According to Malaysia’s Companies Act 2016, a company can be limited by shares, limited by guarantee, or unlimited, and be further categorised as a private or public company. There are also sole proprietorship and partnership structures to consider. Each business structure serves the particular needs of a business, based on the factors such as control, liability and other terms under which the operation will be carried out. Determining and agreeing on a business structure is a prerequisite of applying to register a business in Malaysia. Business owners-to-be who want to register company in Malaysia should understand the nature, as well as the advantages and disadvantages of each company structure before making a decision.
In Malaysia, the most common types of business entities are Sole Proprietorship, Partnership, Limited Liability Partnership, Private Limited Company / Sendirian Berhad (Sdn Bhd) and Public Limited Company / Berhad (Bhd).
Register Company in Malaysia
The simplest and least expensive to set up among allowed business structure options to establish in Malaysia, Sole Proprietorship is a business wholly owned by a single individual. Advantages of a Sole Proprietorship include fast and easy registration, no corporate tax payments, less formal business requirements, winding up easily and lowest annual maintenance. However, its liability is unlimited. Should the business end up in debt, creditors are able to seize the owner’s personal income, personal assets and also employment income, if applicable. This legal entity is also reserved for only Malaysian citizens or permanent residents. Foreigner and corporate legal entity are not allowed to register sole proprietorship in Malaysia.
Partnership is similar to Sole Proprietorship except Partnerships are jointly owned by two or more individuals and up to a maximum of 20. Every partner in a partnership business entity is similarly bounded by unlimited liability, and only Malaysian citizens of permanent residents are permitted to register. Advantages of Partnership include low startup cost, low maintenance costs, ease of incorporation with SSM, shared liability among partners and tax rates tailored to suit each partner. Many small and medium-sized enterprises (SMEs) stand to gain registering as Partnership in Malaysia. However, the liability of the partners for the debts of the business is unlimited, and each partner is fully liable for the debts of the partnership, which implies partners are liable for their share of the partnership debts as well as the total debt.
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 shares the advantages of Pte Ltd such as company and owners being separate legal entities and perpetual succession.
Private Limited Company / Sendirian Berhad (Sdn Bhd)
The Private Limited or Sendirian Berhad (Sdn Bhd) business structure deserves special attention as it is the most preferred business by entrepreneurs. First and foremost, it is a separate legal entity from its owners, which means owners do not put their personal finances and assets at risk should the company ends up in debt. What shareholders could lose is the amount they have invested in the company and no more. Also, a Pte Ltd company is more attractive to investors and lenders. Foreign investors are allowed to register Sdn Bhd in Malaysia with 100% foreign ownership, except for some industries, and therefore, all things considered, it is highly recommended.
Advantages of a Sdn Bhd
- only takes 1 person to register
- does not require a constitution (rights and obligations of directors and shareholders are stated in the Companies Act 2016)
- relatively inexpensive to set up
Disadvantages of a Sdn Bhd
- unable to expand beyond 50 shareholders
- unable to offer shares to the public
- unable to solicit the public to deposit money
- restrictions on shares transfer
Public Limited Company / Berhad(Bhd)
Public Limited Companies or Berhad (Bhd) are the largest companies in Malaysia. While primarily similar to Private Limited companies where limited liability and perpetual continuity are concerned, their shares can be offered to the public without a limit on number of shareholders. Bhd companies are required to have at least 2 directors and are governed by Bursa Malaysia Securities Berhad and the Security Commission of Malaysia, and they are subject to stricter financial reporting standards as public disclosure of financial statements is required. Advantages of a Bhd include the relative ease to raise funds and flexibility of share ownership. Disadvantages include costliness and difficulty at the incorporation stage and more stringent regulations imposed.