3 Types of Business Set Up in Malaysia



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3 Types of Business Set Up in Malaysia

3 Types of Business Set Up in Malaysia

If you already know what type of business set up 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.

Why Do You Need to Register a Business?

It is important to register your business based on the common types of business set up 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 banks) may refuse to do business with you!

What Are the 3 Common Types of Business Set Up in Malaysia?

A) 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 bear 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)

B) 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 —

C) 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 set up in Malaysia above, it is important to note:

  • Register your business to enable you to conduct business legally, as other businesses may not want to do business with you because of non-registration (e.g. bank, suppliers and customers).
  • 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 start 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 an 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 go 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:

Frequently Asked Questions (FAQ)

1. What are the 3 common types of business set up in Malaysia?

The three common types are Sole Proprietorship/Partnership, Private Limited Company (Sdn. Bhd.), and Limited Liability Partnership (LLP), each with different levels of liability protection, tax treatment, and compliance requirements.

2. Why do I need to register my business at all?

Conducting business without registration is an offence punishable with a fine or imprisonment. Running an unregistered business also means your business is illegal, and other organisations, such as banks, may refuse to do business with you.

3. Should I start with a Sole Proprietorship or go straight to a Sdn Bhd?

It’s generally advisable to register as a Sole Proprietor (if alone) or Partnership (if with partners) at the early stage to reduce operation costs, and convert to a Private Limited Company (Sdn Bhd) later once investors start showing interest or once you’re assuming a large liability, such as debt above RM25,000.00.

4. Is an LLP a good idea if I plan to raise equity funding later?

Generally no. If you’re going for equity funding, you’re likely going to set up a Sdn. Bhd. eventually anyway, so registering an LLP first (which can cost up to RM500) and later converting to a Sdn. Bhd. is far more tedious. LLPs also do not allow equity financing.

5. What makes a Private Limited Company (Sdn Bhd) different from a Sole Proprietorship?

A Sdn Bhd offers limited liability — shareholders are only liable up to the paid-up capital — and is a separate legal entity that can own assets and sue or be sued in its own name. In contrast, a Sole Proprietor bears unlimited personal liability for business debts.

Other Related Articles:

Haven’t Decided Which Business Structure to Register?

Fareez Shah & Partners’ Business Lawyers and Company Secretaries assist entrepreneurs across Malaysia in choosing and setting up the right business vehicle. We can help you with:

  • Choosing between Sole Proprietorship, Partnership, Sdn Bhd, or LLP
  • Registering your business entity with SSM
  • Converting from Sole Proprietorship or LLP to a Sdn Bhd
  • Structuring for future equity financing and investors
  • Full-suite Company Secretarial (Cosec) services and compliance monitoring

Choose the right business vehicle from day one. Get professional legal guidance today.