Company Secretary Malaysia Business Entities

Understanding Different Types of Business Entities in Malaysia

If you are interested in starting a business in Malaysia, a good place to start is to first understand the types of business entities in Malaysia.

The Companies Commission of Malaysia or Suruhanjaya Syarikat Malaysia (SSM) is the statutory body that regulates corporate and business affairs in Malaysia. To legally conduct business activities, you will need to register a new business with SSM within 30 days from when you start operating. This can be done online via Ezbiz Online services or over the counter at SSM.

There are different types of businesses that you can register with SSM. Here’s a brief overview:

Sole Proprietorship/ Millikan Tunggal

A Sole Proprietorship is the most simple business entity. It is very attractive to many business owners due to the simplicity from the ease of setting up to the low compliance regulations as compared to other business entities. A Sole Proprietorship is solely owned by one individual and the business has unlimited liability. This means that if the business is sued or declared bankrupt, creditors are able to go after the owner of the business, including his or her personal income and assets. 

There are not many worries if you are considering starting a Sole Proprietorship; just the payment of a small annual fee to SSM to register and renew the business. However, this type of business entity is only available for Malaysian citizens or permanent residents (PRs).

A Sole Proprietorship is usually very attractive to many business owners due to these advantages: 

  1. Less paperwork due to fewer additional legal formalities.
  2. Easier registration process due to its simplicity of the business entity. 
  3. Low costs of incorporation.  
  4. Not required to disclose financial statements to the public. 
  5. Easily convertible into a Sendirian Berhad. 
  6. Full control of the business and revenue.

However, there are also a couple of disadvantages to owning a Sole Proprietorship. One of the biggest disadvantages is that when you are a Sole Proprietor of a business, you are bringing high risk to your personal assets and personal income. Other than that, any legal issues directed to the business will ultimately be directed to you as the owner. Certain business licenses may also not be allowed to be issued to Sole Proprietorships, depending on the industry.

Partnership/ Perkongsian

This business entity is very similar to a Sole Proprietorship. A Partnership is held between a minimum of 2 and up to 20 members, and is suitable for professional firms. Any business profits from the Partnership are taxed at the individual tax rate of each partner, and not at the whole of the business. Much like Sole Proprietorships, this type of business is bound by unlimited liability, and only Malaysian citizens or PRs are eligible to register for businesses as Partnerships.

Limited Liability Partnership (LLP)/ Perkongsian Liabiliti Terhad 

A Limited Liability Partnership is a corporate body and is separated from the owners, i.e. in the event that the LLP is sued or declared bankrupt, creditors are not able to go after the owner of the business or their personal income and assets. In an LLP, each partner is also not responsible for another partner’s misconduct or negligence. LLPs have fewer compliance requirements than a Private Limited Company/ Sendirian Berhad (Sdn Bhd), for example, an LLP is not required to audit its accounts annually. A minimum of two partners are needed to form a LLP, but there is no maximum number of partners. This business entity is only available for Malaysian citizens or PRs.

Private Limited Company/ Sendirian Berhad (Sdn Bhd)

Just like LLP, a Sendirian Berhad is a separate entity from its owners – which means the shareholders have limited liabilities and are only responsible for any company debts up to the amount that was invested and the funds in the company. There can be a minimum of 1 or a maximum of 50 shareholders to a Sendirian Berhad.

To start a Private Limited Company (Sdn Bhd) in Malaysia, you would have to first seek approval for a Company Name.

Several requirements need to be met in order to register a Sendirian Berhad, including:

  1. A minimum paid up capital of RM1. 
  2. At least one director of a minimum age of 18 years old and residing in Malaysia.
  3. All directors should not be bankrupt nor have been convicted in Malaysia within the last 5 years.
  4. An appointment of at least one company secretary, who is a member of a professional member recognised by the SSM.
  5. An office with a registered address. 
  6. Preparation of audit return reports and audited accounts to be submitted each year.

This business entity is open to non-Malaysians, depending on the nature of the business. A Sendirian Berhad can also go public, to be a Berhad, and vice versa.

Public Limited Company/ Berhad (Bhd)

A Public Limited Company (Berhad) is an entity whereby shares of the company are offered to the members of the public. A Berhad has the choice to be listed on the stock exchange market of the country or not. In most cases, a Sendirian Berhad is converted to a Berhad to raise public funds. The share capital of a Berhad can be raised from the public through an initial public offering (IPO) and there is no limit to the maximum number of shareholders. The ease to raise capital for the company comes with a few restraints:  

  1. Stricter regulations to adhere to -as Berhads are required to comply with a higher level of financial and compliance reporting standards.
  2. Mandatory requirement Bound to disclose Financial Reports and Annual Reports to the public.
  3. Required Obligated to host hold an Annual General Meeting for all of the company’s Shareholders. 

Company Limited by Guarantee (CLBG)

A CLBG is a public company, but unlike a Berhad, it is not bound by shares. A CLBG is typically used for not-for-profit companies e.g. charities, clubs, societies, community projects etc.. Any organisation which involves more than 20 people is required to be registered with SSM as unincorporated associations are prohibited under the Companies Act. 

A CLBG is also not allowed to have share capital and no profits are to be distributed amongst the members of the company. A good way to find out which are CLBGs in Malaysia would be to look for these words in the name: Fund (Tabung), Corporation (Badan), Foundation (Yayasan), Alliance (Gabungan) etc.

It’s Your Choice

Before making a decision, it is best practice to fully understand the nature of each business entity. Let Quadrant Biz Solutions be your go-to guide to help with any queries you have regarding incorporation and compliance matters. Talk to us today!

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