Types of Business Structures in Malaysia
Before embarking on your entrepreneurial journey in Malaysia, it’s essential to understand what “business” truly means in the context of incorporation. While the term often refers to commercial activities or profit-driven endeavours, it also includes the legal vehicles through which these activities are carried out. The distinction between a business and a company becomes crucial when deciding on the most appropriate structure for your venture.
Malaysia offers multiple types of business entities, each governed by specific laws and regulatory frameworks. Choosing the right structure can impact everything from liability and tax obligations to funding opportunities and business continuity. To ensure legal compliance, all business entities must be registered with the Companies Commission of Malaysia (SSM)—also known as Suruhanjaya Syarikat Malaysia.
Business structures in Malaysia fall under three main categories:
- Registration of Business Structures under the Registration of Business Act 1956
- Registration of Company Structures under the Companies Act 2016
- Registration of Limited Liability Partnerships (LLPs) under the Limited Liability Partnerships Act 2012
Business Structures
The registration of business structures does not create a separate legal identity for the company. This makes the business and the owners the same. The business owners are personally liable for all debts incurred by the company, including:
- Sole Proprietorship, which has a single owner. Suitable for small businesses.
- A partnership which has between two and 20 partners. Suitable for accountants, legal professionals, etc.
Both are limited to citizens or permanent residents of Malaysia, are easy to set up, require minimal investment and have the least compliance. Taxes are paid via the owner’s or partners’ income tax. There is no requirement for annual filing, etc.
However, shares can’t be issued, and securing funding can be challenging. Unlimited liability places the owner’s and partners’ personal assets at risk. Both must be renewed annually and do not exist in perpetuity.
Company Structures
The registration of company structures separates the business from the owners and shareholders. The creation of a separate legal identity for the company gives it legal status. This allows the company to own property, generate income, sign contracts, etc. Liability is limited to the amount invested – hence shareholders’ personal assets and finances are more secure.
There are two exceptions to this rule of separate legal identity, which are companies, nonetheless. Both are expensive and complicated to establish. Liability is unlimited and extends for a year after leaving the company. These are:
- Unlimited Company (Sendirian)
Sendirian or Unlimited company is a private or public company and is suitable for mutual trust funds meant for investment.
- Company Limited by Guarantees (CLG)
A membership-based public company suitable for non-profit organisations with no share capital.
The three types of company structures with separate legal identities and limited liability are:
- Private Limited Company (Sdn Bhd)
Limited by shares and ideal for small to medium-sized enterprises. At least one director must be ordinarily resident in Malaysia. - Public Limited Company (Berhad)
Large businesses as shares can be listed and offered to the public. Requires a minimum of two shareholders. Governed by the Securities Commission of Malaysia and Bursa Malaysia Securities Berhad. - Foreign Company
Ideal for non-Malaysians seeking to set up a branch company in Malaysia.
The most popular type of entity is Sdn Bhd. Amendments to the Companies Act now allow a person to register as the only shareholder and director. Depending on the industry, Sdn Bhd can be wholly owned by foreigners. However, an Sdn Bhd cannot have more than 50 shareholders or raise share capital via the listing.
Limited Liability Partnerships
This is a hybridisation of a Partnership and an Sdn Bhd. LLPs have a separate legal identity that limits liability, no maximum number of partners, but don’t require an annual audit. LLPs have a legal status that allows property ownership and perpetual succession. LLPs are still relatively new, and compliance is still being fine-tuned.
To find the business entity that makes the best fit for your business needs, Contact 3E Accounting today. We offer professional advice and customizable business solutions for the discerning entrepreneur. From company incorporation to custom-built business software, 3E Accounting has the best professionals at your service.
