Before you register a company in Malaysia, one of the first things to do is to decide the business entity your company will take. Simply put, a business entity refers to the form of incorporation for a business. In this article, we will explore the types of business entities in Malaysia
Points to consider when selecting a business entity
Before proceeding with offshore company registration in Malaysia, it is crucial to get a grasp on the business landscape of the jurisdiction. Determining which business entity is best for a company formation in Malaysia depends on a variety of considerations:
- How many company owners will there be?
- What is your risk appetite?
- What are the benefits and disadvantages of each business entity?
- What is the amount of investment capital you are willing to pay?
- What liabilities are you willing to be responsible for?
Types of business entities in Malaysia
- Sole Proprietorship
- Partnership
- Limited Liability Partnership (LLP)
- Sendirian Berhad (Sdn Bhd) / Private Limited Company
- Berhad (Bhd) / Public Limited Company
- Branch Office
#1 Sole Proprietorship
Sole proprietorship in Malaysia, being one of the simplest business entities to get started with, involves only one owner. As there is only one owner, that owner is fully liable for all the debt repayments and liabilities of the company and pays taxes through their personal income tax.
Under the Registration of Businesses Act 1956, for a new company registration in Malaysia, a sole proprietor must incorporate his company with the Registrar of Businesses within 30 days of commencement. Upon failing to do so, the sole proprietor will be fined up to RM50,000 and/or imprisoned for up to 2 years.
However, to apply for a sole proprietorship in Malaysia, you must be either a Malaysian citizen or a permanent resident, as foreign owners are not permitted.
#2 Partnership
A partnership is similar to sole proprietorship, except that it involves at least 2 owners. These partners are bound by unlimited liability. They share the liabilities towards the business and pay taxes through personal income taxes. This type of business set-up is most suitable for professional firms such as auditors and lawyers. Like sole proprietorship, you must be either a Malaysian citizen or a permanent resident. Foreigners are not allowed to register partnerships.
#3 Limited Liability Partnership (LLP)
Another common business entity is the Limited Liability Partnership (LLP), which is governed under the Limited Liability Partnerships Act 2012. The LLP combines the characteristics of a conventional partnership and a limited liability company (LLC).
As the LLP is a separate legal entity from its members, it suggests that the members are subjected to limited liability. In this form of partnership, the partners have unlimited liability for their own acts, but not for the debts of the partnership nor the liabilities of the other partners. Additionally, some advantages of LLP is that it has fewer compliance requirements and is more cost-effective for companies. For example, annual auditing is not mandatory for an LLP.
This means that the LLP concept provides a supportive and conducive environment for start-ups and small and medium enterprises.
#4 Sendirian Berhad (Sdn Bhd) / Private Limited Company
Sendirian Berhad (Sdn Bhd) is a private limited company. It is the equivalent of a Limited Liability Company (LLC), where all shareholders are accountable for the debts the company incurs.
Sdn Bhd is the most common type of business among foreign owners as they are allowed to register for Sdn Bhd with 100% foreign ownership.
Requirements to apply for Sdn Bhd:
- 1 shareholder of any nationality
- 1 Malaysia resident director
- 1 Malaysia company secretary
- A Malaysia registered office address
- No minimum paid-up capital
#5 Berhad (Bhd) / Public Limited Company
Berhad (Bhd) is a public limited company which bears similarities to a private limited company. However, its shares can be held by the public, unlike the private limited company. There is no limit on the number of shareholders and at least 2 directors are needed. It is also governed by Bursa Malaysia Securities Berhad and the Security Commission of Malaysia.
As Bhd companies are required to publicly report their financial statements, they are subject to more stringent compliance standards than Sdn Bhd companies. Although funding for the company would be easier, the strict compliance measures make it more difficult and costly to register.
#6 Branch Office
This business entity is suitable if your company aims to penetrate into Malaysian markets. A branch office refers to an extension of the parent company and can only conduct business activities in Malaysia similar to that of the parent company.
Your subsidiary company in Malaysia is required to register the same trading name as the parent company and will be able to hire both local and foreign employees. The parent company is 100% shareholder and is fully liable for the debts incurred by the Malaysia branch office. The subsidiary company will be subjected to corporate taxes, but only for the income earned in Malaysia.
In addition, the branch office is also subjected to a withholding tax of 10%. Most foreign companies prefer to set up a Malaysia LLC rather than a branch office.
How to choose the correct types of business entities in Malaysia?
It is crucial to weigh the pros and cons of each business entity so that your business goals are adequately met. At Tetra Consultants, we provide our clients with an easy and hassle-free way to set up a business in Malaysia. Our team of experts will guide you through the full incorporation process, including providing advice on the best business entity for your company, engaging a qualified resident director and opening a corporate bank account.
Contact us now and our team will revert within 24 hours.
