If you’re thinking of starting a business in Malaysia, one of the first things you need to consider is the type of business entity that is most suitable for your needs.
Each entity type has its unique advantages and disadvantages, including liability protection, tax implications, and regulatory requirements. As a
foreigner, it’s crucial to have a good understanding of these structures to determine which is best suited to your business needs. To operate a firm in Malaysia, a foreigner should know the appropriate rules and limitations. This includes obtaining the necessary permits and licenses, registering with the Companies Commission of Malaysia, and adhering to tax laws.
The right choice of business entity can have a significant impact on your business’s success, so it’s crucial to understand the available options and choose the one that aligns with your business goals and objectives.
In this article, we’ll take a closer look at each type of business entity in Malaysia, exploring the advantages and disadvantages, legal requirements, and taxation implications of each. So, let’s jump into the space of business structures in Malaysia!
Multiple Types of Business Entities in Malaysia
The different types of business entities are discussed below:
Sole Proprietorship
A sole proprietorship is the most explicit form of business entity in Malaysia, owned and operated by one person. This kind of company structure is appropriate for small businesses with limited liabilities and operations. As a sole proprietor, the proprietor is accountable for all the profits and losses of the firm.
There is no separate legal entity, so the firm proprietor has endless liability for the firm’s loss & responsibility. The owner must register the business with the Registrar of Business and obtain a Business Registration Certificate (BRC) before starting the business.
Partnership
A partnership is a business entity held by 2 or more people who share the profits and losses of the firm. There are 2 kinds of partnerships in Malaysia: general partnerships and limited partnerships.
In a general partnership, all partners have equal rights and unlimited liability for the business’s loss and responsibility. In a limited partnership, there is a minimum required of one general partner with endless drawbacks and one or more restricted partners with restricted liability.
A partnership agreement should be signed and enlisted with the Registrar of Business. The partnership must also obtain a Business Registration Certificate (BRC) before starting the business.
Limited Liability Partnership (LLP)
An LLP is a hybrid form of partnership that provides the partners with limited liability for the business’s debts and obligations. It also has a separate legal entity from its partners, allowing it to own property and enter into contracts.
An LLP must be registered with the Companies Commission of Malaysia (CCM). The partners have more flexibility in managing the business compared to a private limited company. The LLP should possess two members, and it can possess an endless number of members. The partners’ weakness is restricted to their funds invested in the LLP.
Private Limited Company (Sdn Bhd)
A private limited company is a distinct entity from its shareholders, who have specified liability for the firm’s loss and responsibility. The firm should possess a minimum of 1 director and 1 shareholder, and its name must end with “Sdn Bhd.”
The firm must be enlisted with the Companies Commission of Malaysia (CCM). The stakeholders’ penalty is restricted to their capital contributions to the firm. The company’s stakes cannot be openly exchanged on the stock exchange. A PLC is suited for short to mid ranged businesses.
Public Limited Company (Berhad)
A public limited company is identical to a private limited firm, but its stakes can be openly bought & sell on the stock exchange. The firm should possess a least two directors and a least two stakeholders. Its name must end with “Berhad.”
The firm should be enlisted with the Companies Commission of Malaysia (CCM). The stakeholders’ penalty is restricted to their capital contributions to the firm. A PLC is suitable for large businesses that plan to increase funds through public offerings of shares.
Foreign Branch Office
A foreign company can register a branch office in Malaysia to conduct business operations. The branch office has the same legal status as the foreign company and is subject to the same laws and regulations.
The branch office should be enlisted with the Companies Commission of Malaysia (CCM) and the Malaysian Investment Development Authority (MIDA). The foreign company’s liability is not limited, and it is responsible for the branch office’s debts and obligations in Malaysia.
A foreign branch of the office is fit for foreign firms that wish to set up a physical existence in Malaysia.
It is essential to understand the legal requirements and implications of each type of business entity before deciding on the most appropriate one.
Conclusion
The type of business entity you choose can possess a substantial influence on your firm triumph, growth, and sustainability. Consider the factors that are important to your business, such as ownership, liability, management structure, taxation, and regulatory compliance, when making your decision.
Armed with the knowledge of the different types of business entities in Malaysia, you’re now better equipped to make an informed decision that sets your business up for success.
It is advisable to consult with professional experts like Odint Consultancy to help you choose the suitable types of business entities in Malaysia. Contact us.
FAQ’s
The most common type of business entity in Malaysia is the Private Limited Company (Sdn Bhd), which offers limited liability protection to shareholders and a flexible ownership and management structure.
The main advantage of forming an LLP in Malaysia is that it offers limited liability protection to all partners, which means that their personal assets are not at risk in the event of business debts or lawsuits.
Yes, foreigners can own and operate a sole proprietorship or partnership in Malaysia, subject to certain conditions and legal requirements.
To register a public limited company in Malaysia, you must have at least two directors, a minimum share capital of RM500,000, and comply with various regulatory and reporting requirements.
The best type of business structure in Malaysia depends on several factors, including your business goals, ownership structure, management style, liability protection, and taxation implications.
The tax implications vary relying on the form of business structure. For instance, a sole proprietorship and partnership are taxed as individual earnings, while a private limited company (Sdn Bhd) is taxed as a distinct lawful structure, subject to corporate tax rates.
No, only certain types of business entities, such as public limited companies (Berhad), require a minimum share capital. Additional forms of business structure, such as sole proprietorships and partnerships, do not have a minimum capital requirement.
