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

Ready to kickstart your business adventure in Malaysia but feeling tangled up in the Sdn Bhd vs. LLP decision? Worry not! We’re here to light up your path and guide you towards making a choice that’s just right for your business’s thriving future. 

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. 

Join us as we unravel the complexities of Sdn Bhd and LLP in Malaysia, guiding you towards the right path for your entrepreneurial journey. 

Type of Business in Malaysia: Sdn Bhd and LLP 

What is an Sdn Bhd? 

Sdn Bhd, or Sendirian Berhad, is a type of private limited company in Malaysia. It operates as a separate legal entity distinct from its owners. This means it has the authority to purchase or sell property, engage in legal contracts, and initiate or face legal action in court. Therefore, it is a popular choice among entrepreneurs due to its numerous advantages. One of the main benefits of choosing an Sdn Bhd structure is limited liability protection. 

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? 

LLP, or Limited Liability Partnership, is another business structure available in Malaysia. 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 

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 

Operating an LLP involves simpler administrative processes compared to a Sendirian Berhad. An LLP is required to appoint a compliance officer, who can be a partner of the LLP or an external company secretary qualified under Malaysia’s Companies Act of 2016. The compliance officer is responsible for registering any changes in the registered particulars of the LLP and maintaining accurate records. On the other hand, running a Sdn Bhd entails more complex administration processes, such as lodging certain decisions with the Companies Commission of Malaysia (SSM) through the submission of statutory forms. These decisions may include allotment of shares, change of principal activities, transfer of shares, compliance with Malaysia’s Companies Act, and payment of an annual fee to SSM to keep its business renewed from year to year. 

Privacy is another aspect to consider when choosing between a Limited Liability Partnership and a Sendirian Berhad. LLPs have less privacy due to the mandatory filing of an annual declaration containing key financial details such as revenue and net profit. In contrast, certain Sdn Bhds, known as exempt private companies, are not required to file accounts with the SSM, providing more privacy in terms of financial information. However, it is important to note that public limited companies, such as Bhd, must hold annual general meetings and make reports on their financial statements. 

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, with a corporate tax rate of 17%. 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 Bhds or publicly listed companies in Malaysia. 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. Sdn Bhds are often perceived as more credible and professional entities by customers and partners. 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 

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. When setting up a company in Malaysia, it is important to determine the different types of business entities available. This will help you choose a suitable corporate structure that meets your business needs and lays a solid foundation for long-term success. 

Here are some key questions to ask yourself: 

1. How much will it cost to form and maintain the entity? 
2. How is the entity taxed, 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? 

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.