7 Types of Company in Malaysia

7 Types of Company in Malaysia

Choosing the right types of company in Malaysia or business entity is so crucial in Malaysia’s setup process. The most important thing before formally setting up a business is to figure out the types of company in Malaysia that best fits your goals. We summarize a comprehensive list of types of companies in Malaysia, so you can browse and find the most suitable business structure for your venture.

Registration of business

The business structures listed below are not considered separate legal entities. As a result, the business owners bear unlimited liability at a personal capacity. These structures are registered in accordance with the Registration of Business Act 1956.

1. Sole proprietorship

A sole proprietorship is the easiest company structure to form. There is only one owner, and the owner has unlimited liability. Personal income and assets are not protected if the company runs into bankruptcy or debts. This business entity structure is only eligible for Malaysian citizens or permanent residents for registration.

The fee for continuing the company’s status with Suruhanjaya Syarikat Malaysia (SSM) must also be paid yearly. But this type of entity is not subject to audits or annual returns.

2. Partnership

There must be at least two and not more than 20 owners, who combine their capital to do business. That’s called a partnership. Particularly common at professional firms such as auditors and lawyers.

Malaysian citizens and permanent residents are the only ones eligible for registration as partners.

In a partnership, it defines the obligations and responsibilities of each partner. The company’s profits and liabilities are apportioned between the business partners. Although the partnership itself need not pay taxes, the partners must individually declare their profits and losses.

Like sole proprietors, the partners in a partnership have unlimited liability and are personally responsible for repaying debts or meeting obligations.

Registration of Company

These types of companies in Malaysia business structures are separate legal entities and provide protection for the owner of the company-its directors and shareholders. Registered under the Companies Act 2016.

3. Private limited company (Sdn Bhd)

A private limited company (sendirian berhad, or Sdn Bhd) is a legal entity separate from its owners, allowing it to own property, sign contracts, buy and sell property, enter into contracts, pursue legal actions in court.

The owners’ liabilities are limited to the amount of their capital in the company.  But if there are problems with the company, their personal assets are still protected.

Private limited offers 100% ownership and it is the preferred choice by foreign investors. But in some areas, such as agriculture, banking, education and oil and gas there is a 50% Malaysian ownership requirement.

A private limited company can have from one to 50 members. It issues shares according to investment by a percentage method, either for individuals or corporate.

Read Sole Proprietorships VS SDN BHD Private Limited Company

4. Public limited company (Bhd)

The public limited company differs from the private limited company only in that it offers its shares to the public and is subject to limitations imposed by local laws. Public limited companies are generally listed on the stock exchange, and regulated by the Malaysia’s Securities Commission.

It must have at least two shareholders and there is unlimited on the number of members. Annual general meetings and reports on their financial statement must be filed by the public limited company.

There are two types of limited companies in Malaysia:

  1. Limited by shares
  2. Limited by guarantee

Companies limited by shares vs companies limited by guarantee

Limited by Shares:

  • Members’ liability is limited to the extent of their investment in the company through shares.
  • In case of company insolvency, members are only liable for the unpaid amounts on their shares.
  • This structure is common for businesses where profits are distributed among shareholders.

Limited by Guarantee:

  • Members’ liability is limited to a predetermined amount they agree to contribute in case of the company’s winding up.
  • Typically used by non-profit entities like charities or clubs.
  • Profits are not distributed to members but reinvested into the company’s objectives.

In summary, limited by shares bases liability on the investment in shares, while limited by guarantee sets a predetermined amount members commit to contributing if needed, commonly for non-profit ventures.

5. Unlimited company (Sdn)

The members and shareholders of the company have unlimited liability. The company will be liable for losses and debt. If there is a loss, the members and shareholders are personally responsible.

But an unlimited company can convert to a limited one provided it passes the special resolution and registers its proof of conversion with the SSM.

6. Foreign company

Representative office

A foreign company which would like to understand more about the Malaysian business environment can establish a representative office. There is the fact that a representative office has no legal status in Malaysia. Thus the parent company must take charge of debt and liabilities.

Representative office function involves no business activities capable of earning profit, nor any direct or indirect business dealings, nor signing contracts in associated deals, and undertaking others’ trading.

Limited to collecting information and analyzing the business opportunity in Malaysia, planning business activities there and evaluating research and product development, it is only supposed to coordinate with the corporation’s agents operating regionally.

Foreign branch office

The basic principle is that a branch office is not itself an independent legal entity but rather just an extension of the foreign parent company. In the same way, whatever debts a branch in Malaysia might have, all of them are liable to the foreign parent company.

Branch office activities should be the same with those of the foreign parent. This is another type of unit that is suitable for use by foreign companies wishing to open a branch office in Malaysia for short-term purposes.

As for the branch, activities should be similar to those of the overseas parent company. Branch companies are ideal if a foreign firm wishes to establish operations in Malaysia on only a temporary basis.

The branch must also have at least one national resident in Malaysia to serve as the authorised agent. The branch that is incorporated then has to register with the SSM.

Types of Company in Malaysia

Limited liability of partnership

A Limited Liability Partnership (LLP) combines elements of both a partnership and a private limited company (Sdn Bhd). Governed by the Limited Liability Partnerships Act 2012, this business structure offers features of limited liability akin to a company while maintaining the flexibility and operational aspects of a partnership.

7. Limited liability partnership

The limited liability partnership possesses all the attributes of a company while having the status of partners. It is a body corporate and separate from its partners in the law.

Compared with limited partnerships, the limited liability partnership offers partners protection in cases of company bankruptcy or debts. It also has fewer compliance demands than other businesses, and is less expensive to set up.

It is suitable for small companies or enterprises just getting off the ground.

Conclusion

It is important to distinguish between types of company in Malaysia, and it would be disastrous if the wrong choice were made. You should match your choice with the direction of your company, the number of officers involved and industry.

Contact the FastLane Group for a free consultation on company incorporation. We can guide you in choosing the type of business organization that suits you best.

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