Sole Proprietor vs LLP vs General Partnership vs Company in Malaysia
Choosing the right business entity in Malaysia is a crucial step in the formation process. Before officially setting up your business, you must determine the most suitable structure that aligns with your business objectives, legal requirements, and growth plans. Each entity type in Malaysia offers distinct advantages and considerations in terms of liability, taxation, and compliance obligations.
Types of Business Entities
Following are the common forms of business organization in Malaysia:-
- By an individual operating as Sole Proprietor
- By two or more (but not more than 20) persons in Partnership, or
- By two or more persons in Limited Liability Partnership, or
- By a locally incorporated Company or by a Foreign Company registered under the provisions of the Company Act 1965
| Company | Limited Liability Partnership (LLP) | General Partnership | Sole Proprietorship | ||
| Entity Name Appearances |
Company name ends with the word “Sdn Bhd” or “Bhd”, “Berhad”, “Sendirian Berhad” | Company name ended with the word “PLT” (Perkongsian Liabiliti Terhad) | Must register under a Trade Name ( Using Enterprise, Trading, Services etc ) | There are two types of business names:
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| Capital Contribution | Share capital | Partners contribution |
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Own contribution | |
| Owner(s) of the business | A Company is a business entity where members or shareholders hold shares, granting them specific rights and privileges concerning the company’s operations and decision-making. | In an LLP, partners hold a stake in both the capital and profits of the business. | Partners | Sole Proprietor | |
| Legal Status | Separate legal entity | Separate legal entity | Not a separate legal entity | Not a separate legal entity | |
| Party that is liable for debts of the business | Company | LLP | Partners | Sole Proprietor | |
| Responsibility for management of business | Board of Directors | Partners | Partners | Sole Proprietor | |
| Personal liability | Directors and shareholders are not personally liable for the company’s debts. Their financial responsibility is limited solely to any unpaid portion of their shares. | Partners are only liable for their own wrongful acts or unauthorized actions, with liability limited to unpaid share capital, shared with the LLP. | Partners have unlimited liability, jointly and severally responsible, which may extend to personal assets. | The owner’s unlimited liability can extend to personal assets. | |
| No. Of Shareholders/Partners | Minimum 1 and maximum 50 in private company | Minimum 2 and no maximum limit | 2 to 20 partners(Except for partnerships for professional practice with no maximum limit) | Sole proprietor only | |
| Company Secretary / Compliance officer | Qualified Company Secretary | Compliance Officer or partner of the LLP | N/A | N/A | |
| Statutory Audit Requirement | Required to be Audit | Not compulsory unless it is provided in the partnership agreement | No Audit required | No Audit required | |
| Annual Compliance | Must file annual return and financial statements every calendar year.
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Must lodge an annual declaration and solvency statement with CCM (the 1st within 18 months from the date of registration and thereafter, 90 days from the end of the financial year) | Business Renewal | Business Renewal | |
| Annual Submission to SSM | Annual Return with Audited/ Unaudited Financial Statement | Annual Declaration | Can be done within 30 days before the date of expiry | Can be done within 30 days before the date of expiry | |
| Annual Fee to SSM | RM200 | RM200 | Trade Name – RM60 per year Personal Name – RM30 per year |
Trade Name – RM60 per year Personal Name – RM30 per year |
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| Income Tax Status / Income Tax Rate | standard corporate income tax rate in Malaysia is 24% for both resident and non-resident companies | An LLP is taxed at corporate income tax rate of 24% in Malaysia | Partners are taxed on chargeable income at 2% to 26% after tax relief deductions. | Tax on Sole Proprietor From 0% to 30% |
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| Rules & Regulations | Company Act 1965 (CA), | Limited Liability partnership Act 2012 (LLP), Limited Liability Partnership Regulations 2012 | Registration of Businesses Act 1956 (RBA) | Registration of Businesses Act 1956 (RBA) | |
| KEY features | – More paperwork & more expensive – Limited Liability – Complexity in Administration (statutory audit, AGM, board resolution and etc) – Higher Compliance Cost – One local resident director are required to setup a Company – Suitable for business affordable to maintain business with higher operation cost – The public will have access to the financial affairs of the company. |
– Less paperwork & additional formalities (registration is easy, fast and fewer documents are needed) – Limited Liability, – Simplest Administration (Not compulsory for statutory audit), – Local resident compliance officer is required to setup LLP – Lower Compliance Cost – Suitable for newly start-up business with low entry cost – Not required to disclose financial statements to the public. – Perpetual succession : – The changes status of the partners will not affect the existence of the LLP corporation |
– Less paperwork & additional formalities (registration is easy, fast and fewer documents are needed) – Unlimited Liability, – Simple Administration (Not compulsory for statutory audit), – Lower Compliance Cost – Suitable for newly start-up business with low entry cost – Not required to disclose financial statements to the public. |
– Less paperwork & additional formalities (registration is easy, fast and fewer documents are needed) – Unlimited Liability – Simple Administration(Not compulsory for statutory audit),, – Lower Compliance Cost – Suitable for newly start-up business with low entry cost – Not required to disclose financial statements to the public. |
Choosing the right business entity in Malaysia depends on various factors, including liability protection, compliance requirements, operational complexity, and tax obligations. Sole Proprietorships and General Partnerships offer simplicity and lower costs but come with unlimited personal liability. Limited Liability Partnerships (LLPs) provide a balance between ease of management and limited liability, making them ideal for small businesses and professional firms. Companies (Sdn Bhd) offer the strongest legal protection and credibility but require higher compliance and maintenance costs.
Entrepreneurs should carefully assess their business goals, financial capacity, and risk tolerance before making a decision. Consulting with a professional advisor can help ensure that the chosen structure aligns with long-term business objectives.
