Seven Types of Business Entities in Malaysia

Looking into company registration in Malaysia as a first step in starting your business? Feeling a bit unsure about which business entity suits you best? No need to stress; we’ve got your back! 

After all, choosing the right business entity is a critical decision that forms the cornerstone of your success. Having a profound understanding of the various business structures is necessary. In this extensive guide, we’ll delve into the nuances of seven different business entities in Malaysia. We will also provide insights to help you consider the right business structure to meet your goals. 

By the end of this article, you’ll have a clear understanding of which business entity is the right one to meet your goals. 

The Importance of Choosing the Right Business Entity 

In the dynamic Malaysian business landscape, selecting a business entity is crucial. It’s more than just a legal formality. Firstly, it marks the beginning of company registration in Malaysia. Additionally, it’s a strategic decision impacting all areas of operations. This includes legal and financial considerations. Furthermore, it influences operational flexibility. Also, it has implications for taxes. Importantly, the chosen business entity ensures compliance with Malaysian laws and regulations. 

Therefore, understanding the implications of your choice is crucial. It’s not merely about compliance; it’s about positioning your business for growth, protecting your assets, and ensuring long-term sustainability. 

Company Registration in Malaysia 

Navigating the process of company registration in Malaysia is pivotal for turning your business ideas into reality. However, before plunging into the registration process, gaining a nuanced understanding of the types of business entities available is crucial. 

Consider this process as the blueprint for starting your business. It’s not just about getting a registration number; it’s about defining your business entity’s identity and setting the stage for your business endeavours. 

Business Entities’ Registration 

Business owners bear unlimited personal liability for the following business entities. These are registered under the Registration of Business Act 1956. 

1. Sole Proprietorship – Company Registration in Malaysia 

A sole proprietorship is the simplest and most common form of business entity in Malaysia. As the sole owner, you have complete control and decision-making power over the business. Setting up a sole proprietorship is relatively straightforward, requiring minimal paperwork and legal formalities. However, there are key points to note about being a sole proprietor. Firstly, you are personally liable for any debts. Additionally, you bear responsibility for all legal obligations of the business. 

One of the main advantages of a sole proprietorship is the ease of operation. You have the freedom to make quick decisions without having to consult with partners or shareholders. Additionally, setting up and maintaining a sole proprietorship generally incurs lower costs compared to other business entities. However, it’s crucial to consider the limitations of a sole proprietorship. One key limitation is the lack of a separate legal identity. Another significant challenge is the potential difficulty in raising capital. 

2. Partnership – Company Registration in Malaysia 

A partnership is another popular choice for business entities in Malaysia. It involves collaboration between two or more individuals, known as partners. These partnerships can include up to a maximum of 20 individuals. It aims to carry out a business focused on making a profit. 

Like a sole proprietorship, a partnership is relatively easy to set up and requires minimal legal formalities. However, it’s crucial to have a solid partnership agreement in place to outline the rights, responsibilities, and profit-sharing arrangements between the partners. 

One of the main advantages of a partnership is the sharing of resources and expertise. Each partner brings their own skills and knowledge to the business, increasing the likelihood of success. Additionally, a partnership allows for a more flexible decision-making process, as decisions are made collectively by the partners. However, it’s important to note that partners are jointly and severally liable for the debts and obligations of the partnership, which means that each partner is personally liable for the entire debt. 

Limited Liability of Partnership 

This business entity combines aspects of a partnership and a Sdn Bhd. It registers under the Limited Liability Partnerships Act 2012. 

3. Limited liability partnership – Company Registration in Malaysia 

A limited liability partnership, combining the characteristics of a partnership and a company, operates as a separate legal entity from its partners. Furthermore, it offers asset protection to its partners in the event of bankruptcy or debt, with the added advantage of fewer compliance requirements and cost-effectiveness. Consequently, it proves to be a suitable choice for small companies and startups. 

Company Entities’ Registration  

The following business structures in this category are separate legal entities and provide protection for their owners – the company’s liabilities are distinct from its directors and shareholders. They register under the Companies Act 2016. 

4. Private Limited Company (Sdn Bhd) – Company Registration in Malaysia 

A private limited company, also known as Sdn Bhd (Sendirian Berhad), is one of the most commonly used business entities in Malaysia. It offers limited liability protection to its shareholders, meaning that their personal assets are separate from the company’s assets. This structure is ideal for businesses that require a higher level of credibility and professionalism, as well as the ability to raise capital through the issuance of shares. 

Setting up a private limited company involves registering with the SSM and meeting certain requirements, such as having at least one shareholder and a minimum paid-up capital. One of the main advantages of a private limited company is its perpetual existence, meaning that the company continues to exist even if the shareholders change. Additionally, a private limited company provides a clear separation between personal and business assets, allowing for easier management and succession planning. 

5. Public limited company (Berhad) – Company Registration in Malaysia 

A public limited company, also known as Berhad, is a type of business entity that is listed on a stock exchange and offers its shares to the public. This structure is primarily used by larger companies that require access to public funding and have a wide shareholder base. Setting up a public limited company involves meeting more stringent requirements and complying with additional regulations compared to a private limited company. 

One of the main advantages of a public limited company is the ability to raise capital through the issuance of shares to the public. Additionally, listing on a stock exchange enhances the company’s credibility and provides liquidity for shareholders. However, it’s important to note that a public limited company is subject to more stringent reporting and disclosure requirements, as well as greater scrutiny from regulators and shareholders. 

6. Unlimited company (Sdn) – Company Registration in Malaysia 

An unlimited company in Malaysia entails unlimited liability for its members and shareholders. In the event of losses or company debt, the members and shareholders bear personal responsibility. 

If an unlimited company wishes to transition to a limited liability structure, they can do so by passing a special resolution and submitting a conversion notice to the Companies Commission of Malaysia (SSM). 

7. Foreign Company – Company Registration in Malaysia 

Representative Office 

Foreign companies seeking to expand their presence and gain insight into the Malaysian business landscape can establish a representative office in Malaysia. A representative office lacks independent legal status in Malaysia, placing responsibility for debts and liabilities squarely on the parent company. 

The representative office is prohibited from engaging in profit-generating business activities, conducting transactions, signing contracts, or participating in trade-related endeavours. Instead, its primary functions are limited to gathering and analysing market information, studying business opportunities, planning business activities, conducting research and product development, and serving as a coordination centre for the corporation’s agents in the region. 

Foreign Branch Office 

A branch office in Malaysia serves as an extension of the foreign parent company and does not possess independent legal status. All debts incurred by the branch are the direct liability of the foreign parent company. 

A branch office is required to engage in activities that mirror those of the foreign parent company, making it a suitable option for foreign businesses seeking short-term expansion into Malaysia. 

To operate in Malaysia, a branch office must have at least one resident in Malaysia serving as the branch’s authorised agent and must also complete the registration process with the Companies Commission of Malaysia (SSM) prior to incorporation. 

Conclusion 

Careful consideration of your business goals and objectives is, of course, the main requirement when it comes to choosing the right business entity. Whether you opt for the simplicity of a sole proprietorship or the corporate structure of a private limited company, each entity has its own advantages and considerations. 

As you embark on your entrepreneurial journey, it’s best to empower yourself with knowledge. For a seamless business registration process in Malaysia, try exploring Grof. You can make informed decisions, protect your interests, and set the stage for growth in the diverse and vibrant business landscape of Malaysia with Grof. With a nuanced understanding of the diverse business entities available, you’re more than poised for success in the dynamic Malaysian market!