5 Types of Company Entities in Malaysia

Posted by We Corporate on April 12th, 2021

Malaysia is one of the best investment destinations to do business in Asia. Thinking starting own business in Malaysia and what business to start? Choose which type of business or company you would like to start first.

There a few types of corporate structures allowed in Malaysia, namely

1. Sole proprietorship
2. Conventional partnership
3. Sendirian Berhad (“Sdn. Bhd.”)
4. Berhad
5. Limited Liability Partnership (“LLP”)

Sole Proprietorship

Characteristics

• The most traditional form of business structure in Malaysia
• Owned by just one person (only Malaysian citizens or permanent residents can set up proprietorship.

Advantages of sole proprietorship

• Simple and fast to set up as it can be ready in 1 hour.
• Low costs of yearly maintenance as no statutory audit and company secretary requirements.

Disadvantages of sole proprietorship

• Unlimited liability to the owner. For example, if someone sues the sole proprietorship, there is unlimited liability on the owner, and he may be declared bankrupt due to this liability.
• Unfavourable tax rate if the business is making significant profit (e.g. RM600,000) as sole proprietorship is assess based on personal income tax rate on a scale rate ranging up to 28%.

Conventional Partnership

Characteristics

• It is jointly owned by two or more individuals (maximum at 50 partners)
• It is governed by the Partnership Act 1961 or self-created partnership agreements.

Advantages of Conventional Partnership

• Low set-up cost and low maintenance costs as no statutory audit and company secretary requirements.
• Ease of incorporation with the Companies Commission of Malaysia (SSM),
• Shared liability among all partners

Disadvantages of Conventional Partnership

• Jointly liable for liability of the partnership and there is unlimited liability.
• Unfavourable tax rate if the business is making significant profit (e.g. RM600,000) as partnership tax is assess based on personal income tax rate on a scale rate ranging up to 28%.
• The business continuity of the partnership will be affected if a partner dies, quits, or leaves the partnership in any other manner.
• Difficult to receive important bank loans.

Sendirian Berhad (“Sdn. Bhd.”)

Characteristics

Sendirian Berhad or more commonly known Sdn. Bhd. is translated to private limited company.

• The most distinct feature is that it is separate legal entity, which mean:
• It can carry on business
• It can enter into a contract
• It can sue or be sued
• It is body corporate separate from its shareholders which mean the shareholders are not liable for its liabilities
• It exists perpetually even when the owner dies, quits, or relinquishes ownership in any other manner
• Owner who is the shareholder could be the different person from running the company, i.e. director
• It can have 1 to 50 shareholders. (For company beyond 50 shareholders, it will need to set up a Berhad company)
• Can be 100% owned by Foreigners or Foreign Companies

Advantages of Sdn. Bhd.

• Limited liability to the owner/shareholder is limited to the share capital they have injected
• Easier to obtain bank loan and big contracts as it is considered a more creditworthy business structure as compared to sole proprietorship and conventional partnership
• Easier to have a variety of share structure to cater to each individual shareholders
• Favourable tax rate at 17% and 24% based on different perimeters (See “Corporate Tax Planning” tab for more details)
• With the new Companies Act 2016, even a single person can set up a Sdn Bhd (previously it requires at least two shareholders and two directors)

Disadvantages of Sdn. Bhd.

• Higher set up costs (approximately RM2,500-RM3,000 including government fees)
• Higher maintenance costs as it require annual statutory audit and company secretarial services
• Additional compliance as required by laws to do statutory submission

With WeCorporate we are offering competitive incorporation package for both local and foreigner and with our dedicated team we will ensure that all the regulations are complied.

Limited Liability Partnership

It is a relatively new corporate structure governed under Limited Liability Partnership Act 2012 and is a hybrid of conventional partnership and Sdn. Bhd.

Characteristics of Limited Liability Partnership

• Limited liability for each of the partners
• Governed by a tailor-made partnership agreement
• Unlimited number of partners
• Need to appoint a compliance officer whose responsibilities is ensure the LLP submit statutory returns to SSM

Advantages of Limited Liability Partnership

• Low set up costs
• Low maintenance fee as does not need to perform annual statutory audit
• Financials records are not public
• It is governed by LLP agreement which can be tailor made to suit the individual partners’ need
• It exists perpetually even when the owner dies, quits, or relinquishes ownership in any other manner
• Favourable tax rate at 17% and 24% based on different perimeters (See “Corporate Tax Planning” for more detailed)

Disadvantages of Limited Liability Partnership

• A relatively new form of corporate structure hence not easy to get bank loan

Learn more about doing business in Malaysia on this WeCorporate blog.