Given the different entities available here, they might suit different stages of your business or perhaps serve different business needs. Therefore, is it crucial that you know them all and how are they different from one another. By knowing them, you will be able to understand more about how the other business functions and you can see your own business idea in a different light, resulting you in choosing the type of business entity you should launch as.
Broadly, there are 5 main types of business entities in Malaysia which are:
- Sole proprietorship
- Limited Liability Partnership, also known as LLP
- Private Limited Company, commonly known as Sendirian Berhad or Sdn Bhd
- Public Limited Company, locally known as Berhad
These types of companies differ by how the ultimate owners exercise the level of control on the business.
This is one of the simplest and cheapest from of business entity to establish among the others. If you register your Malaysian company as a sole proprietorship, you are only required to pay an annual fee to the Companies Commission of Malaysia abbreviated SSM (Suruhanjaya Syarikat Malaysia) which is the statutory body that regulates corporate and business affairs in Malaysia. The annual fee required is solely for the purpose of keeping the business renewed every year. Sole proprietorship companies are not required to submit audits or perform annual filling for business.
This type of entity is owned solely by only one individual, as his or her liability is unlimited. This means that when a business or is declared bankrupt, creditors will be able to sue the sole proprietor’s owner for all the debts owned to respective merchants. Personal income, personal assets as well as employment income are all liable in this context. Only Malaysian citizens or permanent residents are permitted to register under this business entity.
Partnership is similar to sole proprietorship except there are more than 1 owner. In other words, it is like an extended version of sole proprietorship. Partnership comprises of a joint-entity holder with 2 or more people and a maximum of 20 members.
This type of business set ups is most suitable for professional firms such as auditors and lawyers. The partners in a partnership business entity are also bounded by unlimited liability.
Like in the case of sole proprietorships, only Malaysian citizens of permanent residents are permitted to register partnerships.
Limited Liability Partnership(LLP)
The Limited Liability Partnership or LLP is a hybrid between a partnership and private limited company. It is similar to the conventional partnership but with the advantages of a private limited company. Below are some of the features of LLP:
- It is a body corporate and a separate legal entity from its partners.
- LLP has perpetual successions
- The LLP is capable of suing and being sued, acquiring, owning, holding and developing or disposing of property.
- LLP has fewer compliance requirements and is a much more affordable business vehicle. For instance, LLP is not required to audit its accounts annually.
Private Limited Company / Sendirian Berhad (Sdn Bhd)
A private limited company by shareholding is known as Sendirian Berhad (Sdn Bhd) Company. This type of company is a separate legal entity from its owners, which means this company is considered as a legal ‘person’ that can buy or sell property, present into legal contracts, sue or get sued in courts of law.
Choosing this type of entity allows an entrepreneur to keep their finances and assets separately from the business. This means that the people who have invested in the business, namely the shareholders, are only responsible for any company debts up to the amount that they have invested and no more. Hence, this type of entity is a good way for a company to get investment without risk to a personal wealth.
While a private limited company is a viable option for most businesses, this one of the most common type of business recommended for foreign owners. Foreigners are allowed to register a Sendirian Berhad (Sdn Bhd) here with 100% foreign ownership, but some industries will need to have 50% Malaysian ownership and these industries include oil and gas, education, tourism, agriculture and banking. If your business falls outside of these industries, then you are eligible to be a 100% foreign owned Sdn Bhd.
Public Limited Company / Berhad(Bhd)
A public limited company or Berhad (Bhd) is rather similar to private limited companies except that its shares can be offered to the public for fixed periods and any other forms of subscription. Public limited companies are required to have a minimum of 2 shareholders and has more than 50 members and maximum number of members is unlimited. This type of business entity usually involves the company being listed and is governed by the Securities Commission of Malaysia. Public listed companies are usually the preferred business model for large businesses.