Why Manufacturers Get Caught Out
We Understand How A Plant Actually Runs
Manufacturers rarely get into trouble on the big things. It is the company that grew past seventy-five employees and never applied for a manufacturing licence. The OEM contract that never said who owns the tooling. The supply agreement with no price adjustment clause, signed when raw material was cheap. The contractor injured on site, and a principal who assumed the safety duty sat with the contractor. Each one looks small until it is not, and each one is far cheaper to fix before it becomes a regulator's file or a claim.
How We Support Manufacturers
Legal cover for licence, line and chain.
We handle the licensing position under the Industrial Coordination Act 1975, then the contracts that carry your revenue — OEM and manufacturing agreements, supply, distribution, equipment leases and logistics — alongside employment, safety compliance, and the governance frameworks buyers and auditors now expect to see.
Choose What You Need Now
Select the service that matches your current priority.
Licensing, contracts, workforce, safety, expansion or exit. Pick where the pressure is and we will start there.
A Malaysian manufacturer operates under several regulatory regimes that rarely speak to each other — licensing under the Industrial Coordination Act 1975, workplace safety under the Occupational Safety and Health Act 1994 as amended in 2022, and environmental control under the Environmental Quality Act 1974. Commercial risk usually sits somewhere else entirely: in the OEM, supply and distribution contracts that actually carry the revenue.
When does a manufacturer need a manufacturing licence in Malaysia?
Under the Industrial Coordination Act 1975, a manufacturing company is required to hold a manufacturing licence once it reaches shareholders' funds of RM2.5 million or more, or employs 75 or more full-time paid employees. Applications are made to the Malaysian Investment Development Authority (MIDA), which processes them for approval by the Ministry of Investment, Trade and Industry (MITI). A company below both thresholds may apply to MIDA for a confirmation letter of exemption, which banks, landlords and customs frequently ask to see.
Two things catch companies out. First, "manufacturing activity" is defined broadly — making, altering, blending, ornamenting, finishing or otherwise treating or adapting an article or substance, including assembly. Repackaging, blending and food processing often fall inside it. Second, the threshold is a live test, not a one-off check at incorporation: a company that grows into it must regularise, and doing that after the fact is more expensive than applying on time.
What changed for factories under the OSHA amendments?
The Occupational Safety and Health (Amendment) Act 2022 came into force on 1 June 2024 and materially widened the regime. The Factories and Machinery Act 1967 was repealed and its requirements folded into OSHA 1994, which now applies to workplaces across Malaysia rather than a listed set of industries.
Change | What it means on the ground |
|---|---|
Principal's duties | A principal owes safety duties to contractors, subcontractors and their employees working under its direction — not only to its own staff |
Safety and health coordinator | Employers with at least five employees must appoint a coordinator, unless a safety and health officer is already required |
Risk assessments | Employers must assess risks to anyone affected by the work and implement controls where the assessment calls for them |
Penalties | Increased across the board, with a wider category of persons who can be jointly and severally liable for a company's offence |
For a plant that runs on contractors, the principal duty is the significant one. Outsourcing the work no longer outsources the exposure.
What should an OEM or manufacturing agreement actually settle?
The commercial terms are usually agreed in a meeting. The disputes come from what nobody discussed.
Issue | Why it bites later |
|---|---|
Tooling and mould ownership | Whoever holds the tooling controls whether production can move |
Specification change control | Undocumented changes become quality disputes with no baseline to argue from |
Raw material price movement | A fixed price with no adjustment mechanism transfers the whole commodity risk to one side |
Minimum volumes | Capacity reserved against forecasts that carry no commitment |
Process IP | Improvements developed on the line, with no agreement on who owns them |
Product liability and recall | Who pays, who decides, and how far the indemnity actually runs |
Exit | Finished goods, work in progress and materials on termination |
What do buyers and investors look at when they diligence a manufacturer?
In our experience, the same short list every time: whether the manufacturing licence position is correct and current, whether the land or lease supports the operation, safety records and any regulatory notices, employment compliance under the Employment Act 1955 and accommodation standards where workers are housed, environmental approvals, whether key contracts are assignable on a change of control, and whether an anti-bribery framework exists for section 17A of the MACC Act. Our guide to red flags in legal due diligence covers the wider picture.
Most of these are cheap to fix with notice and expensive to fix under a deal timetable.
Frequently Asked Questions
Does a small manufacturer need a manufacturing licence?
A company below both thresholds — under RM2.5 million in shareholders' funds and fewer than 75 full-time paid employees — is not required to be licensed, but can apply to MIDA for a confirmation letter of exemption. Confirm your classification with MIDA before concluding you are exempt, because the definition of manufacturing activity is wider than most operators assume.
Does OSHA still apply if we only use contractors?
Yes. Since 1 June 2024 a principal owes safety duties to contractors, subcontractors and their employees working under its direction. Engaging contractors does not transfer the duty.
Who owns the tooling in an OEM arrangement?
Whoever the contract says, which is why it needs to say so. Where tooling is silent, the party in possession has practical leverage regardless of who paid for it.
Where to start
If contracts are the pressure point, start with a manufacturing and OEM agreement, a supply agreement, or a contract review and risk report. If it is the workforce, see the Employment Act compliance audit. If you are preparing for a buyer or an investor, begin with a vendor due diligence and sale readiness review.
This page is general information about Malaysian law and does not constitute legal advice. Thresholds and regulatory requirements change. Confirm the current position with the relevant authority or your adviser before acting.
