8 Types of Business in Malaysia to Register Your Company

Choosing the right type of business in Malaysia is critical for entrepreneurs, as it requires an understanding of legal compliance, tax implications, liability protection, operational flexibility, access to funding, and the perception and credibility associated with each structure. 

With various legal requirements and compliance obligations, as an entrepreneur, you must navigate the complexities to ensure legal compliance and mitigate risks to your business. 

In this article, we will take you through the 8 types of business in Malaysia. Make sure you read the full explanation down below!

8 Types of Business in Malaysia to Register Your Company

Registering a business entity with the Companies Commission of Malaysia (SSM) is a basic step to ensure legal operations in the country. 

This process requires the entity to be categorised into one of three different groups: Business Registration (ROB), Company Registration (ROC), and Limited Liability Partnership (LLP), each of which is ruled by its own set of laws.

Within these categories, entrepreneurs have the flexibility to choose from a total of eight business entities, each offering unique advantages and considerations.

Below is a detailed explanation of each type of business license in Malaysia.

1. Sole Proprietorship

The first type of business in Malaysia is the sole proprietorship. The sole proprietorship is included under the Business Registration (ROB) category which serves as the simplest and most cost-effective option for individuals starting their own small-scale business. 

With registration fees as low as RM30 using a personal name or RM60 for a trade name, the process is straightforward and can be completed independently without involving a third party. 

However, sole proprietorship comes with significant personal liability, as the business owner assumes all responsibilities and debts in their capacity. 

Although taxes are filed through personal income tax, the simplicity of the registration and compliance process has its drawbacks, such as annual renewal and a potentially higher personal tax burden. 

In addition, the inability to issue shares limits the scalability of sole proprietorships, making it difficult to attract investment for expansion. 

2. Partnership

The second type of business entities in Malaysia is the partnership. Similar to sole proprietorships, partnerships also is categorised under the Business Registration (ROB) category.

Partnerships present an accessible option for individuals who wish to start a small business with partners, which is commonly found among professionals such as lawyers, accountants, and doctors. 

With a minimum of 2 and a maximum of 20 partners, a Partnership offers joint liability towards the business, with taxes filed through personal income tax. 

However, it is important to note that partners are personally liable for any damages awarded by the court in the event of a legal dispute. 

Although partnerships have an easy registration process and compliance requirements, annual renewal and a potentially high personal tax burden are some of the drawbacks. 

Additionally, just like sole proprietorships, the inability to issue shares limits the scalability of partnerships, making it difficult to attract investment for growth.

3. Private Limited Company

The private limited company also known as Sendirian Berhad (Shd Bhd) is one of the types of business organization in Malaysia. The private limited company qualifies as the Company Registration (ROC).

As a separate legal entity, a Sdn Bhd enables owners to conduct business activities, own assets, enter contracts, and pursue legal actions independently, effectively separating personal liabilities from the company itself. 

Additionally, the recent updates to the Companies Act 2016 allow for incorporation with a single director and shareholder, providing flexibility for solo entrepreneurs. 

Sdn Bhd registration is particularly attractive for those looking to operate small to medium-sized enterprises (SMEs) in Malaysia, with the only requirement being that at least one director resides in the country. 

Advantages include relatively low registration costs, straightforward compliance procedures, liability protection, scalability through increased capital and share issuance, and the option for full foreign ownership. 

However, limitations such as a maximum of 50 shareholders, restrictions on public fundraising, and regulated share transfers are important considerations for entrepreneurs. 

4. Company Limited by Guarantee (CLG)

The next type of business in Malaysia is a Company Limited by Guarantee. The Company Limited by Guarantee (CLG) is qualified as the Company Registration (ROC) which offers a specialised business structure suitable for non-profit organisations in Malaysia. 

As a public company without share capital, CLGs rely on members who act as guarantors to oversee operations and fulfil organisational objectives. 

While members do not contribute capital upfront, they are obligated to pay debts if the company closes down, based on the amount of guarantee pledged.

CLGs are also distinct in their focus on promoting art, science, religion, charity, and pension schemes, with the potential to apply for corporate tax exemptions. 

However, the registration process for CLGs is complex and costly, with stringent compliance requirements. 

Additionally, all profits must be utilised for the organisation's stated objectives, and CLGs are prohibited from owning or releasing property rights. 

Furthermore, CLGs cannot convert to other business entities, and members remain liable for company debts for one year after leaving the organisation.

5. Unlimited Company

The next type of business in Malaysia is unlimited company also known as Sendirian (Sdn). 

This type is categorised as the Company Registration (ROC) which offers a unique business structure in Malaysia, distinguishing itself from other companies by not limiting shareholders' liability towards the company. 

While most companies provide limited liability protection, an Sdn company may be registered specifically for forming mutual funds to hold assets for investment purposes rather than conducting business activities. 

Operating similarly to a partnership but with more flexibility in share ownership, shareholders in an Sdn company are free to sell their shares back to the company. This flexibility extends to the company's classification, as it can function as either a private or public entity. 

However, registering an Sdn company comes with challenges such as high registration costs, complex compliance requirements, and the significant risk of full shareholder liability towards company debts. 

In addition, shareholders remain liable for company debts for one year after leaving the company, adding further considerations for potential risks.

6. Public Limited Company

The following type of business in Malaysia is the public limited company also known as Berhad (Bhd). Similar to unlimited companies, this type is also categorised as the Company Registration (ROC).

The Berhad (Bhd) or public limited company in Malaysia is quite similar to a Sdn Bhd company but with some differences. 

Different from Sdn Bhd companies, Bhd companies can sell shares to the public and have as many shareholders as they want. 

However, they must have at least two directors, and they follow rules set by Bursa Malaysia Securities Berhad and the Securities Commission of Malaysia. 

Additionally, registering a Bhd company also can be hard and expensive because of all the rules they have to follow. But, being able to sell shares to the public makes it easier for them to get money for their business.

7. Foreign Company

The other type of business in Malaysia is the foreign company which is also under Company Registration (ROC).

The foreign company allows people from other countries who already have businesses elsewhere to open branches in Malaysia for various reasons like running local operations or serving customers.

This means foreigners can run businesses here without needing a director who lives in Malaysia. But, if you're not Malaysian or a permanent resident, your options for setting up a business in Malaysia are limited. 

In this case, you can either choose to start a Sdn Bhd company or go for a Foreign Company. 

On the other hand, registering a Foreign Company can be expensive and complicated because of all the rules you have to follow. In addition, foreign companies can't raise money from the public like other companies do.

8. Limited Liability of Partnership (LLP)

The last type of business in Malaysia is the Limited Liability Partnership (LLP) also known as Perkongsian Liabiliti Tehad (PLT).

This business entity offers a unique business structure ruled by the Limited Liability Partnerships Act 2012, which was introduced in Malaysia in 2012. 

This business entity combines some aspects of both a Sdn Bhd company and a Partnership, LLPs require a minimum of two partners with no maximum limit, distinguishing them from traditional partnerships

Despite its potential advantages, such as flexibility in partner agreements and relatively low setup costs, LLPs are not commonly registered in Malaysia, likely due to their novelty. 

In general, Malaysians or permanent residents seeking to start small businesses with partners may find LLPs suitable. 

However, LLPs have limitations, such as the inability to raise funds from the public and the potential complexities associated with being governed by a relatively new law.

Conclusion

Those were the 8 types of business in Malaysia for you to consider in registering your business there. From the  Sole Proprietorship to the  Public Limited Company (Bhd), each structure offers unique advantages and considerations tailored to various business needs.

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