What Are The 3 Types of Business Entity in Malaysia?

We have assisted several type of business entity to start their business:

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Before starting a business in Malaysia, it is important to register the business with Suruhanjaya Syarikat Malaysia (SSM). Failing to register a business means your business is illegal. It is also considered as an offense. This will result in the punishment of fine or imprisonment. Other organizations (such as bank) may also refuse to do any business with you.

3 Common Type of Business Entity in Malaysia

Before you start registering your business, you need to know type of business entity that suits your business. Here are the type of business entity commonly registered in Malaysia.

Sole Proprietorship

The sole proprietorship is a type of enterprise that is owned and run by one person. Therefore, there is no legal distinction between the owner and the business entity.

The Pros and Cons:

Pros Cons

Easy and cheap registration.

(<RM100)

Unlimited personal liability.

(e.g., If business debt is RM10k, Sole Proprietor will bare the RM10k personally)

Lower Tax if taxable income is <RM200k. Higher Tax if taxable income is >RM200k.
No monthly maintenance fee. No equity financing and limited financing options.
Easier decision making process.

No business continuity.

(departure of Sole Proprietor may lead to dissolution)

Here are things you need to do to Setup Sole Proprietorship.

Private Limited Company (Sdn Bhd)

Private Limited Company (Sdn Bhd) is the most common forms of companies in Malaysia held privately. Usually, this type of company is suitable for small companies.

The  Pros and Cons:

Pros Cons

Limited Liability – Shareholders are only liable up to the paid up capital.

(e.g., The creditor cannot make the shareholders and directors personally liable for the debt of the Company)

Monthly Company Secretary Retainer Fee.

(Ranging from RM50 to any amount depending on Company size and Company Secretary rate)

Separate Legal Entity which can own assets, property, sue or be sued in its own name.

Reporting Requirement and Strict Statutory Compliance.

(e.g., Mandatory Annual General Meeting and Audited Accounts)

Can Apply for Tax Incentives.

(e.g., Green Tech, SME, & MSC Status)

Non-Compliance may lead to penalty and imprisonment.
Fixed Tax i.e., 25% of Taxable Income. Fixed Tax is not worthwhile if revenue is <rm200k.
Perpetual Succession – Company will remain in existence even if the founder(s) depart from Company.

Tedious decision making process.

(Decisions must go through Board of Directors and sometimes Shareholders)

Allows Equity Financing and More Financing Options.

Here are things you need to do to Setup Private Limited Company (Sdn Bhd).

Limited Liability Partnership (LLP)

Limited Liability Partnership (LLP) is an alternative business vehicle which combines the characteristics of a company and a conventional partnership.

The Pros and Cons:

Pros Cons

Limited Liability – liabilities of LLP borne by its assets.

(The creditor cannot make the Partners personally liable for the debt of the LLP)

Requires appointment of Compliance Officer who is responsible for compliance with LLP Act.

(Compliance Officer may be made personally accountable for LLP’s non-compliance with LLP Act)

Separate Legal Entity which can own assets, property, sue or be sued in its own name. Reporting and Strict Statutory Compliance Requirement.
Flat Tax Rate of 20% on the First RM500k. Non-Compliance may lead to penalty and imprisonment.
Easier decision making process.

Law is new and the principles of law is unsettled.

(any legal dispute will be costly)

Perpetual Succession – partners departure will not affect the life of LLP. No Equity Financing.

Here are things you need to do to Setup Limited Liability Partnership (LLP).

Already figure out the business entity that suits your business? Here are some tips to starting a business in Malaysia.


We can help you to register your business in Malaysia:

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