When establishing a business in Malaysia, understanding the key differences between business structures helps you make an informed choice. Let’s compare Sole Proprietorship, Partnership, Private Limited Company (Sdn Bhd), and Limited Liability Partnership (LLP) across crucial attributes.
For in-depth information about all business structures available in Malaysia, check out our comprehensive guide: Types of Business Entities in Malaysia – Info & Practical Guide >>
Ownership Structure: Sdn Bhd vs LLP vs Sole Proprietorship vs Partnership
Sdn Bhd provides greater ownership flexibility than traditional structures, accommodating 1-50 shareholders with foreign investor participation. This offers more versatility compared to Sole Proprietorship, which restricts ownership to a single Malaysian citizen or permanent resident.
While Partnerships allow 2-20 Malaysian partners, LLP emerges as more flexible by permitting unlimited partners and foreign participation, though with less structural formality than Sdn Bhd.
Liability Protection
Among all structures, Sdn Bhd delivers the highest level of asset protection through complete separation of personal and business assets. LLP follows closely with similar protection levels but offers more operational flexibility than Sdn Bhd.
In contrast, both Sole Proprietorships and Partnerships provide no asset protection, leaving owners personally liable for all business obligations – making them significantly riskier than corporate structures.
Setup Costs and Compliance
Sole Proprietorships and Partnerships are substantially more economical to establish and maintain than other structures, with registration fees starting from just MYR 30-60. Their compliance requirements are also minimal, requiring only simple annual renewals.
In comparison, Sdn Bhd demands the highest investment, requiring mandatory company secretary services and mandatory annual filings: annual return (AR) and audited / unaudited financial statements and reports (FS).
LLP strikes a balance between these extremes, featuring moderate setup costs and submission of annual declarations (AD) without mandatory audits.
Pro Tip: Save time and money by engaging a company registration agency to incorporate your business. For guidance on selecting a reputable agency, check out our article: How to Choose the Right Company Registration Agency in Malaysia >>
Growth Potential
Sdn Bhd stands out with superior market credibility and growth capabilities compared to all other structures, offering enhanced access to funding through shares, loans, and investments.
While LLP provides better funding options than basic structures, it cannot match Sdn Bhd’s comprehensive financing advantages.
Tax Implications
For taxation, Sdn Bhd and LLP are subject to corporate tax rates. As a general rule of thumb, Sdn Bhd and LLP that make more than RM152,000 in annual profit are taxed at a lower rate than Sole Proprietorships and Partnerships.
However, for Sdn Bhd and LLP with paid-up capital of more than RM2.5 million or gross business income of more than RM50 million, corporate tax rates are only advantageous for annual profits above RM790,000.
Both Sole Proprietorships and Partnerships potentially face higher tax burdens through personal tax rates, making them less efficient for larger earnings.
For your convenience, here are the tax rates for corporate tax and individual income tax.
Corporate Tax Rate (Assessment Year 2023)
| Year Assessment 2023 | Percentage |
|---|---|
| 1. Company with paid up capital not more than RM2.5 million and gross business income of not more than RM50 million | |
| – On first RM150,000 | 15% |
| – RM150,001 to RM600,000 | 17% |
| – RM600,001 and Subsequent Balance | 24% |
| 2. Company other than the above category | 24% |
Personal Tax Rate (Assessment Year 2023)
| Category | Chargeable Income | Calculations (RM) | Rate % | Tax(RM) |
|---|---|---|---|---|
| A | 0 – 5,000 | On the First 5,000 | 0 | 0 |
| B | 5,001 – 20,000 | On the First 5,000 Next 15,000 | 1 | 0 150 |
| C | 20,001 – 35,000 | On the First 20,000 Next 15,000 | 3 | 150 450 |
| D | 35,001 – 50,000 | On the First 35,000 Next 15,000 | 6 | 600 900 |
| E | 50,001 – 70,000 | On the First 50,000 Next 20,000 | 11 | 1,500 2,200 |
| F | 70,001 – 100,000 | On the First 70,000 Next 30,000 | 19 | 3,700 5,700 |
| G | 100,001 – 400,000 | On the First 100,000 Next 300,000 | 25 | 9,400 75,000 |
| H | 400,001 – 600,000 | On the First 400,000 Next 200,000 | 26 | 84,400 52,000 |
| I | 600,001 – 2,000,000 | On the First 600,000 Next 1,400,000 | 28 | 136,400 392,000 |
| J | Exceeding 2,000,000 | On the First 2,000,000 Next ringgit | 30 | 528,400 |
Quick Comparison Table
| Feature | Sole Proprietorship | Partnership | LLP | Sdn Bhd |
|---|---|---|---|---|
| Ownership | Single Malaysian owner | 2-20 Malaysian partners | Unlimited partners | 1-50 shareholders (local/foreign) |
| Liability Protection | None | None | Yes | Yes |
| Setup Costs | Lowest | Low | Moderate | Highest |
| Compliance | Minimal | Minimal | Moderate | Extensive |
| Growth Potential | Limited | Limited | Moderate | Highest |
| Taxation | Personal rates | Personal rates | Corporate rates | Corporate rates |
Matching Structures to Business Scenarios
Choose Sdn Bhd When:
- Planning significant business expansion
- Requiring strong market credibility
- Operating in high-risk industries
- Seeking diverse funding options
Consider LLP When:
- Providing professional services
- Balancing protection with flexibility
- Managing compliance costs
- Operating with multiple partners
Opt for Traditional Structures When:
- Starting a small, local business
- Testing a business concept
- Operating with minimal risk
- Prioritizing operational simplicity
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Making the Right Choice for Your Business Future
While Sole Proprietorships and Partnerships offer simplicity for small-scale operations, Sdn Bhd provides comprehensive protection and credibility for ambitious ventures. LLP serves as an excellent middle ground, combining flexibility with asset protection.
Remember that your initial choice isn’t permanent. As your business evolves, you can transition to a more suitable structure that aligns with your growth trajectory and operational needs. Consider regular reviews of your business structure to ensure it continues to serve your evolving business objectives effectively.
