Sdn Bhd vs LLP in Malaysia: Deciding the Right Type of Business in Malaysia for You

Did you know that choosing the wrong business structure can lead to unnecessary tax burdens and legal complications? Many entrepreneurs in Malaysia struggle to decide between a Sdn Bhd (Sendirian Berhad) and other structures like a Limited Liability Partnership (LLP).

This guide breaks down everything you need to know about Sdn Bhd, its advantages, disadvantages, and how it compares to an LLP vs Sdn Bhd structure. By the end of this article, you’ll have a clear understanding of which business entity suits your needs best.

Before we begin, it’s important to note that in Malaysia, anyone planning to start a company must register their company with the Companies Commission of Malaysia, also known as Suruhanjaya Syarikat Malaysia (SSM).

Sdn Bhd, or Sendirian Berhad, is a private limited company commonly chosen by entrepreneurs due to its limited liability protection and ease of raising funds. On the other hand, LLP, or Limited Liability Partnership, is a flexible entity ideal for professional services businesses, offering the benefits of limited liability and tax efficiencies.

Understanding the distinctions and advantages of these two types of business in Malaysia will empower you to make the right decision based on your specific needs and goals. We will delve into the key factors, such as legal requirements, compliance obligations, capital requirements, and taxes, so you can make an educated choice for your business.

TL;DR: Sdn Bhd vs LLP – Which One Should You Choose?

Struggling to decide between Sdn Bhd and LLP for your business in Malaysia? Here’s a quick breakdown:

• Choose Sdn Bhd if you want strong legal protection, investor opportunities, and better business credibility. Ideal for businesses planning to scale.
• Choose LLP if you prefer a simple setup, lower compliance costs, and more flexibility. Best suited for professional service firms and small businesses.

Both structures have their pros and cons—pick the one that aligns with your business goals! Need expert guidance? Let’s get your business set up the right way. 🚀

Type of Business in Malaysia: Sdn Bhd and LLP 

What is an Sdn Bhd?

A Sdn Bhd (Sendirian Berhad) is a private limited company in Malaysia that offers limited liability protection to its owners. This means shareholders are only liable for the company’s debts up to their investment amount.

Key Features of a Sdn Bhd:

• Separate legal entity from its owners.
• Limited liability for shareholders.
• Can have between 1 to 50 shareholders.
• Subject to corporate tax instead of personal income tax.

A Sdn Bhd also requires annual compliance reporting to the Companies Commission of Malaysia (SSM). Looking to register a Sendirian Berhad in Malaysia? Our comprehensive guide in the blog has all the information you need to get started.

What is an LLP?

A Limited Liability Partnership (LLP) combines the features of a company and a partnership. It allows two or more partners to run a business while enjoying limited liability protection.

Key Features of LLP:

• Requires at least two partners
• Partners’ personal assets are protected from business liabilities
• Compliance requirements are simpler than an Sdn Bhd
• Taxed at business income rates (17%-24%)

It is commonly chosen by professional service providers such as lawyers, accountants, and consultants. An LLP combines the advantages of a partnership and a limited liability company.

Key Differences Between These Two Types of Business in Malaysia

Aspect	Sdn Bhd	LLP
Incorporation Costs	RM 2,500 – RM 3,000	Around RM 500
Annual Maintenance	Higher costs	Lower costs
Compliance Requirements	More extensive	Simpler
Company Secretary	Required	Not required
Annual Audit	Required	Not required
Tax Rate	Corporate tax rate of 15%-24% applies	15% on the first RM150,000. 17% for RM150,001 to RM600,000. 24% for everything above that
Tax Incentives	More available (e.g., Reinvestment Allowance, Pioneer Status)	Limited tax incentives
Liability Protection	Limited liability for directors and shareholders	Limited liability for partners, with some personal liability possible
Financial Privacy	Exempt private companies have more privacy	Less privacy, must file annual financial declaration
Credibility	Perceived as more professional and credible	May be seen as a smaller business
Funding Opportunities	Can convert to public company, easier to obtain loans	More challenging to secure loans or investments
Suitable For	Businesses seeking extensive liability protection and growth	Professionals and small services firms needing basic liability protection
Reporting to SSM	Extensive statutory filings required	Simpler reporting through compliance officer
Conversion Options	Can convert to public company	Limited conversion options

Incorporation Costs and Maintenance 

When it comes to the cost of forming a legal entity, there are significant differences between an LLP and a Sdn Bhd. Incorporating an LLP is relatively affordable, with a typical cost of around RM 500. On the other hand, incorporating a Sdn Bhd, which is the simplest business entity, can range from RM2,500 to RM3,000. The lower registration fee and simplified process make an LLP an attractive option for startups, professionals, and small and medium-sized enterprises (SMEs) looking for limited liability status while maintaining management flexibility.

In terms of maintenance costs, LLPs generally have lower annual expenses compared to Sdn Bhds. Unlike Sdn Bhds, LLPs do not require a company secretary or an annual audit, reducing administrative and financial burdens. However, both types of entities have similar tax obligations.

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Administrative Processes and Reporting Requirements 

Managing an LLP involves fewer administrative complexities compared to a Sdn Bhd. An LLP must appoint a compliance officer, who can be either a partner of the LLP or an external company secretary qualified under Malaysia’s Companies Act 2016. The compliance officer is responsible for updating the LLP’s registered particulars and maintaining accurate records.

In contrast, a Sdn Bhd requires more extensive administrative processes. Certain corporate decisions—such as share allotments, changes in principal activities, and share transfers—must be reported to the Companies Commission of Malaysia (SSM) through statutory filings. Additionally, Sdn Bhds must comply with the Companies Act, maintain financial records, and pay an annual fee to SSM to remain active.

Another key difference is financial privacy. LLPs have less privacy because they must file an annual declaration with financial details such as revenue and net profit. On the other hand, certain Sdn Bhds (exempt private companies) enjoy greater privacy since they are not required to file financial statements with SSM. However, this does not apply to public limited companies (Bhd), which must hold annual general meetings and disclose financial reports.

Looking into company registration in Malaysia as a first step in starting your business?

Feeling a bit unsure about which type of business entity suits you best? No need to stress; we’ve got your back! Visit our blog for a detailed exploration of the seven main types of business in Malaysia to help you make an informed decision for your venture.

Tax Considerations

Both LLPs and Sdn Bhds are taxed in their own names. However, there are some differences in tax rates and incentives. LLPs are taxed as companies same as Sdn Bhd. On the other hand, Sdn Bhds may enjoy more tax incentives, such as the Reinvestment Allowance (RA) and Pioneer Status (PS), which are only available to Sdn Bhd or publicly listed companies in Malaysia. Here’s a simple breakdown of how it works:

1. What Is Reinvestment Allowance (RA)?

The Reinvestment Allowance is a tax incentive designed to encourage businesses to modernise, expand, or diversify their operations. As a Sdn Bhd owner, here’s how you can benefit:

• Claim an additional tax deduction for capital expenditures on:
  • New manufacturing equipment
  • Automation technologies
  • Expansion of existing business facilities

• Provides an allowance of 60% of qualifying capital expenditure
• Can be claimed over 5 consecutive years of assessment

2. What is Pioneer Status?

You can leverage Pioneer Status as a strategic tax incentive to reduce your business taxes. The Malaysian government designed this program to attract investments in key economic sectors such as Manufacturing, Agricultural, Hotel & Tourism and other promoted activities, offering significant tax relief to qualifying companies.

• Enjoy 70% tax exemption on your statutory income
• Benefit from a 5-year tax relief period
• Pay standard corporate tax on the remaining 30%
• Potentially extend your tax benefits for another 5 years

Therefore, if tax incentives are a significant factor for your business, a Sdn Bhd might be a more suitable choice.

Liability Protection 

Limited liability is a crucial aspect for entrepreneurs when selecting a legal entity. Forming an LLP, such as a limited liability partnership under the Limited Liability Partnership Act, offers limited liability protection to its partners, which means that any debts and obligations of the LLP will be borne by the assets of the LLP itself. The partners, however, may still be personally liable for their individual actions. On the other hand, Sdn Bhd provides limited liability to its directors and shareholders, limiting their liability to the share capital invested in the company.

The choice between these two structures depends on the nature of your business and the level of liability protection you require. If you prioritize individual liability protection for partners, an LLP might be the better option. Conversely, if you prefer a structure that offers limited liability to both directors and shareholders, a Sdn Bhd is more suitable.

Credibility and Growth Opportunities 

The credibility and growth opportunities associated with a legal entity can significantly impact the success of a business. Customers and partners often perceive Sdn Bhds as more credible and professional entities. Dealing with a Sdn Bhd may inspire more confidence, and it may also be easier to obtain bank loans when needed. Additionally, Sdn Bhd has the option to convert into a public company, which allows them to raise funds from the public through an initial public offering (IPO) or listing on Bursa Malaysia Securities Berhad. This flexibility in raising funds can be a significant advantage for businesses that require external investment for expansion.

On the other hand, LLPs may be a suitable choice for professional service firms that are not allowed to operate as Sdn Bhds. LLPs provide partial protection against liabilities and can be an appealing option for professionals who require limited liability status. However, it’s important to note that LLPs may face challenges in securing loans or attracting investors due to the perception of being a “small business” with less stringent audit and compliance requirements.

Making The Right Choice for The Type of Business in Malaysia 

Which Business Structure Should You Choose?

Choosing the right type of business in Malaysia is crucial for success and growth. Both structures offer unique advantages and cater to specific business needs. By understanding the distinctions and advantages of these two structures, evaluating key factors, and considering your long-term goals, you can make an informed decision that aligns with your business aspirations.

Here are some key questions to ask yourself: 

1. How much will it cost to form and maintain the entity?
2. How does the entity pay taxes, and how will that impact your personal finances?
3. Will the entity meet the future needs of your business?
4. How flexible is the company structure for conducting future business and expansion?

Choose Sdn Bhd if:

• You plan to scale your business and attract investors.
• You want better credibility and legal protection.
• You are comfortable with higher compliance requirements.

Choose LLP if:

• You prefer a simple setup and lower compliance costs.
• You’re a small business or professional service firm (e.g., law firms, accounting firms).
• You don’t need to issue shares or raise external funding.

Consulting a professional help like us can provide valuable guidance throughout the decision-making process and ensure compliance with all legal requirements. Thus, if you need assistance in incorporating a business, we offer a one-stop shop for all your business incorporation needs. Our team of experts can guide you through the process of choosing the right type of business in Malaysia.

With the correct business structure in place, you can confidently embark on your business journey in Malaysia, laying a solid foundation for future growth and success.