Nine business structures in Malaysia.

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Nine business structures in Malaysia

Choosing a business entity in Malaysia is an important step. Before officially setting up a company, you must decide on the type of business entity that is the most suitable for your business objectives.

Our comprehensive list of business entities in Malaysia gives you the opportunity to consider the right business structure for your investment.

1. Sole proprietorship

A sole proprietorship is one of the simplest types of Malaysian business entities to set up.

The sole proprietorship requires only one owner, and his/her liability is unlimited. Personal income or assets of the owner will not be protected if the company is declared bankrupt or in debt.

Only Malaysian citizens and permanent residents can register this entity.

You will have to pay an annual fee to the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia (SSM)) to keep the company renewed. This type of entity does not need to submit audits or carry out annual filing.

2. Partnership

A partnership has two or more owners and a maximum of 20 owners.

These partners combine their resources to carry out business with the goal of generating profit. Partnerships are suitable for professional firms such as auditors and lawyers.

Only Malaysian citizens and permanent residents are allowed to register partnerships.

The partnership agreement outlines the responsibilities and liabilities of each partner. The business partners share the profits and liabilities of the company. The partnership is not required to pay any tax, but the partners will be taxed as individuals and have to report their profits and losses.

Like sole proprietorships, the partner’s liability is unlimited.

3. Limited liability partnership

A limited liability partnership combines the characteristics of a partnership and a company. It is a body corporate and is a separate legal entity from its partners.

A limited liability partnership provides asset protection to its partners if the company goes bankrupt or in debt. It also has less compliance requirements compared to other entities and is more affordable.

This entity is suitable for small companies or startups.

4. Private limited company

A private limited company is a separate legal entity from its owners, meaning that it can buy or sell property, enter legal contracts and sue or get sued in courts.

The owners are liable only to the amount they have contributed to the company, and their personal assets or wealth will be left untouched if something happens to the company.

The private limited company is the most common type of entity for foreign investors. Foreigners are permitted to own 100% of the company. However, for some industries, they will need 50% Malaysian ownership. These industries include agriculture, banking, education, oil and gas.

To establish a private limited company, you would need a minimum of one member and a maximum of 50 members. The shares of this type of entity is issued to the individuals or corporate bodies.

5. Public limited company

A public limited company is similar to a private limited company, but the shares of the public limited company can be offered to the public. Public limited companies are usually listed on the stock exchange and is governed by the Securities Commission of Malaysia.

This entity must have a minimum of two shareholders, and the number of members is unlimited. The public limited company must hold annual general meetings and make reports on their financial statements.

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

The liability of the members of this entity is limited to the amount contributed on their unpaid shares. If the company goes into liquidation or in debt, the members do not have to pay for the company.

A company limited by guarantee is mostly used for non-profit companies such as charities, clubs or societies. Profits gained from the company will not be distributed to the members of the company. However, profits will be reinvested into the company. If you form a charity organisation with more than 20 people, you must register the organisation with the SSM.

6. Unlimited companies

An unlimited company provides unlimited liability to the members and shareholders. If there is any loss or the company is in debt, the members and shareholders will be personally responsible.

An unlimited company may change to a limited company in the case that they pass a special resolution and lodge a notice for conversion with the SSM.

Foreign company options available in Malaysia

7. Representative office

Foreign companies that want to increase their market and understanding of the Malaysian business environment can set up a representative office. A representative office does not have an independent legal standing in Malaysia. Therefore, the parent company is responsible for the debts and liabilities.

The representative office cannot engage in any business activities that will generate profit, business transactions, cannot sign or enter any contracts, sign deals or undertake any trading activities.

It is restricted to gathering or analysing information and studying the business opportunity in the Malaysian market, plan business activities, conduct research and product development and act as a coordination centre for the corporation’s agents in the region.

8. Branch office

A branch office is not a separate legal entity and is an extension of the foreign parent company. The foreign parent company is liable and responsible for all the debts of the branch in Malaysia.

The activities of a branch office must be the same as the foreign parent company, and a branch is suitable for foreign companies that want to expand their business to Malaysia for a short-term basis.

The activities of a branch office must be the same as the foreign parent company, and a branch is suitable for foreign companies that want to expand their business to Malaysia for a short-term basis.

There must be at least one person residing in Malaysia to act as the branch’s authorised agent. The branch must also register with the SSM before being incorporated in Malaysia.

9. Subsidiary company

A subsidiary has a separate legal entity from its parent company. Therefore, the subsidiary is liable for its debts and liabilities.

A subsidiary is suitable for foreign companies who want to expand into Malaysia. A subsidiary permits 100% foreign ownership. There must be a maximum of 50 members.

The company name does not need to be the same as the foreign parent company, and it can conduct all business activities.

Conclusion

It is important that you understand the differences of the business structures in Malaysia as choosing the wrong entity could lead to problems occurring in the future. You should choose the type of business that best matches with your company’s objective, number of officers and industry.

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