Selecting the appropriate business entity in Malaysia is a crucial decision in the formation process. Prior to establishing your business officially, it's essential to determine the type of company that aligns best with your business goals. These are the range of business entities in Malaysia allows you to explore and evaluate the ideal business structure for your investment.

8 Type of Business Entities in Malaysia

In Malaysia, there are 8 different type of business entities you can start, as outlined in the Companies Act 2016 and the Registration of Businesses Act 1956. Below is an overview of these business entity types in Malaysia.

1. Business Registration 

These business structures are not considered as separate legal entities, meaning the owners are personally liable for any debts or obligations. They are registered under the Registration of Business Act 1956.

Sole proprietorship

A sole proprietorship is one of the easiest business structures to establish. It only requires one owner, who bears unlimited liability. This means that the owner's personal income and assets are not protected if the company incurs debts or goes bankrupt.

Only Malaysian citizens and permanent residents are eligible to register this entity.

To maintain the company's registration, an annual fee must be paid to the Companies Commission of Malaysia (SSM). Unlike other business entities, sole proprietorships are not required to submit audits or conduct annual filings.

Partnership

Only Malaysian citizens and permanent residents can form partnerships.

In a partnership, the partners' roles and responsibilities, as well as their liabilities, are outlined in a partnership agreement. They share both the profits and the liabilities of the business. While the partnership itself doesn't pay taxes, the partners are individually taxed, and they must report their profits and losses.

Similar to sole proprietorships, partners have unlimited liability.

2. Company Registration

The business structures in this category are considered as separate legal entities, providing protection for their owners. This means that the company's liabilities are distinct from those of its directors and shareholders. These structures are registered under the Companies Act 2016.

Private limited company (as known as Sdn Bhd)

A private limited company (known as Sendirian Berhad or Sdn Bhd) is legally separate from its owners, allowing it to engage in various activities such as buying or selling property, entering into contracts, and pursuing legal actions in court.

The owners' liability is limited to the amount they have invested in the company. This means that their personal assets remain protected in case of any issues affecting the company.

Private limited companies are popular among foreign investors since foreigners can fully own the company. However, in certain sectors like agriculture, banking, education, oil, and gas, Malaysian ownership of at least 50% may be required.

To establish a private limited company, you need at least one member and a maximum of 50 members. Shares of this entity can be issued to individuals or corporate entities.

Read More: 7 Steps of to Register Your Sdn. Bhd. Company with SSM Malaysia

Public limited company (Berhad)

A public limited company is quite similar to a private limited company, but its shares can be sold to the public. These companies are often listed on the stock exchange and are regulated by the Securities Commission of Malaysia.

To form a public limited company, you need at least two shareholders, but there's no limit to how many members it can have. Public limited companies are required to hold annual general meetings and provide reports on their financial status.

In Malaysia, there are two types of limited companies: those limited by shares and those limited by guarantee. In a company limited by shares, members' liability is limited to the amount they've invested in unpaid shares. This means they're not personally responsible for the company's debts if it goes bankrupt.

A company limited by guarantee is typically used by non-profit organizations like charities or clubs. Members of such companies are not entitled to profits, which are reinvested into the organization. If you're forming a charity with more than 20 people, you must register it with the SSM (Companies Commission of Malaysia).

Unlimited company (Sdn)

In an unlimited company, members and shareholders have unlimited liability. This means they're personally responsible for any losses or debts the company incurs.

If an unlimited company wants to become a limited company, they can do so by passing a special resolution and notifying the SSM (Companies Commission of Malaysia) about the conversion.

Foreign company

Representative office

A representative office is a way for foreign companies to learn about the Malaysian market without being a separate legal entity. The parent company is responsible for any debts or liabilities of the representative office.

This office can't make profits or sign contracts. Its main tasks are gathering information about the Malaysian market, planning business activities, and coordinating with the parent company's agents in the region.

Foreign branch office

A branch office is an extension of the foreign parent company, not a separate entity. The parent company is responsible for any debts incurred by the branch in Malaysia.

The branch office must conduct the same activities as the parent company and is suitable for foreign companies looking to expand temporarily into Malaysia.

Before operating in Malaysia, the branch office must register with the SSM (Companies Commission of Malaysia) and have at least one resident agent in Malaysia.

Limited liability of partnership

A limited liability partnership (LLP) is a mix of a partnership and a company. It's a separate legal entity from its partners, offering them protection if the company faces financial trouble.

LLPs have fewer rules to follow compared to other types of businesses and are more affordable. They're a good choice for small companies or startups.

In Malaysia, choosing the right business entity is crucial for success. Whether you're running a sole proprietorship, a partnership, or a private limited company, each structure comes with unique considerations. Understanding these differences not only shapes your business strategy but also impacts your hiring needs.

For instance, a growing private limited company might require more staff than a small sole proprietorship. By comprehensively outlining the options available under the Companies Act 2016 and the Registration of Businesses Act 1956, our article helps entrepreneurs make informed decisions about their business setup. 

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