One-man Business or Partnership? Let's See the 5 Most Common Types of Business Entitity in Malaysia

Starting a business is not the easiest task, aside from setting up a well-planned business structure, a businessman also needs to understand the rules and legislation in the business world. First of all, one needs to know what type of business entity he/she wants to set up. All businesses in Malaysia are governed by the Companies Commission of Malaysia Act, which is enforced by SSM.

What are the business entities available? Do you know which type of business partnership you should acquire?

Let’s take a look at the five types of business entities in Malaysia.

•  Sole Proprietorship
•  Partnership
•  Limited Liability Partnership (LLP)
•  Private Limited Company (Sdn. Bhd.)
•  Public Limited Company (Bhd.)

1. Sole Proprietorship

This is the simplest way to start a business. At the same time, sole proprietorship has the most traditional business structure. As sole proprietorship business can be started by one person, the owner should bear all the tax by oneself, which is up to 26%.

Legally, sole proprietorship is not a separate entity. However, the bright side is that only a low maintenance fee is needed, because an audit and company secretary are not required.

2. Partnership

Another similar form of business entity is partnership, where two or more persons co-own the business. In Malaysia, a partnership business can be owned by up to 20 persons. Similar to sole proprietorship, there is no auditing and company secretary needed. However, the owners have to bear a higher tax rate.

3. Limited Liability Partnership (LLP)

LLP is considered a new business structure in Malaysia, where every partner has share in the capital and profits. This is a separate legal entity with an unlimited number of partners. It means that the liability is limited for every partner since the liable party is the company itself. 

In LLP, a qualified company secretary is needed, however audit is not required unless it's stated otherwise. Compared to partnership, LLP would be a better choice since it brings a lower tax rate and any changes in ownership would not affect the operation of the company.

4. Private Limited Company (Sdn. Bhd.)

Private Limited Company, or in Malay Sdn. Bhd. (Sendirian Berhad) is one of the most common business entities among small-to-medium enterprises (SMEs). It is different from LLP because it is a separate legal entity. Sdn. Bhd. can encompass 1 to 50 shareholders who have certain rights related to the company. Tax rate of Sdn. Bhd. is more favorable and it is easier to get bank loans and big contracts.

Entrepreneurs should take note that all private limited companies are required to have a company secretary. The set up and maintenance cost are also higher than other entities.

5. Public Limited Company (Berhad)

Similar to Sdn. Bhd., public limited company, or in Malay Bhd. (Berhad) is a separate legal business entity that is limited by shares. The number of shareholders of Bhd. is different from Sdn. Bhd., as it should be more than 50. Besides, Bhd. is a public listed company that is governed by the Securities Commision (SC) of Malaysia. Although the regulatory procedures are quite complex, this could bring substantial development opportunities to the company.

Although some characteristics of the business entities may seem similar,  there are different pros and cons that may affect a company's growth in future. It is advisable to consult a Business Consultant and SME Finance Consultant prior to registering a business, or make necessary decisions in preparation of a future plan.

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