Type of Business Entities in Malaysia

During the incorporation process, it is important to select the right type of business entity in Malaysia. Every business owner should make a choice on the type of business that is the most fit for their business objectives.

Every type of business entity is suitable for different type of business.The differences among different types of business entity are illustrated in the table below:

Type of company No. of business owner Suitable for Personal liabilities
Sendirian Berhad (Sdn Bhd) / Private Limited Company 1 – 50 shareholders Anyone who wants to run a SME business in Malaysia. Company’s liabilities separated from the directors’ and shareholders’
Company Limited by Guarantee (CLG) Only members Non-profit organizations / NGOs Members are liable according to the amount of guarantee as promised
Berhad (Bhd) / Public Limited Company Unlimited shareholders Entrepreneurs with extensive business models Company’s liabilities separated from the directors’ and shareholders’
Foreign Company 1 – 50 shareholders Foreigners not residing in Malaysia who want to start a business Company’s liabilities separated from the directors’ and shareholders’
Partnership 2 - 20 partners Entrepreneurs in a Partnership who carry out professional practices (accountancy, law, company secretary, etc.), in joint ventures, or venture capitals Not a separate legal entity, unlimited liabilities at personal capacity among all the partners.


Sole Proprietorship (Enterprise)
Sole proprietorship is one of the most popular and easiest way to start your business. You can register your business as sole proprietorship under Registration of Business Act 1956.


It has no legal status, whereby the owner and the business are considered as one entity. Thus, you will be personally liable for debts incurred by your business.

Advantages

  • Very affordable to start your business
  • Lesser corporate compliance requirements (such as filing of audited accounts, annual return and etc)
  • Easy to maintain

Disadvantages

  • No separate legal liability and you will be personally liable for business debts
  • Unlimited liability- there is no limit of liability to the amount of capital injected
  • Profits earned are taxed as part of personal individual income and as high as 30% (as compared to 17%/24% company tax rate)

Partnership

A partnership consists of at least 2 partners, with a limit of 20 partners. In a partnership, the partners jointly manage the company. They also will have joint responsibility for the partnership’s debts and other liabilities. The owners of the company have unlimited liability.

Advantages:

  1. It is relatively easy to establish and start-up costs are low
  2. It has flexible agreement among partners

Disadvantages:

  1. Not a separate legal entity, unlimited liabilities at personal capacity among all the partners.
  2. Each partner is liable for their share of the partnership debts as well as all the debts which have been amassed by the company


Sendirian Berhad (Sdn Bhd) / Private Limited Company

A Sendirian Berhad (Sdn Bhd) company being the most common one in Malaysia. It is a private limited business entity which can be started by both locals and foreigners.It is a separate legal entity which is capable of earning incomes, owning properties, signing contracts, suing another entity, and getting sued on its own name, separating your liabilities from the company itself.

Advantages:

  1. Set up a company with one person
  2. Relatively cheap to setting up
  3. Separates personal liabilities from the company itself
  4. It can be 100% foreign-owned

Disadvantages:

  1. Cannot expand beyond 50 shareholders
  2. Cannot raise fund from the public
  3. Transfer of share is restricted


Company Limited by Guarantee (CLG)

A CLG is public company without share capital for non-profit purposes. A member is the one who act as guarantor to run the operation, and no shareholders in CLG.

Advantages:

  1. No upfront capital contribution required from members
  2. The only type of company that can promote art, charity, religion, science, and pension schemes
  3. It can apply to get exempted from paying corporate taxes
  4. Can request to exclude the word ‘Berhad’ or ‘Bhd’ from the company name

Disadvantages:

  1. It is costly and demanding to register and has strict compliance to follow
  2. Unable to convert to another type of company
  3. All profits are meant for the purpose of the organization only
  4. It cannot release or own any property rights
  5. Members are still accountable for company debt if company closes down within 1 year after they have stepped down from the company


Berhad (Bhd) / Public Limited Company

A public limited company is similar to a Sdn Bhd, but the shares of the public limited company can be offered to the public. Public limited companies are usually listed on the stock exchange and is governed by the Securities Commission of Malaysia

Advantages:

  1. It can easily raise funds as the company is listed
  2. It can issue shares to public for funds raising
  3. It has flexible ownership of shares

Disadvantages:

  1. It is costly and difficult to register, must comply with stringent rules and regulations
  2. An Annual General Meeting(AGM) is required every year


Foreign Company

Those non-Malaysians who are not permanent residents can opt for a foreign company. Foreign company allows foreigners to operate their business in Malaysia without having adirector that resides in the country.

Advantages:

  1. Foreigners can operate a business in Malaysia without a local director

Disadvantages:

  1. It is expensive and difficult to incorporate, must comply with stringent rules and regulations
  2. It is unable to raise funds from the public.
  3. It cannot carry out trading or wholesale activities (exception applies to those who obtain a Wholesale, Retail Trade (WRT) License).


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