1/30/24, 10:56 PM 6 types of business entities in Malaysia | Tetra Consultants

BUSINESS M A L AY S I A

6 Types Of Business Entities

In Malaysia
June 18, 2021 / by Tetra Consultants /  0

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Table of Contents
1. Points to consider when selecting a business entity

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2. Types of business entities in Malaysia
2.1. #1 Sole Proprietorship
2.2. #2 Partnership

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2.3. #3 Limited Liability Partnership (LLP)
2.4. #4 Sendirian Berhad (Sdn Bhd) / Private Limited Company
2.5. #5 Berhad (Bhd) / Public Limited Company
2.6. #6 Branch Office 
2.7. How to choose the correct types of business entities in Malaysia?

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Before you register a company in Malaysia, one of the first things to do is to decide the business
entity your company will take. Simply put, a business entity refers to the form of incorporation for
a business. In this article, we will explore the types of business entities in Malaysia

Points to consider when selecting a business entity

Before proceeding with offshore company registration in Malaysia, it is crucial to get a grasp on the
business landscape of the jurisdiction. Determining which business entity is best for a company
formation in Malaysia depends on a variety of considerations:

How many company owners will there be?

What is your risk appetite?

What are the benefits and disadvantages of each business entity?

What is the amount of investment capital you are willing to pay?

What liabilities are you willing to be responsible for?

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Types of business entities in Malaysia

1. Sole Proprietorship
2. Partnership
3. Limited Liability Partnership (LLP)
4. Sendirian Berhad (Sdn Bhd) / Private Limited Company
5. Berhad (Bhd) / Public Limited Company
6. Branch Office

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#1 Sole Proprietorship
Sole proprietorship in Malaysia, being one of the simplest business entities to get started with,
involves only one owner. As there is only one owner, that owner is fully liable for all the debt
repayments and liabilities of the company and pays taxes through their personal income tax.

Under the Registration of Businesses Act 1956, for a new company registration in Malaysia, a sole
proprietor must incorporate his company with the Registrar of Businesses within 30 days of

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commencement. Upon failing to do so, the sole proprietor will be fined up to RM50,000 and/or
imprisoned for up to 2 years.

However, to apply for a sole proprietorship in Malaysia, you must be either a Malaysian citizen or a
permanent resident, as foreign owners are not permitted.

#2 Partnership
A partnership is similar to sole proprietorship, except that it involves at least 2 owners. These
partners are bound by unlimited liability. They share the liabilities towards the business and pay
taxes through personal income taxes. This type of business set-up is most suitable for professional
firms such as auditors and lawyers. Like sole proprietorship, you must be either a Malaysian citizen
or a permanent resident. Foreigners are not allowed to register partnerships.

#3 Limited Liability Partnership (LLP)

Another common business entity is the Limited Liability Partnership (LLP), which is governed under
the Limited Liability Partnerships Act 2012. The LLP combines the characteristics of a conventional
partnership and a limited liability company (LLC).

As the LLP is a separate legal entity from its members, it suggests that the members are subjected
to limited liability. In this form of partnership, the partners have unlimited liability for their own

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acts, but not for the debts of the partnership nor the liabilities of the other partners. Additionally,
some advantages of LLP is that it has fewer compliance requirements and is more cost-effective for

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companies. For example, annual auditing is not mandatory for an LLP.

This means that the LLP concept provides a supportive and conducive environment for start-ups
and small and medium enterprises. 

#4 Sendirian Berhad (Sdn Bhd) / Private Limited Company 

Sendirian Berhad (Sdn Bhd) is a private limited company. It is the equivalent of a Limited Liability
Company (LLC), where all shareholders are accountable for the debts the company incurs.

Sdn Bhd is the most common type of business among foreign owners as they are allowed to
register for Sdn Bhd with 100% foreign ownership.

Requirements to apply for Sdn Bhd:

1 shareholder of any nationality

1 Malaysia resident director

1 Malaysia company secretary

A Malaysia registered office address

No minimum paid-up capital

#5 Berhad (Bhd) / Public Limited Company

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Berhad (Bhd) is a public limited company which bears similarities to a private limited company.
However, its shares can be held by the public, unlike the private limited company. There is no limit
on the number of shareholders and at least 2 directors are needed. It is also governed by Bursa
Malaysia Securities Berhad and the Security Commission of Malaysia.

As Bhd companies are required to publicly report their financial statements, they are subject to
more stringent compliance standards than Sdn Bhd companies. Although funding for the company
would be easier, the strict compliance measures make it more difficult and costly to register.

#6 Branch Office
This business entity is suitable if your company aims to penetrate into Malaysian markets. A
branch office refers to an extension of the parent company and can only conduct business
activities in Malaysia similar to that of the parent company.

Your subsidiary company in Malaysia is required to register the same trading name as the parent
company and will be able to hire both local and foreign employees. The parent company is 100%
shareholder and is fully liable for the debts incurred by the Malaysia branch office. The subsidiary
company will be subjected to corporate taxes, but only for the income earned in Malaysia.

In addition, the branch office is also subjected to a withholding tax of 10%. Most foreign

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companies prefer to set up a Malaysia LLC rather than a branch office.

How to choose the correct types of business entities in Malaysia?

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It is crucial to weigh the pros and cons of each business entity so that your business goals are
adequately met. At Tetra Consultants, we provide our clients with an easy and hassle-free way to
set up a business in Malaysia. Our team of experts will guide you through the full incorporation 
process, including providing advice on the best business entity for your company, engaging a
qualified resident director and opening a corporate bank account. 

Contact us now and our team will revert within 24 hours.

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