What’s in this article
- Types of Business Structures commonly used in Malaysia
- Sole Proprietorships in Malaysia
- Partnerships in Malaysia
- Private Limited Company (Sdn. Bhd.) in Malaysia
- Differences between Sole Proprietorship, Partnership and Private Limited Company (Sdn. Bhd.)
- Sole Proprietorship VS Private Limited Company (Sdn. Bhd.)
- Partnership VS Private Limited Company (Sdn. Bhd.)
- Our Insights
To set up a business in Malaysia, there are a few business structures available for you to choose from. The most popular would be setting up a Private Limited Company (Sdn. Bhd.). Other options include sole proprietorship and partnership.
There are often varying reasons for business owners to decide setting up one of the options. We will discuss in detail on what are the differences between the three business structures and why business owners decide to choose such business structure.
Types of Business Structures commonly used in Malaysia
Sole Proprietorship
A sole proprietorship is the most common and simplest legal business structure in Malaysia. It is governed by Companies Commission of Malaysia abbreviated SSM (Suruhanjaya Syarikat Malaysia) and Registration of Businesses Act 1956.
A sole proprietorship in Malaysia is a wholly owned business by a single individual using his personal name or a trade name. However, it can only be registered by Malaysia citizen or Permanent Resident (PR).
Partnership
Similar to sole proprietorship, a partnership is also governed by Companies Commission of Malaysia abbreviated SSM (Suruhanjaya Syarikat Malaysia) and Registration of Businesses Act 1956.
However, unlike a sole proprietorship, a partnership in Malaysia is normally owned by two partners and not exceed twenty (20) partners at one time. The name registered must be a trading name and not personal name.
Similar to sole proprietorship, only Malaysia citizen or Permanent Resident (PR) can register such business structure.
Private Limited Company (Sdn. Bhd.)
A private limited Company or commonly known as “Sendirian Berhad” or “Sdn. Bhd.” is the preferred choice of business structure in Malaysia. It is governed by Companies Commission of Malaysia abbreviated SSM (Suruhanjaya Syarikat Malaysia) and Company Act 2016.
Unlike sole proprietorship and partnership, it can be solely owned by Malaysia citizen, Permanent Resident (PR) as well as foreigners alike. This type of business structure can acquire assets, go into debt, bind a contract and has perpetual succession until directors and shareholders decide to dissolve the Company.
Similar to sole proprietorship, only Malaysia citizen or Permanent Resident (PR) can register such business structure.
Private Limited Company (Sdn. Bhd.)
A private limited Company or commonly known as “Sendirian Berhad” or “Sdn. Bhd.” is the preferred choice of business structure in Malaysia. It is governed by Companies Commission of Malaysia abbreviated SSM (Suruhanjaya Syarikat Malaysia) and Company Act 2016.
Unlike sole proprietorship and partnership, it can be solely owned by Malaysia citizen, Permanent Resident (PR) as well as foreigners alike. This type of business structure can acquire assets, go into debt, bind a contract and has perpetual succession until directors and shareholders decide to dissolve the Company.
Sole Proprietorships in Malaysia
Sole proprietorship is a high-risk high-return type of business structure where Malaysian start-up business owners admire. The unique features that this type of business structure offers include fast and easy registration, no corporate tax payments, less formal business requirements, easy to wind up and lowest annual maintenance.
However, this type of business structure also has its downside:
The cost and annual compliance to maintain a sole proprietorship might be less compared to other type of business entities, however, the risk of the owner facing bankruptcy is definitely a lot at stake.
Partnerships in Malaysia
A partnership is actually similar to sole proprietorship except it can have more than one (1) owner but not more than twenty (20). This type of business is normally used for start-up audit firms or law firms.
In order to register a partnership, all business owners must visit Companies Commission of Malaysia abbreviated SSM (Suruhanjaya Syarikat Malaysia) personally. Do note that Secretarial firms are not able to register this type of business structure on behalf of the owners.
Similar to that of a sole proprietorship, partnership also share several downsides which can be hasty for businessmen:
The lack of stability within such business structure which can lead to loss of autonomy and chances for a partner to suddenly withdraw from the partnership will lead to a higher misfortune.
Private Limited Company (Sdn. Bhd.) in Malaysia
One of the most preferred legal business structures in Malaysia is the Private Limited Company otherwise known as “Sendirian Berhad” or “Sdn. Bhd.”. This business structure can be started by both local as well as foreigners in Malaysia.
The range of advantages Private Limited Company (Sdn. Bhd.) offers topple the other business structures available in Malaysia:
Differences between Sole Proprietorship, Partnership and Private Limited Company (Sdn. Bhd.)
The table below will highlight the differences of each business type:
| Sole proprietorship | Partnership | Private Limited Company (Sdn. Bhd.) | |
|---|---|---|---|
| Owner(s) of the business | Owned by single individual | Owned by 2 to 20 partners | Members (shareholders) invested into the Company have certain rights relation to the Company |
| Legal status | Not separate legal entities | Not separate legal entities | Separate legal entities |
| Liable party towards the debts | Owner | Partners | Company |
| Company Secretary | Not applicable | Not applicable | Qualified company secretary |
| Annual compliance | Annual fee required | Annual fee required | Annual return must be filed on each calendar year |
| Audit requirement | Not applicable | Not applicable | Not compulsory unless stated otherwise |
| Tax rate | Tax chargeable on owner (0% to 26%) | Tax chargeable on owner (0% to 26%) |
Tax chargeable on Company For paid up capital less than MYR 2.5 million: On first MYR 600k – 17% Subsequent balance – 24%
For paid up capital more than MYR 2.5 million: Flat rate 24% |
Sole Proprietorship VS Private Limited Company (Sdn. Bhd.)
As many might know, most Malaysians prefer to incorporate a sole proprietorship compared to a private limited Company (Sdn. Bhd.) due to the cheap cost and easy registration as well as cheaper cost to maintain the business annually. However, things can be rather difficult once business turn south, leading to their wish to incorporate a separate legal entity that a private limited Company (Sdn. Bhd.) offers.
Partnership VS Private Limited Company (Sdn. Bhd.)
Similar to partnership, incorporating a private limited Company (Sdn. Bhd.) brings more advantages to business owners:
Our Insights
As a team who has dealt with many types of cases throughout the years, we can conclude that:
As a local, in order for me to run a home-based business, incorporating a sole proprietorship or partnership seems like the best option available. Not only am I, as the business owner can monitor clearly on the business operation but if I feel like the business is not generating income as much as I expected, I can always windup the Company when I deemed fit.
As a foreigner, even though I am not allowed to run a sole proprietorship or partnership Company in Malaysia, incorporating a private limited Company (Sdn. Bhd.) do come in handy for a business expansion at a foreign land. Not only does the advantages topples the disadvantages, but the registration and annual maintenance are manageable. If the business does not meet my expectation, I will not lose my personal wealth and can request for the appointed Company Secretary to file a strike off application.
FAQs
Malaysia’s company laws allow people of any nationality to set up a Sdn Bhd company there. Conversely, foreigners may not start a sole proprietorship or partnership in Malaysia.
Although a Sdn Bhd has everlasting business continuity, it may nevertheless be dissolved. Of course, all the steps of company dissolution must be completed before such may take place.
All Sdn Bhd companies are required to have shareholders before they many conduct business operations. It is illegal for such a company to operate if it does not have any shareholders.
The latest change to the Partnership Act took place in 1974. This update involved the amending of Act A240.
Every business in Malaysia cannot be categorized as more than one business structure. Therefore, businesses in Malaysia cannot make use of more than one business structure at the same time.
The primary advantage of owning a private company limited by shares lies in the fact that it confers its owner with limited liability. Thus, those who are more risk-averse tend to start such companies. This benefit causes many to be interested in setting up these companies.
A WRT License applies to companies owned by foreign non-residents in Malaysia. It regulates the participation of foreigners in the country’s distributive trade sector. It also promotes fair and balanced development across businesses in Malaysia.
Each business type which can be started by foreigners living in Malaysia will have different business activities. These different business activities will naturally require differing amounts of money to be spent. Therefore, the paid-up capital requirements are different to account for such discrepancies.
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