3 Types of Business Setup in Malaysia

Why do you need to register a business?

business setup in malaysia

It is important to register your business based on the common types of business setup in Malaysia because conducting business without registration is an offence which is punishable with fine  or imprisonment. But more importantly, running an unregistered business also means that your business is illegal and other organisation (such as bank) may refuse to do business with you!

If you already know what the type of business setup in Malaysia to choose, perhaps the following content is more relevant :

If not, you got to first decide which business entity to register, here are some pointers to help you out:

What are the 3 common types of business setup in Malaysia?

Sole Proprietorship / Partnership

PROS CONS
Easy and Cheap Registration (<RM100) Unlimited personal liability – (Sole Proprietor)

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

Jointly or Severally Liable – (Partnership)

(e.g.: If business debt is RM10k, all partners are equally liable for the debt)

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/Partner may lead to dissolution)

Private Limited Company (Sdn. Bhd.)

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

 Limited Liability Partnership (LLP)

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

In a Nutshell🌰

Based on the types of business setup in Malaysia above, it is important to note:

  • to register your business to enable you to conduct business legally as other business may not want to do business you because of non-registration (e.g.: bank, suppliers and customers).
  • to register as Sole Proprietor (if you are alone) or Partnership (if with partners) at the early stage to reduce operation cost and you can always change into a Private Limited Company (Sdn Bhd) later on when investors starts knocking on your door or when you are assuming a big liability – such as debt above RM25,000.00 (RM5,000.00 to give room for Interest).
  • I would advise against registration of LLP at early stage because if you are going for equity funding you are going to set up a Sdn. Bhd. later (for sure, confirm…no doubt about it) – Save your bullet, registering an LLP can cost up to RM500 and converting from LLP to Sdn. Bhd. is far more tedious.
  • Also, choose Sdn. Bhd. instead of LLP because it allows you to raise money through investors/equity financing. Plus the law on LLP is still unsettled and therefore more probable for dispute to arise. This may lead to high legal cost if any issues goes to court.

Important Note: I am not against setting up LLP, but you have to be very clear on why LLP is the right vehicle for your business, in view that you may go for Equity Financing in the future.

So after figuring out the suitable Business Vehicle you have to get it registered:

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