The territory of North Borneo was originally established by concessions of the Sultanates of Brunei and Sulu in 1877 and 1878 to a German-born representative of Austria-Hungary, businessman and diplomat, Gustav Overbeck.

Overbeck had recently purchased a small tract of land on the western coast of Borneo in 1876 from American merchant Joseph William Torrey, who had promoted the territory in Hong Kong since 1866.

In 1881, Dent established the North Borneo Provisional Association Ltd to manage the territory, which was granted a royal charter in the same year.

As the population was too small to effectively serve the economy, the British sponsored various migration schemes for Chinese workers from Hong Kong and China to work in the European plantations, and for Japanese immigrants to participate in the economic activities of North Borneo.

[8][9][10] William Clark Cowie played an important role as a close friend of the Sultanate of Sulu in helping Overbeck to buy additional land on the eastern coast of Borneo.

[15] Following his success in leasing large tracts of land from both the western and eastern parts of northern Borneo, Overbeck went to Europe to promote the territory in Austria-Hungary and Italy as well as in his own country of Germany, but none showed any real interest.

[6][18][23] Following the support from Britain, a clause was included in the treaties that the ceded territories could not be sold or given to another party without the permission of the British government.

[4] Unable to attract the interest of the governments of Austria, Italy and Germany, Overbeck withdrew in 1879; all his treaty rights with the Sultanates were transferred to Alfred Dent, who in 1881 formed the North Borneo Provisional Association Ltd with the support of countrymen Rutherford Alcock, Admiral Henry Keppel, Richard Biddulph Martin, Admiral Richard Mayne, and William Henry Read.

[7][27][28] William Hood Treacher was appointed as the first governor,[29] and Kudat at the northern tip of Borneo was chosen as the Provisional Association administration capital.

[55] The Allied Z Special Unit provided intelligence and other information from the Japanese that facilitated the AIF landings,[55] while US submarines were used to transport Australian commandos to Borneo.

This was not a conscious attempt by the British to instill indirect rule but a convenient arrangement for the district officers who were unfamiliar with local customs and politics.

[62] The company administration established a foundation for economic growth in North Borneo by restoring peace to a land where piracy and tribal feuds had grown rampant.

It abolished slavery and set up transport, health and education services for the people, and allowed indigenous communities to continue their traditional lifestyles.

[63] The British North Borneo Constabulary, the territory's police force, in 1883 comprised 3 Europeans, 50 Indians (Punjabis and Pashtuns), 30 Dayaks, 50 Somalis and 20 Malays.

No cession or other alienation of any part of the territory of the State of North Borneo shall be made by its Government to any foreign State, or the subjects or the citizens thereof, without the consent of Her Majesty's Government; but this restriction shall not apply to ordinary grants or leases of lands or houses to private individuals for purposes of residence, agriculture, commerce, or other business.

[66][67] The government however felt that the native population was too small and unsuited to meet the requirements of modern development, so they began to sponsor various schemes for the migration of Chinese workers from Hong Kong and China.

[70] Medhurst's efforts were costly and unsuccessful; however, the Hakka, not part of the plan, began to migrate to North Borneo where they formed an agricultural community.

The completion of North Borneo Railway Line helped to transport the resources to a major port on the west coast.

[70] In the same year, the Governor of North Borneo, Aylmer Cavendish Pearson invited Japanese emigrants to participate in the economic activities there.

[73] Many of the privately owned Japanese estates and companies had been involved in the economic sectors of North Borneo since being invited by the British.

[77] The Kadazan-Dusun and Murut were the largest indigenous group in the interior, while Bajau, Bruneian, Illanun, Kedayan and Suluk dominated the coastal areas.

[81] Under company rule, the government of North Borneo not only recruited Chinese workers but also Japanese immigrants to overcome the shortage of manpower in the economic sectors.

[84][page needed] The North Borneo Railway opened to the public on 1 August 1914 as the main transportation facility for west coast communities.