8 Types of Business Entities in Malaysia
Starting a business can be a thrilling and rewarding experience, but it can also be a challenging one. In Malaysia, you will first need to register a business entity with The Companies Commission of Malaysia (SSM) within 30 days from when you start operating.
The type of entity chosen will significantly impact the way the business is structured, taxed, and regulated. Therefore, depending on your needs and objective, you need to select the type of business entity to set up.
Here are the most common types:
1) Sole proprietorship or Enterprise
A sole proprietorship, commonly known as an enterprise, is a business owned by a single individual who is responsible for all aspects of the business. It is the easiest and cheapest type of business to set up, and the owner has full control over the business. Do note that only Malaysians and permanent residents can register. Enterprise owners will also need to pay an annual fee to SSM to keep the company renewed.
Advantages of a sole proprietorship
✔ Cheap and easy registration process
✔ No statutory audits or annual filing is required
Disadvantages of a sole proprietorship
✖ Unlimited liability to the owner
✖ Unfavourable tax rate, as taxes will be filed on the owner’s personal income.
2) Partnership
A partnership is a business owned by two or more individuals, who share the profits and losses of the company. There are several types of partnerships, including general partnerships and limited partnerships.
Advantages of a partnership
✔ Cheap and easy registration process
✔ No statutory audit is required.
✔ Liability shared among partners
Disadvantages of a partnership
✖ Unlimited liability to all partners, as a partnership is not a separate legal entity.
✖ Unfavourable tax rate, as each partner will be taxed on their individual income.
3. Private Limited Company (Sdn Bhd)
A private limited (Sdn. Bhd.) company is the most common type of company in Malaysia. To establish a Sdn. Bhd. in Malaysia, you would need to register the entity with SSM, with at least one shareholder and up to 50 shareholders. Sha
As it is a separate legal entity from its owners and shareholders, the company can conduct transactions, buy or sell assets, enter legal contracts and be involved in lawsuits on its own.
In other words, company owners and shareholders are liable only for the amount they have contributed to the company, and their personal assets or wealth will be left untouched if something happens to the company.
Advantages of a Sdn. Bhd.
✔ Limited liability to owner and shareholder
✔ Favourable tax rate
✔ Can be 100% owned by a non-Malaysian person or corporate entity
✔ Can be converted to Berhad
Disadvantages of a Sdn. Bhd.
✖ Annual audition report required
✖ Higher cost of incorporation and maintenance
4. Public Limited Company (Bhd.)
A public limited (Bhd.) company can be listed on a stock exchange and can raise capital by issuing shares to the public. It has more stringent regulations and requires a minimum of three directors, two of which must be Malaysian residents. A Bhd. company will be more likely suitable for large corporations.
Advantages of a Bhd.
✔ Easier to raise capital as it’s access to the public market
✔ Unlimited number of members
✔ Flexible ownership of shares
Disadvantages of a Bhd.
✖ Costly and complicated registration process
✖ Required to disclose Financial/Annual Report
5. Company Limited by Guarantee (CLG)
A company limited by guarantee (CLG) is a non-profit organisation that has no share capital. There are no shareholders, only members who act as guarantors to run the operation but members of the company should contribute a predetermined amount in the event of winding up.
Advantages of a CLG
✔ No upfront contribution from members
✔ Company tax exemption
✔ Used to promote charity, religion, pensions, etc.
Disadvantages of a CLG
✖ Usage of company profit is only allowed for constitutional objectives.
6. Unlimited Company
An unlimited company has no limit on the liability of its members. It is not a common type of company in Malaysia and is only used in special circumstances.
Advantages of an Unlimited Company
✔ Can be converted to a limited company
✔ Flexibility in the ownership of shares
Disadvantages of an Unlimited Company
✖ Unlimited liability for shareholders
7. Foreign Companies
Foreign companies are business entities that are incorporated outside of Malaysia but have business operations in Malaysia. They must be registered with SSM to operate legally in the country.
Advantages of a Foreign Company
✔ Allow non-Malaysians to run the business in Malaysia without a local director
Disadvantages of a Foreign Company
✖ Only allowed to form between Sdn. Bhd. company or foreign company
8. Limited Liability Partnership (LLP)
A Limited Liability Partnership (LLP) is considered a relatively new type of business, introduced in 2012 and used by professionals such as attorneys and auditors. It offers limited liability, meaning liabilities incurred will stay within the company only. LLP is not yet frequently registered in Malaysia, as it is still a fresh concept.
Advantages of an LLP
✔ Cheap for incorporation and maintenance
✔ No statutory auditing is required
Disadvantages of an LLP
✖ Relatively new concept in Malaysia
✖ May have difficulty getting a bank loan
How To Start A Business In Malaysia
As mentioned above, you must register your new company with SSM, within 30 days of business operation commencement. Then, you must complete statutory requirements such as appointing the first company secretary, lodging the company constitution and opening a company bank account.
There are 2 ways to register a new company:
- Direct incorporation
You can register your company directly to SSM. This may be time-consuming, as some processes may require you to be physically present at the SSM offices or branches. You will be notified of approvals by SSM, and further statutory compliance processes must be undertaken within the stipulated period.
- Name reservation
You may reserve a proposed name with SSM prior to registering your company. This can be done in the event of reserving a brand-affiliated or trademarked name. Once you have received approvals from SSM, you may proceed with incorporating your company either directly with SSM.
The Easiest Way to Start A Sdn. Bhd. in Malaysia
While the process seems straightforward enough, business owners may still need to navigate complex processes and statutory requirements. This confusion may sometimes result in compliance errors and offences.
Instead, you may opt to start your company via A Company’s platform. All you need to do is to sign up and get started on the platform. We will take care of all compliance paperwork, due process and fine prints.
Wouldn’t it be a dream if you could set up your company anytime anywhere, with all compliance matters settled within 3 business days?