Presently there are 7 types of business entities available in Malaysia for individuals wanting to start up their business in Malaysia. The easiest one to set up is Sole Proprietorship whereas Sdn is the most common entity type. Bhd (Private Limited Company).
Before commencing operation, an individual has to register a business entity with the Companies Commission of Malaysia (SSM). There are three different types of registration. Mainly Registration of Business (ROB), Registration of a Company (ROC), and last but not least Limited Liability of Partnership (LLP). Depending on the registration type, each business entity is governed by a different legislation/law.
Types Of Business Entities In Malaysia
Incorporation via Register of Business – Governed by Registration of Business Act 1956
A Sole proprietorship is the simplest type of business entity. Any individual (Malaysian or Malaysian Permanent residents) can register for this type of entity. The requirements governing sole proprietorship are relatively straightforward with only one owner, and his/her liability being unlimited. The asset of this individual will not be protected and can be sued.
The company will have to declare the income tax together with the owner’s income tax form. Annually, you will only be required to pay an annual fee to the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia (SSM)). Aside from the renewal fee, the company does not have any other statutory requirements such as audits, registered office requirements, or annual returns filings.
A Partnership can have two or a maximum of 20 owners. The legal structure is identical to the sole proprietorship above. Hence there are no statutory requirements such as audits, registered office, or annual returns filings. Each partner will have to declare his share of the profit via his/her personal income tax submission. A partner has unlimited liability and his/her assets will not be protected if the Partnership is issued.
Incorporation via Register of Company – Governed by the Malaysian Companies Act 2016.
Private Limited Company (Sdn. Bhd)/ (Limited Liability Company)
This is the most common and popular option among investors. A limited liability company is treated as a separate legal entity within the eyes of the law and the shareholders will not be liable for the company’s debts or liability. Hence the personal assets of the shareholders are protected. Any individual irrespective of their residency/nationality, can set up a private limited company owning 100% of the shares. Some foreign ownership restrictions exist for niche industries such as oil and gas. A Malaysian private limited company can be incorporated in 3 working days.
There is no minimum number of shareholder requirements but the maximum shareholder allowed is 50.
Public Limited Company
A company listed on the Malaysia Securities Exchange is a public limited company. The securities commission of Malaysia will regulate these companies. Hence there are a lot of additional compliance requirements. A public limited company is also commonly referred to as Berhad among Malaysians. A company can become a public limited company via Initial Public Offering (IPO). It is a mandatory requirement for all companies to have at least a minimum of two shareholders, and the number of members is unlimited.
A limited company in Malaysia can be either limited by shares or limited by guarantee. The shareholders of the company limited by shares cannot be sued and they do not have to pay for the company’s debts/liabilities in the event the company goes into liquidation or debt.
Whereas a company limited by guarantee is more common in non-profit industries such as charities. It is a mandatory requirement to register with SSM if your organization has more than 20 shareholders. The Shareholders/members of the company will not be able to receive dividends or profit-sharing. Profits can only be reinvested.
This is the least common option among business owners as the shareholders have unlimited liability. Hence Relin Consultants strongly discourage any from incorporating such an entity. An unlimited company can be converted to a limited company through the application with SSM.
Foreign companies (i.e. Companies incorporated in another country outside of Malaysia) can choose to set up either a representative office or a branch office in Malaysia.
Representative Office will be not treated as a separate entity from its Holding Company. Hence from the legal perspective, it is one as the Holding Company. A representative office cannot enter into a contract with customers by itself, whereas a branch office can enter into contracts with customers/suppliers by itself.
The foreign branch office must be registered under the same name as the holding company and conduct the same business activities as the holding company. The representative and branch offices must have at least one resident individual in Malaysia acting as the Branch representative.
Limited liability of Partnership – regulated by the Limited Liability Partnerships Act 2012
Limited liability partnership
A limited liability partnership is a hybrid version of a partnership and a limited liability company. It is most commonly found in small businesses or professional services such as auditors and lawyers. The structure allows the partners to protect their wealth if the LLP is issued or in debt. An LLP is treated as a separate legal entity from the founders/partners.
Relin Consultants can provide complimentary advice on the best type of entity to choose during your business registration, depending on the nature of your business and the objective of setting up a business entity.