Choosing the proper business structure is one of the most important decisions you will make when starting a business in Malaysia. Many first-time entrepreneurs encounter two standard options: the Sole Proprietorship and the Private Limited Company (Sdn Bhd). While both are recognised business types under Malaysian law, they differ significantly in terms of liability, compliance requirements, taxation, long-term scalability, and overall credibility.
Understanding the differences between Sole Proprietorship and Sdn Bhd in Malaysia is essential, as your chosen structure will shape your legal responsibilities, tax obligations, access to financing, operational flexibility, and even how customers perceive your business.
This comprehensive guide explains these two business structures in clear language, helping you make an informed choice that supports your business goals. Whether you are planning to register a business with the Companies Commission of Malaysia (SSM) or simply exploring options, this guide breaks down everything you need to know, from legal implications and liability exposure to capital, compliance, and tax differences.
What is a Sole Proprietorship in Malaysia?
A sole proprietorship is the most straightforward and most affordable business structure in Malaysia. It is owned entirely by a single individual and registered with the Companies Commission of Malaysia (SSM).
Key Characteristics of a Sole Proprietorship
| Aspect | Description |
|---|---|
| Ownership | Owned and managed by one individual |
| Legal Status | Not considered a separate legal entity from the owner |
| Liability | The owner is fully responsible for all debts and obligations |
| Registration | Simple process with low registration fees |
| Taxation | Income is taxed under personal income tax rates |
| Suitability | Best suited for small businesses, micro enterprises, and freelancers |
What is an Sdn Bhd (Private Limited Company) in Malaysia?
Sendirian Berhad (Sdn Bhd) is a private limited company registered under the Companies Act 2016. It is considered a separate legal entity from its owners (shareholders).
Key Characteristics of an Sdn Bhd
| Aspect | Description |
|---|---|
| Ownership | 1 to 50 shareholders |
| Legal Status | Recognised as a separate legal entity |
| Liability | Shareholders’ liability is limited to their capital contribution |
| Registration | Requires a more structured and regulated process |
| Taxation | Subject to corporate tax rates, up to 24% |
| Suitability | Ideal for expanding companies, investor-backed ventures, and long-term growth |
Explore more on How do you Set Up a Sdn Bhd Company in Malaysia with 3E Accounting
How Does Ownership Differ Between Sole Proprietorship vs. Sdn Bhd?
Below is a clear comparison to help you understand both structures at a glance.
Comparison Table
| Feature | Sole Proprietorship | Sdn Bhd |
|---|---|---|
| Legal Entity | Not separate from the owner | Separate legal entity from shareholders |
| Liability | Owner has unlimited personal liability | Shareholders have limited liability |
| Tax Structure | Taxed under personal income tax rates | Taxed under corporate tax rates |
| Registration Cost | Low | Moderate |
| Annual Compliance | Minimal reporting requirements | Higher obligations including audits, filings, and secretarial duties |
| Ability to Raise Capital | Very limited opportunities | Strong potential; can issue shares to raise funds |
| Business Continuity | Ends when the owner stops operating | Continues regardless of changes in ownership |
| Public Perception | Viewed as less formal | Seen as more credible and professional |
Which Business Structure Offers Better Liability Protection in Malaysia?
Sdn Bhd offers far stronger liability protection.
A sole proprietor and the business are treated as the same legal person. This means:
- All debts belong to the owner
- Personal assets can be taken in legal claims
- Financial risk is significantly higher
In contrast, an Sdn Bhd protects owners through limited liability, meaning shareholders risk only the amount they invested, not their personal assets.
How do Taxation Rules Differ for Sole Proprietorship and Sdn Bhd in Malaysia?
Tax treatment is one of the most significant factors in entrepreneurs’ decisions.
Tax Comparison
| Structure | Tax Treatment | Pros | Cons |
|---|---|---|---|
| Sole Proprietorship | Taxed under personal income tax rates (up to 30%) | Simple and fast tax filing | Higher tax burden if profits increase |
| Sdn Bhd | Corporate tax rates apply: 17% on the first RM600,000 and 24% thereafter | Lower tax rates for profitable businesses and better long-term planning | Requires audited accounts and higher compliance |
If your business earns higher revenue, Sdn Bhd may offer more attractive tax benefits.
Which Option Is More Suitable for Small Businesses in Malaysia?
A sole proprietorship is typically suitable for:
- Freelancers
- Home-based businesses
- Low-risk ventures
- Side businesses
- Early testing or prototyping phases
Meanwhile, an Sdn Bhd suits businesses that expect:
- Rapid expansion
- Significant income
- Multiple partners
- Contracting with large corporations
- Investment or funding needs
What are the Compliance and Reporting Requirements for These Business Types in Malaysia?
| Compliance Area | Sole Proprietorship | Sdn Bhd |
|---|---|---|
| Annual Renewal | Yes, the business license must be renewed | No renewal required |
| Audited Accounts | Not required | Mandatory annual audited financial statements |
| Annual Return | Not required | Mandatory filing with SSM every year |
| Company Secretary | Not required | Required under the Companies Act 2016 |
| Statutory Records | Minimal record-keeping | Must maintain statutory registers and resolutions |
What are the Capital, Funding, and Investment Differences between these Businesses in Malaysia?
| Funding Criteria | Sole Proprietorship | Sdn Bhd |
|---|---|---|
| Capital Sources | Self-funded with limited borrowing options | Can raise capital through share issuance, investor funding, and banking facilities |
| Investor Attraction | Low appeal to investors | High potential to attract investors |
| Ability to Scale | Limited scalability | Strong potential for expansion and growth |
| Credibility | Best suited for small or personal ventures | More credible for contracts, tenders, and partnerships |
Step-by-Step Guide: Registering Your Business Entity with SSM
Navigating the Companies Commission of Malaysia (SSM) requirements is the first critical step in your business journey. Whether you are establishing a low-risk Sole Proprietorship or a scalable Sdn Bhd, understanding the digital workflows for each is essential for seamless compliance.
1. Sole Proprietorship: The Lean Start
Best for: Freelancers, gig workers, and small-scale traders.
For Malaysian citizens and Permanent Residents, registering a Sole Proprietorship is a streamlined process primarily handled through the EzBiz Online Portal. This structure is favoured for its simplicity, though it offers no legal separation between the owner and the business.
Dive deep into 3E Accounting’s online business incorporation services
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Digital Identity Verification:
Begin by registering an account on the EzBiz portal. You must verify your identity via a video challenge or by visiting a physical SSM counter/kiosk for biometric verification.
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Name Approval:
- Personal Name: (e.g., Ali bin Ahmad). Approval is automatic and costs RM30.
- Trade Name: (e.g., Ali Tech Solutions). Requires a manual approval process to ensure no trademark infringements. The fee is RM60.
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Submission of Form A:
Complete Form A (Registration of Business) online, detailing business activities and the registered address.
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Fee Payment & Certification:
Upon payment of the registration fee (plus RM5 for each branch), the Certificate of Registration (Form D) is generated.
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Annual Renewal:
Unlike a company license, this license expires. You must renew it annually or biannually via EzBiz to avoid penalties.
2. Sdn Bhd (Private Limited Company): The Corporate Standard
Best for: Startups raising capital, SMEs, and businesses requiring limited liability.
Incorporating a Sdn Bhd is a more rigorous process governed by the Companies Act 2016. It creates a separate legal entity, safeguarding personal assets from business liabilities. This entire process is managed via the MyCoID 2016 platform.
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Name Reservation:
Log in to MyCoID to conduct a direct name search. If available, the name is reserved for 30 days upon payment of a reservation fee.
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The “Superform” Submission:
The Companies Act 2016 introduced the Superform to replace multiple manual documents. You must declare:
- Director & Shareholder details (Minimum one director residing in Malaysia).
- Business nature (MSIC codes).
- Paid-up capital (Minimum RM1).
-
Incorporation Fee:
A flat registration fee of RM1,010 is payable directly through the portal.
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Notice of Registration:
Once approved by SSM, you will receive the Notice of Registration (Section 15) via email. This serves as your official certificate of incorporation.
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Post-Incorporation Compliance:
- Appoint a Company Secretary: You have a statutory deadline of 30 days from incorporation to appoint a qualified Company Secretary.
- Constitution: While optional for most, adopting a Constitution is recommended if you have multiple shareholders to define rights and powers clearly.
Summary of Key Differences
| Feature | Sole Proprietorship | Sdn Bhd (Private Limited) |
|---|---|---|
| Online Platform | EzBiz | MyCoID |
| Legal Status | Not a separate legal entity | Recognised as a separate legal entity |
| Cost | Low (RM30 – RM60) | Higher (RM1,010 plus secretary fees) |
| Liability | Owner has unlimited personal liability | Liability limited to share capital |
| Compliance | Annual renewal required | Perpetual existence but requires annual return filings |
Conclusion
Selecting between a sole proprietorship and an Sdn Bhd in Malaysia ultimately depends on your goals, risk appetite, and long-term vision. A sole proprietorship offers simplicity, low cost, and minimal compliance, making it an ideal choice for small, low-risk ventures. However, it exposes you to unlimited personal liability and limits growth potential.
On the other hand, an Sdn Bhd provides a more robust and credible structure, allowing you to protect your personal assets, raise funding, attract investors, and build long-term business value. It does involve more compliance, but the benefits, minimal liability and scalability often outweigh the administrative effort.
If you are unsure which structure suits your business, speaking with a corporate services professional ensures that your decision aligns with both your operational needs and plans.
Navigate Your Malaysia Business Setup
From setting up a sole proprietorship to forming an Sdn Bhd, at 3E, we ensure compliance, accuracy, and a smooth process. Get expert guidance today.
Frequently Asked Questions
Yes. A sole proprietorship registration through SSM is quicker, cheaper and requires minimal documentation compared to Sdn Bhd incorporation, which involves directors, shareholders and a company secretary.
No. Only Malaysian citizens or permanent residents may register a Sole Proprietorship. Foreigners may incorporate an Sdn Bhd with the required structure, depending on sector regulations.
An Sdn Bhd is more suitable for long-term growth as it allows for investment, scalability, multiple shareholders and structured governance.
Yes. Many businesses start as Sole Proprietorships and later incorporated as an Sdn Bhd for liability protection and credibility.
Yes. Liability is one of the most significant differences. Sole Proprietorships expose the owner’s personal assets, while an Sdn Bhd provides limited liability.
Yes. An Sdn Bhd name must end with “Sdn Bhd” and receive SSM approval. Sole Proprietorship trade names also require approval, but follow more straightforward rules.
Abigail Yu
Author
Abigail Yu oversees executive leadership at 3E Accounting Group, leading operations, IT solutions, public relations, and digital marketing to drive business success. She holds an honors degree in Communication and New Media from the National University of Singapore and is highly skilled in crisis management, financial communication, and corporate communications.
