What’s in this article
In Malaysia, for anyone to start running a business will have to undergo business registration with the Companies Commission of Malaysia abbreviated SSM (Suruhanjaya Syarikat Malaysia). Given there are different types of entities available in Malaysia, it is crucial to understand their functions to ensure that it suits your business plan and expectations.
Categories of Business Entity Registration in Malaysia
There are three (3) main categories of business entity registration:
| Name | Registration of Business (ROB) | Registration of Company (ROC) | Limited Liability of Partnership (LLP) |
|---|---|---|---|
| Regulation | Registration of Business Act 1956 | Companies Act 2016 | Limited Liability Partnerships Act 2012 |
| Legal status |
|
|
|
| Types of businesses |
|
|
Limited Liability Partnership (LLP) |
Types of Business Businesses Entities in Malaysia
Generally, there are 5 main types of business entities in Malaysia.
The table below will highlight the differences of each entity type:
| Characteristics | Sole proprietorship | Partnership | Limited Liability Partnership (LLP) | Private Limited Company (Sdn. Bhd.) | Public Limited Company (Berhad) |
|---|---|---|---|---|---|
| Owner(s) of the business | Owned by single individual | Owned by 2 to 20 partners | Partners have share in the capital and profits | Members (shareholders) invested into the Company have certain rights relation to the Company | 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 | Separate legal entities | Separate legal entities |
| Liable party towards the debts | Owner | Partners | Company | Company | Company |
| Company Secretary | Not applicable | Not applicable | Qualified company secretary | Qualified company secretary | Qualified company secretary |
| Annual compliance | Annual fee required | Annual fee required | Annual declaration and solvency statement must be filed | Annual return must be filed on each calendar year | Annual return must be filed on each calendar year |
| Audit requirement | Not applicable | Not applicable | Not compulsory unless stated otherwise | Not compulsory unless stated otherwise | Compulsory |
| 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:
For paid up capital more than MYR 2.5 million
|
Tax chargeable on Company
For paid up capital less than MYR 2.5 million:
For paid up capital more than MYR 2.5 million
|
Tax chargeable on Company
For paid up capital less than MYR 2.5 million:
For paid up capital more than MYR 2.5 million
|
Sole Proprietorship VS Private Limited Company (Sdn. Bhd.)
The sole proprietorship seems like the best option for most people due to:
However, what most people do not realise is that these simple ways also come with a considerable risk to take note off:
So why should you opt for Private Limited Company (Sdn. Bhd.) instead of Sole Proprietor?
Partnership and Limited Liability Partnership (LLP)
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.
Why most prefer the conventional partnership compared to limited liability partnership (LLP)?
However, to those aiming for business vehicle which can carry out their business as partners but have the characteristics of private limited Company (Sdn. Bhd.), they will opt for a limited liability partnership (LLP).
Private Limited Company (Sdn. Bhd.) instead of Limited Liability Partnership (LLP)
Malaysia was ranked as the 12th easiest and friendliest place to do business by The World Bank with a score of 81.5%. One of the criteria that concludes the rank is the type of business used which is a Private Limited Company (Sdn. Bhd.).
Even though limited liability partnership (LLP) is almost similar to a private limited company (Sdn. Bhd.), there are still significant differences which opting to incorporate a private limited Company (Sdn. Bhd.) a better option:
1. Higher credibility
- This business vehicle is commonly used in Malaysia and is perceived to be more professional and legitimate entity
- Potential stakeholders or clients have more confidence in dealing with this type of business vehicle compared to others
- Easier to secure finance with lesser risk, personally
2. Limited liability
- It is treated as a separate legal entity and automatically safeguards the stakeholder’s personal wealth
- Bears responsibility on compliance matters and day-in-day-out operations as a ‘legal person’
3. Better access to funding
- As a ‘legal person’ they can initiate a bank account opening on its name once the Company is successfully incorporated
- Bankers usually offer the best packages of loan to meet the requirement of the Company business plan and expectations
- Company is able to encourage third party investor to fund the business by offering their shares and plan the dividend pay-out
4. Ease of future business expansion
- A private limited Company (Sdn. Bhd.) can always convert to a Public Listed Company (Berhad) once it grows to a level which public funding brings significance to the Company
- Since this type of Company can be owned solely by a foreigner, it can be one of the ways to expand their business from their home country in Malaysia
- The business will not die down if one of the stakeholders resigned or ceased which proofs as an ongoing entity
5. Great corporate tax advantages
- Tax incentives such as pioneer status, investment tax allowance and SME Digitalisation Grant Scheme and Automation Grant are normally offered to private limited Company (Sdn. Bhd.)
- The business will only be taxed based on the profit before tax with first MYR 600,000 at 17% and a further of 24% on subsequent balance for the corporate tax rate.
As mentioned earlier, the Company Act 2016 has eased the annual reporting for private limited Company (Sdn. Bhd.). Previously, all accounts are compulsory to hold an annual general meeting, file audited financial statement and have memorandum and articles of association.
With the amendment of the Company Act, it has made it easier and unlocked opportunities for businessmen all around the world to expand their business in Malaysia.
Public Limited Company is an option to expand existing business
Most of the regulation in private limited Company (Sdn. Bhd.) applies to a public limited Company (Berhad) except:
However, despite the differences, there are advantages once a private limited Company (Sdn. Bhd.) wishes to expand their business and convert to public limited Company (Berhad):
FAQs
This is dependent on several factors, but most businesses have managed to secure their licenses within 14 working days.
No, but business licenses are needed to operate legally.
You can be a boss in Malaysia by taking advantage of the enormous business potential in this vibrant country.
- Strategic location – Malaysia is at the geographic center of the ASEAN economic region which has over 600 million people and a combined GDP of $2 trillion
- Political stability – Malaysia is a stable democratic country with an independent parliament, judiciary and administration committed to economic growth
- Ease of starting a business – Only 3 procedures are required taking a period of 5.5 days
- Friendly tax rate – Corporate tax rate is at 25%, lower than Japan, Australia, and Brazil
- Business friendly- Malaysia is the 18th most friendly place in the world for business
You can appeal to the SSM in writing showing the compelling reasons why the SSM should consider your appeal. The SSM has the discretion to make the final decision.
A name search will normally be declined for the following reasons:
- The proposed company’s name is similar to the existing company and may cause some confusion to the public.
- The proposed company’s logo or name is banned by the Companies Act 1965 or other relevant Business Acts in Malaysia.
- The proposed company’s name is similar to the another name of an existing company since this may create unwanted confusion to the Public members
- Proposed company’s logo or name is not appealing and incomprehensible for use as company name, for example, Eeren Najsm Mosassa
The typical duration for rejection or approval is 1-2 working days.
Business licenses issued in Malaysia only pertain to businesses which have been set up there. Therefore, such licenses are not valid in countries other than Malaysia.
In Malaysia, a DP10 work permit is also known as a Professional Work Permit Visa. It is valid for two years but can have its validity extended by up to 10 years. It is meant for foreigners deemed to be skilled workers.
SSM was established in 2002. It is a statutory body that functions under the auspices of the Malaysian government. Its primary purposes are those of assisting in company incorporation and business registration as well as providing information about companies and businesses in Malaysia to the public.
A Sdn Bhd company is one of the most common business entities in Malaysia. It is a type of private company which is limited by shares. The liabilities of a Sdn Bhd company are also limited.
The punishments for failure to prepare audited accounts, annual returns, or both are not imposed on the company, but on the company’s director. The director of a company which fails to do so will be fined up to RM30,000, imprisoned for up to five years, or both.
SSM oversees all company registrations in Malaysia. Therefore, all company registrations have to go through SSM. It is impossible to register a company in Malaysia in any other way.
I want to open a private company in Malaysia. I think it needs 2 director and out of them one must be local. I don’t know anyone in Malaysia. Can your company help me to find a local director?
Hi P R,
Yes, we are able to assist on that. Do drop us a text on WhatsApp and our sales consultant will get back to you to discuss further: https://wa.me/6584833084
Thank you!
Joint name land title (both parents name) (palm oil) must register as partnership? or can register as sole proprietor?
Thank you.
Hi, please be informed that you can set up Sdn Bhd company with both parents name as shareholder and the company can purchase the land later
Please contact us via Paul Hype Page to discuss further.
Thank you for your question.
Warm regards
Paul
Can an LLP be set up with 1 owner ?
Hi Anura,
It is no possible because Partnership means more than 1.
Please contact us via Paul Hype Page to discuss further.
Thank you for your question.
Warm regards
Paul
can sdn bhd become shareholder of another sdn bhd?
Hi Lim
Yes it is possible for a company to do so. To discuss further, please contact us at Paul Hype Page.
Thank you for your comment.
Warm regards
Paul
Hi ,
Let’s say if it’s a LLP start up, and my name is in it. In the end, what if the company declares bankruptcy?
Would I have to bare any compensations and such?
Hi Blue
Unfortunately, as this pertains to legal liabilities, we are unable to advise you without better understanding the exact terms. Please seek legal advice from a lawyer familiar with corporate law.
Thank you for your comment.
Warm regards
Paul
Can foreigners be a director in BERHAD company?
Hi Hanisa
Yes, it is possible for foreigners to be directors of companies in Malaysia. There are certain restrictions depending on the nature of your business and if there are any Malaysian directors. To further discuss the requirements and the process for you to incorporate with us, please get in touch with us.
Thank you for your comment.
Warm regards
Paul
I am expat and i carry resident pass from my husband. We took 4 years ago because of my husband job. I would like to open a company. What kind of company i can open?
Hello Emel,
As a foreigner, you are permitted to open and completely own a Sendirian Berhad company according to Malaysia’s Companies Act of 2016. While owning this company, you may choose to avoid holding an annual general meeting, take advantage of the no par value share regime, and select a director who may also be one of the company’s shareholders. Should your company be eligible for one, you may also make use of an audit exemption.
Please contact us for further information on company incorporation and ownership in Malaysia.
Thank you for your question.
Paul