7 Different Entities: Types of Businesses in Malaysia
- Chow Ping
- 5 days ago
- 9 min read
Updated: 1 day ago
"Just register as a Sdn Bhd lah."
You’ve probably heard this advice before. Your uncle. Your friend who "knows business." Random people at networking events.
But a Sdn Bhd might be completely wrong for your business!
So before you rush to SSM, there's one crucial decision you need to make: What type of business entity should you register?
The structure you choose will determine how much personal risk you're taking on, how much tax you'll pay, how easy it'll be to raise capital, and what compliance hoops you'll need to jump through.
Think of it like choosing a vehicle. A motorcycle gets you moving fast and cheap, but offers zero protection in a crash.
A fully armored truck keeps you safe but costs a fortune to maintain.
The good news? Malaysia offers seven different business structures, each designed for different needs and stages of business.
Let's break down your options.
Here are the 7 different types of businesses in Malaysia:
What it is: The simplest business structure in Malaysia. You, one person, running a business under either your personal name (as it appears on your IC) or a trade name like "ABC Trading."
You can register at the SSM counter in about 1 hour for just RM30 annually (personal name) or RM60 (trade name). It's governed by the Registration of Businesses Act 1956.
Perfect for: Freelancers, small retailers, individual consultants, anyone testing a business idea without major upfront investment. Think: your neighborhood nasi lemak stall, freelance graphic designers, independent consultants, small online sellers.
The catch: Three big ones.
1/ For Malaysian citizens and permanent residents only
2/ The business dies with you—no continuity if something happens.
3/ Unlimited liability
Your personal assets are on the line. If your business racks up RM50,000 in debt and only has RM10,000, creditors can come after your personal car, house, and savings. There's no legal separation between "you" and "your business."
One lawsuit and your personal wealth is fair game.
Bottom line: Great for starting small and testing waters. Terrible if you're taking on significant business risks or debts.
You report business income on your personal tax return, taxed at individual rates from 0% to 30%.
What it is: Of all the types of businesses in Malaysia, the Sdn Bhd is our rockstar business structure. "Sendirian Berhad" (Sdn Bhd) is a separate legal entity distinct from its shareholders, governed by the Companies Act 2016.
It offers serious liability protection and growth potential. You can have 1 to 50 shareholders, minimum 1 director (must be Malaysian resident), and you'll need a qualified company secretary.
Registration costs RM1,000, and it can be 100% foreign-owned in most sectors.
Perfect for: Serious entrepreneurs, foreign investors, businesses seeking funding, anyone building something meant to scale.
When you need credibility with corporate clients, access to bank loans or investor funding, or want to operate multiple outlets or locations.
This is the structure you see on most established Malaysian businesses: restaurants with multiple outlets, tech startups, manufacturing companies, trading businesses with significant capital.
The catch: Higher costs hit you repeatedly. RM1,000 incorporation is just the start. Add company secretary fees (RM1,000-RM3,000+ annually), accounting and audit fees (RM3,000-RM10,000+ annually), plus ongoing compliance.
Speaking of compliance: Annual Return within 30 days of anniversary, financial statements, tax returns by June 30, SST returns if applicable (bi-monthly), employee contributions (EPF, SOCSO, PCB) monthly.
First-year compliance costs approximately RM11,300 before business licenses or employee-related costs. Also, certain sectors like banking, agriculture, education, and oil & gas require 50%+ Malaysian ownership.
Bottom line: Gold standard for serious businesses in Malaysia. If your Sdn Bhd accumulates RM500,000 in debt with only RM100,000 in assets, shareholders lose their investment but creditors cannot touch personal cars, houses, or savings.
"Sdn Bhd" signals stability — clients and banks take you seriously. Perpetual succession means the company continues regardless of director or shareholder changes.
Corporate tax is 24%, but SMEs get 17% on first RM600,000 of income. Higher costs and complexity, yes—but the liability protection, credibility, and growth potential make it worth every ringgit for businesses playing the long game.
3. Partnership
What it is: Like a sole proprietorship, but with 2-20 partners sharing the journey, the stress, and hopefully the success.
Governed by the Partnership Act 1961, it costs RM60 annually to register under a trade name.
There are two types: general partnerships where all partners have unlimited liability, and limited partnerships which combine general partners (unlimited liability) with limited partners (liability capped at their investment).
Perfect for: Law firms, accounting practices, medical clinics, any professional services where you want to combine expertise and share the financial burden.
Works best when you have complementary skill sets and a rock-solid partnership agreement detailing profit sharing, responsibilities, and dispute resolution.
The catch: Unlimited liability for general partners means if your partner signs a disastrous contract, you're on the hook too.
Your personal assets can be seized for partnership debts. Partner disputes can destroy friendships when money gets tight.
What happens when one partner wants to take the business one direction and you want another?
The worst part? If one partner dies or exits without proper agreements in place, the partnership dissolves. Back to square one.
Also, Malaysian citizens and permanent residents only.
Bottom line: Shared burden and combined expertise sound great until a partner dispute erupts.
Get everything in writing — profit splits, decision-making authority, exit strategies, dispute resolution. Everything.
Each partner reports their share of income on individual tax returns (pass-through taxation).
What it is: The best-kept secret in Malaysian business structures. Introduced in 2012 under the Limited Liability Partnerships Act, the LLP combines partnership flexibility with company liability protection.
It's a separate legal entity that can own assets, sue, and be sued. Registration costs RM500, requires minimum 2 partners (no maximum limit), and you'll need a compliance officer who's either a qualified company secretary or an LLP partner.
Perfect for: Professional firms — lawyers, accountants, consultants — who want liability protection without the full complexity and cost of a Sdn Bhd.
Also great for newly started businesses with low startup costs who value flexibility but want to sleep soundly knowing their personal assets are protected.
The catch: It's relatively new, so there's some uncertainty in practical application.
Banks and investors are less familiar with the structure, making it potentially harder to raise capital compared to Sdn Bhd.
Also, while you get liability protection for the LLP's actions, you're still personally liable for your own wrongful acts or negligence. If you personally mess up, you can't hide behind the LLP structure. Fair enough.
Bottom line: Underrated structure that deserves more attention. Your personal assets are shielded from LLP debts and liabilities.
Lower compliance burden than Sdn Bhd — no mandatory audit (unless your agreement requires it), simpler Annual Declaration instead of Annual Return, and financial statements stay private.
Partners report their share of LLP income on individual tax returns.
Think of it as partnership flexibility meets corporate protection.
5. Public Limited Company (Bhd)
What it is: The big leagues. "Berhad" (Bhd) companies can offer shares to the public and be listed on Bursa Malaysia.
Think: TM, Padini, Aeon, Nestle, Maybank, Public Bank.
These are publicly listed companies owned by thousands (sometimes millions) of shareholders who trade shares on the stock exchange.
Governed by the Companies Act 2016, requires minimum 2 directors and 2 shareholders with no maximum limit.
Perfect for: Large corporations already operating successfully at significant scale who need massive capital for expansion.
When you're ready for public scrutiny and regulatory oversight, have solid financials and governance, and want shares traded on Bursa Malaysia.
Need RM50 million to expand operations? Issue shares to the public. Thousands of investors buying shares can fund massive growth, acquisitions, R&D, and geographic expansion.
The catch: This is NOT for most businesses. IPO costs run into millions of ringgit for legal, accounting, underwriting, and advisory fees, plus ongoing listing fees and continuous compliance costs.
Stringent Securities Commission regulations mean quarterly financial reporting, immediate disclosure of material events, and corporate governance standards. Ownership gets diluted across thousands of shareholders.
Activist investors can challenge management decisions. Media coverage follows every stumble. Competitor intelligence gets handed on a silver platter.
Less flexibility to make bold, risky moves. Short-term profit pressure with quarterly earnings obsession.
Everything from Sdn Bhd compliance applies, plus quarterly reporting, stricter audit requirements, and AGM within 6 months of financial year-end.
Bottom line: Going public is the endgame for successful businesses ready to operate at scale. Shares can be easily bought and sold, giving liquidity to founders and early investors.
Being publicly listed signals stability, transparency, and success. But it comes with pressure, scrutiny, and complexity most businesses don't need or want.
If you're reading this article to decide which structure to choose, you're probably not ready for Bhd. And that's okay.
6. Cooperative (Koperasi)
What it is: A member-owned business entity designed to improve members' economic welfare, not maximize profits for external shareholders.
Governed by the Cooperation Act 1993 and registered with Suruhanjaya Koperasi Malaysia (SKM), not SSM.
A democratic structure where members vote for Board Members at Annual General Meetings — one member, one vote regardless of capital contribution. Profits are shared as dividends based on participation and capital contribution, or reinvested to improve member services.
Perfect for: Community groups, agricultural ventures, school cooperatives, member-focused initiatives where the goal is collective benefit rather than individual wealth accumulation.
Examples include school cooperatives where students and teachers pool resources for better purchasing power, agricultural cooperatives where farmers collectively market produce and share equipment, credit cooperatives where members access affordable loans, and housing cooperatives where members collectively develop and manage projects.
The catch: Requires minimum 50 active members—this is critical.
Drop below 50 active members and the cooperative cannot operate. This isn't something you casually start with a few friends. You need a committed community willing to participate actively.
Also requires registration with SKM, annual audits by SKM-approved auditors, Annual General Meetings, and financial reporting to SKM. It's a significant organizational lift.
Bottom line: If your goal is building something that serves a specific community or group rather than extracting maximum profit, cooperatives offer a unique structure aligned with those values.
Cooperatives registered with SKM enjoy certain tax exemptions and preferential treatment.
But the 50-member minimum and community-service focus make this unsuitable for most traditional businesses.
7. Foreign Company Options
What it is: Two ways for foreign companies to establish presence in Malaysia without fully incorporating a local entity.
A Representative Office is an outpost for market research and liaison — your company's "eyes and ears" in Malaysia.
You can conduct research, study business environment, and coordinate activities, but cannot engage in profit-generating activities, sign contracts, or generate revenue.
A Foreign Branch Office is an extension of the parent company conducting the same business activities in Malaysia. It's not a separate legal entity, must conduct same activities as parent, and requires at least one Malaysian resident as authorized agent.
Both require registration with SSM.
Perfect for: Foreign companies in different stages of market entry. Use Representative Office when you're in the "exploring Malaysia" phase — testing the market, building relationships, studying opportunities — not ready to commit to full operations.
Use Branch Office when you're ready to conduct business activities in Malaysia but want to keep it as an extension of your foreign parent rather than incorporating separately.
Good for short-term business expansion without full incorporation commitment.
The catch: Representative Office cannot generate any revenue or sign contracts — it's purely exploratory. For both structures, the foreign parent company is fully responsible for all debts and liabilities.
No independent legal standing means no liability protection. Also requires Malaysian resident agent or representative, annual compliance filings, and financial reporting.
You're still tied to all the administrative requirements without the benefits of a separate legal entity.
Bottom line: These are temporary solutions, not long-term strategies. Graduate to Sdn Bhd when you're committed to the Malaysian market long-term, want liability protection, need local credibility, or hit sector restrictions requiring local incorporation.
Think of Representative Office as your market testing phase, Branch Office as your operational trial phase, and Sdn Bhd as your commitment phase.
How to Choose: The Decision Framework
Still confused? Here's the quick guide:
Starting small and local? → Sole Proprietorship. Testing ideas with minimal investment, operating solo, comfortable with personal liability, want minimal compliance hassle.
Need partners but want protection? → LLP. Professional services firm, want partnership flexibility with corporate protection, happy with simpler compliance than Sdn Bhd.
Serious about growth or foreign investment? → Sdn Bhd. Building something meant to scale, seeking bank loans or investor funding, need credibility with corporate clients, want personal asset protection.
Already massive and going public? → Bhd. Operating successfully at significant scale, need huge capital for expansion, ready for public scrutiny and regulatory oversight.
Community-focused mission? → Cooperative. Building for member welfare over profit maximization, have 50+ committed members, value democratic decision-making.
Foreign company exploring? → Representative/Branch Office. Testing Malaysian market or conducting temporary business before full incorporation.
The Part Nobody Warns You About
Here's what catches new business owners off-guard: Incorporation costs RM1,000. Staying compliant costs RM11,300+ annually.
That's company secretary fees, bookkeeping, audits, tax filing, and SSM returns — before business licenses or employee registrations.
And LHDN doesn't mess around. Miss deadlines? Penalties. I have one client who overpaid RM93,000 in taxes thinking it was "safe." LHDN audited him instead of refunding.
The audit tied up his money for over a year. Yikes!
You started a business to DO business, not drown in compliance paperwork.
We handle entity selection consultation, complete SSM registration, post-incorporation setup (corporate secretary, bank account, all tax registrations), everything...
And most importantly: you'll never miss a compliance deadline again.
Want to focus on your business while we manage the boring paperwork for you?
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