Types of Business Entities

Type of entity What is this Pros Cons
Sole proprietorship

An structure for a single-person business

All business income is considered your personal income

Most suitable for a one-person venture with no employees

Simple: fast and cheap to set up; owner only required to pay an annual fee of RM90-100 to the SSM to keep business renewed

No audit and annual requirement

Easy to convert into a limited company

Easy to exit: can be closed down by merely filing a form to the SSM

Unlimited liability:  if sole proprietorship cannot meet its debts, creditors can go after the owner’s personal assets

Tax: Business income is taxed at the same rate as your personal income

Impermance: business ownership cannot be transferred.  Death of the owner will also cause the sole proprietorship to be terminated

Partnership

An entity with two or more business owners

Most suitable for professional firms such as lawyers and accountants; partnerships that does not seek to raise funds

 Same as sole proprietorship  Same as sole proprietorship
Limited liability partnership (LLP) Hybrid between a private limited company and partnership  Separate legal entity: capable of acquiring, owning, holding and developing or disposing of property

Less compliance requirements: not required to audit its accounts annually
Cannot issue shares: cannot have shareholders and raise funds from the market  
Private limited company (Sdn Bhd)

The most common form of companies in Malaysia

Suitable for smaller companies and SMEs

Separate legal entity: can acquire assets, go into debt, enter into contracts, sue or be sued in its own name and has a perpetual succession

Limited liability: liability of the members/owners is limited to the amount that they each have contributed as capital to the company. If the company fails to meet its liabilities, the creditors will not be able to go after the owners’ personal assets.

Limited growth: shareholders limited to 50, prohibited from inviting the public to subscribe to its shares
Public limited company (PLC) Public limited companies are usually listed companies and govern by the Bursa Malaysia Securities Berhad and the Securities Commission of Malaysia

This type of entity is usually the type selected by large businesses.

Separate legal entity

Limited liability: shareholders’ liability limited to their capital contribution

Great access to capital: can offer shares to the public, no limit to the number of shareholders

Costly & time consuming: a lot of legal formalities required, strict controls and regulations to comply
Company limited by guarantee Most suitable for non-profit organizations, charitable bodies, foundations etc. Liability of the members are limited to the amount which the members have undertaken or guaranteed to contribute

Not allowed to own or release property rights

All profits must be used for purposes stated in foundations objectives

Foreign companies

Companies already incorporated outside of Malaysia but has set up business premises and operations in Malaysia

Suitable for foreign companies that is undertaking operations in Malaysia/providing customer service

Foreign companies wishing to engage in trade/sales must register as a local company

Ability to set up and conduct operations in Malaysia  Not allowed to engage in trading or wholesale activities

 



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