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Sdn Bhd / LLP / Enterprise?

Posted LnCoadmin
Malaysia is a perfect place to start and expand your business. Not only because of the lower startup cost , but also the attractive government incentives offered. To start a business in Malaysia, there are 3 major types of business registration with different practices.

 

Sole proprietorship / partnership is suitable for those who are in the beginning stage of their business while a Private Limited Company (Sdn Bhd) or a Limited Liability Partnership (LLP) are best suited for those who wish to expand their business worldwide .

 

Besides the business plan, identity of the company’s key person determines the business registration types as well. Sole proprietorships and partnerships can only be set up by Malaysians while Sdn Bhd and LLP is applicable for both local and foreigners .

 

Few differences between the major business types, if you are planning to start a business in Malaysia, read the following information to help you better understand it.

There are 3 registration types in Malaysia, which is: Sole Proprietorship (also known as Enterprise) / Partnership, Private Limited Company (Sdn Bhd) & Limited Liability Partnership (LLP)

Sole Proprietorship (Enterprise)/Partnership:
  • A business wholly owned by an individual (Sole Proprietorship) or more than one people (Partnership)
  • The cheapest and easiest form of business
  • No requirement on annual filing
  • (Partnership) Liabilities and profits will be distributed among all partners
  • Although audit is not required, profits of business must be declared in personal tax return form.
Private Limited Company (Sdn Bhd):
  • Most common business type in Malaysia
  • Act as a legal entity and hence separate the liability from shareholders.
  • Able to apply for loans, make purchases, present into legal contracts, sue or get sued in courts of law.
  • One of the most common types of business recommended for foreign owners.
Limited Liability Partnership (LLP)
  • Hybrid between Sdn Bhd & Partnership
  • Fewer compliance requirements, such as no annual audit requirement.
  • Act as a legal entity, the legal liabilities of LLP is separate from the partners

Sole Proprietorship/Partnership

In which situation should I set up a sole proprietorship/partnership？
  • You may consider sole proprietorship when you firstly start a business, you don’t have to give too much thought to your legal structure.
  • In the future, you can change it into a Private Limited Company (Sdn Bhd) or a Limited Liability Partnership (LLP)
  • Partners in partnerships often bring in another source of capital to the business
  • Capital they brought in helps reduce the financial risk of a new business

Advantages of sole proprietorship/partnership:

  • Simple & lower registration fee (<RM100)
  • Lower tax when income is less than RM200k
  • Having full control over your business
  • Simple decision-making process

Disadvantages of sole proprietorship/partnership business:

 

  • Unlimited personal liabilities (for example: if company is liable for RM10k debt, the owner/partners need to bare all the debts)
  • Higher tax when income is exceed RM200k
  • Equity financing is not available and financing options are limited
  • Low business credit

Limited Liability Company (Sdn Bhd)

In which situation should I set up Sdn Bhd?
  • If you plan to expand your business until countrywide or worldwide, then set up Sdn Bhd
  • If your business might require venture capital funding or your product & service have specific liabilities tied to them, then a Sdn Bhd is for you
  • Sdn Bhd is more reliable & credible as it is harder to dissolve the company as compared to sole proprietorship or partnership

Advantages of Sdn Bhd:

  • Limited liability – shareholders are only liable for the paid-up capital
  • Act as a legal entity which can own assets, property, sue or be sued under company name
  • Eligible for several tax deductions
  • Perpetuity – Even if the founder depart from company, the company remain in existence
  • Equity financing is allowed, more financing options are offered

Disadvantages of Sdn Bhd:

 

  • Higher annual retainer fee (such as company secretary fees, audit fees, tax agent fees)
  • Failure to comply the above submissions will result in penalty or imprisonment
  • Tedious decision-making process (decisions must go through the Board of Directors or Shareholder)

Limited Liability Partnership (LLP)

In which situation should I set up a LLP?
  • LLP is quite useful for SMEs, especially for the service industry or for activities involving professionals.
  • LLP is similar with Partnership in some ways, except the partners in the LLP have lower liabilities to the debts arising from business
  • Administrative duties of LLP is much more than partnership

Advantages of LLP:

  • Limited liability – Liabilities of LLP borne by its assets
  • Act as a legal entity which can own assets, property, sue or be sued under company name
  • Easier decision-making process
  • Perpetuity – Even if the founder depart from company, the company remain in existence

Disadvantages of LLP:

 

  • A compliance officer is required under the LLP Act (Compliance officer may be made personally accountable for LLP’s non-compliance with LLP Act)
  • Reporting and strict statutory compliance requirement
  • Fail to comply will result in penalties and imprisonment
  • Equity financing is not available

Summary

Summary
Sole Proprietorship Partnership Sdn Bhd LLP
Capital Contribution Owner Partners Share Capital Partners
Legal Status Owner = Company Owner = Company Act as a legal entity Act as a legal entity
Business Ownership Owner Partners Company Company
Debt Liability Owner Partners Company Company
Business Management Owner Partners Board of Directors Partners
Personal Liability Unlimited liability which can involve the owner’s personal assets Unlimited liability which can involve the owner’s personal assets Limited to unpaid shares No personal liability of partners
Number of Shareholders/ Partners Owner (1 person) 2 – 20 1 – 50 Minimum 2
Annual Compliance Requirement No No Annual Return, Audit Report Annual Declaration
Tax Return Form Related Form B Business: Form P
Partners: Form B		 Form C Form PT
Mandatory Compliance Accountant, Tax Agent Accountant, Tax Agent Company Secretary, Accountant, Auditor, Tax Agent Company Secretary or Compliance Officer
RM60k Tax Rebate for New Business (until 31.12.2022) Not eligible Not eligible Eligible Eligible
Cost Low cost due to no annual filing requirement Low cost due to no annual filing requirement Require annual retainer fee such as Secretary fee, Accounting fee, Audit fee and Tax Agent fee Lower cost than Sdn Bhd as no audit requirement
Benefits Simple business model and low cost as no annual compliance requirement Combining skills and resources from 2 or more individuals Limited liability (Company’s debt won’t fall on shareholders personally) Company’s debt won’t fall on partners personally and no annual audit requirement