vehicle in Malaysia may be thwarted by the constitution of the said vehicle. Thus, instead of letting the transmission of his/her interest to take effect after his/her death, a person, immaterial whether he/she is a Muslim or a non-Muslim, may organise it to take place before his/her death by effecting an outright gift, setting up a trust or by establishing a foundation. A non-Muslim can also establish a testamentary trust under his/her Will. These tools may also be used to protect the deceased’s estate especially where the beneficiaries are infants and thus, a protective trust is required.