Types of Business Entities in Malaysia: Sole Prop, Sdn. Bhd. & More

Thanks to its strategic location, skilled labor, and investor-friendly policies, Malaysia has become one of the most attractive places to set up a business in Southeast Asia. Choosing the proper business structure is the first and most pivotal step for both local and foreign entrepreneurs to enter the Malaysian market.

This all-inclusive guide delves into the different kinds of business entities in Malaysia and also lays out the 3 types of business entities in Malaysia that are commonly referred to as the most suitable ones for startups and SMEs; however, it doesn’t stop there but goes further to introduce various structures for bigger companies and foreign investors. By the time you get to the end, you will be able to tell which business structure is the most appropriate one to accomplish your goals in Malaysia.

Why Do Business Entities Matter in Malaysia?

Choosing the right legal structure isn’t just a paperwork exercise; it determines:

• Liability exposure – Whether your personal assets are protected.
• Tax obligations – Different entities face different tax rates and benefits.
• Compliance requirements – Some structures require audits, filings, or licenses.
• Capital raising – Certain entities make it easier to attract investors.
• Suitability for foreigners – Not all structures are open to non-Malaysians.

For anyone doing business in Malaysia, this decision has long-term implications for growth, risk, and profitability.

Overview of Types of Business Entities in Malaysia

Malaysia recognizes a wide range of legal business entities, regulated primarily by the Companies Commission of Malaysia (SSM). These include:

1. Sole Proprietorship

2. Partnership

3. Limited Liability Partnership (LLP)

4. Private Limited Company (Sdn. Bhd.)

5. Public Limited Company (Berhad or Bhd.)

6. Foreign Company (Branch Office or Representative Office)

7. Unlimited Company

8. Company Limited by Guarantee

Among these, the most popular are the 3 types of business entities in Malaysia favored by small and medium enterprises: Sole Proprietorship, Partnership, and Private Limited Company (Sdn. Bhd.).

All Types of Business Entities in Malaysia

The 3 Popular Types of Business Entities in Malaysia

1. Sole Proprietorship

• Definition: A business owned and run by one individual under his/her name or a registered trade name.
• Ownership: Single owner.
• Liability: Unlimited; personal assets may be used to cover debts.
• Taxation: Income is taxed as personal income under Malaysia’s progressive rates.
• Pros:
  • Easy and inexpensive to register.
  • Complete control over decisions.
  • Minimal compliance requirements.
• Cons:
  • Unlimited liability.
  • Limited access to financing.
  • Less credibility with corporate clients and investors.

Best for Malaysian citizens or permanent residents running small-scale businesses. Foreigners are generally not allowed to register as sole proprietors or partners and should consider structures like Sdn. Bhd. or LLP instead.

2. Partnership

• Definition: A business owned jointly by two or more partners (up to 20, except professional firms like law or accounting, which may exceed this).
• Ownership: Shared between partners based on agreed ratios.
• Liability: Unlimited for general partners. Each partner can be held personally liable for the business debts of the partnership.
• Taxation: Profits taxed as personal income for each partner.
• Pros:
  • Shared responsibility and skills.
  • More capital compared to a sole proprietorship.
  • Relatively simple setup.
• Cons:
  • Unlimited liability for all partners.
  • Potential disputes between partners.
  • Dissolution if one partner leaves.

Suitable for small professional practices or family-run businesses.

3. Private Limited Company (Sdn. Bhd.)

• Definition: A separate legal entity incorporated under the Companies Act 2016.
• Ownership: Requires at least one shareholder and one director (can be the same person). Foreign ownership of up to 100% is permitted in many sectors; however, certain industries such as retail, logistics, and telecommunications may still impose foreign equity restrictions.
• Liability: Limited to the amount of share capital invested.
• Taxation: As of 2025, SMEs with paid-up capital not exceeding RM2.5 million are taxed at 17% on the first RM600,000 of chargeable income, with the balance taxed at 24%. These rates are subject to change depending on future government tax policies.
• Pros:
  • Limited liability protection.
  • Greater credibility with banks and investors.
  • Easier access to funding.
  • Perpetual succession (ownership transferable).
• Cons:
  • Higher setup and compliance costs.
  • Annual audits and filings are required.

The most popular type of business structure in Malaysia for both locals and foreigners planning long-term business.

3 Important Types of Business Entities in Malaysia

Other Types of Business Entities in Malaysia

Beyond the main three, other structures may be suitable depending on scale and objectives:

Limited Liability Partnership (LLP)

• Combines the flexibility of a partnership with limited liability.
• Separate legal entity; partners not personally liable.
• Taxed as a corporate entity at 24%.
• Increasingly popular among professional firms and startups.

Public Limited Company (Berhad)

• Shares can be offered to the public and listed on Bursa Malaysia.
• Suitable for large businesses seeking capital through IPOs.
• Subject to strict reporting and regulatory requirements.

Foreign Company (Branch or Representative Office)

• A branch office allows a foreign company to operate directly in Malaysia. Profits are taxed at 24%.
• A representative office is strictly non-commercial and may only conduct market research or act as a liaison. It cannot sign contracts, issue invoices, or generate revenue in Malaysia.

Unlimited Company

• Rarely used; owners have unlimited liability.
• Typically chosen for specific industries requiring flexibility in capital raising.

Company Limited by Guarantee

• Non-profit organizations such as charities, foundations, or societies often adopt this structure.
• Profits cannot be distributed as dividends but must be reinvested in the company’s objectives.

Other Types of Business Entities in Malaysia

Doing Business in Malaysia: Key Considerations

Choosing the right business entities in Malaysia is only the first step. Entrepreneurs must also consider:

1. Industry Regulations

Certain industries (e.g., education, healthcare, oil & gas) require additional approvals or licenses.

2. Ownership Restrictions

Some sectors still impose foreign ownership caps, though many allow 100% foreign investment.

3. Taxation

• Corporate tax: 24% (with SME relief rates).
• Withholding tax applies to certain cross-border transactions.
• GST has been replaced by Sales and Service Tax (SST) at 5–10%.

4. Employment Laws

Companies must comply with Malaysia’s labor regulations, including minimum wages, EPF (pension), and SOCSO (social security).

5. Banking and Finance

Malaysia has a strong banking sector, but opening accounts may require thorough compliance checks.

Key Considerations When Doing Business in Malaysia

Taxation and Compliance by Entity

• Sole Proprietorship/Partnership: No separate tax filing; profits reported as personal income.
• Sdn. Bhd. and LLP: Subject to corporate income tax. Annual return and audited financial statements required.
• Berhad (Public Company): Strictest reporting obligations under Bursa Malaysia and Securities Commission.
• Foreign Branch: Profits remitted to the parent company are taxed locally.
• Company Limited by Guarantee: Tax-exempt status possible if approved as a charity.

Professional tax advisors are recommended for businesses navigating Malaysia’s tax regime.

Challenges to Consider

• Bureaucracy: While improving, some processes may take time.
• Sector Restrictions: Certain industries remain protected for local players.
• Compliance Costs: Companies (especially Sdn. Bhd. and Berhad) face higher administrative burdens.
• Competition: Domestic and international companies vie for market share in attractive industries.

Choose the Right Business Structure in Malaysia: How to?

When deciding between the types of business entities in Malaysia, consider:

1. Scale of Business - Small traders may prefer sole proprietorships, while growth-oriented businesses benefit from Sdn. Bhd. status.
2. Liability Protection - If personal asset protection is essential, avoid sole proprietorships and general partnerships.
3. Funding Needs - Venture capital and bank loans are easier to secure for incorporated companies.
4. Long-Term Goals - If expansion is planned, start with a scalable structure like an Sdn. Bhd.
5. Foreign Participation - Foreign investors are typically best served by an Sdn. Bhd. or branch office.

Conclusion

Malaysia is an attractive destination for startups, investors, and multinational corporations alike. Understanding business entities in Malaysia is only the first step toward successful operations.

It does not matter if you are a local business owner who wants to try a sole proprietorship, a team of professionals planning to establish a partnership, or a foreign investor aiming to set up an Sdn. Bhd., the decision of the suitable business type in Malaysia will have a direct influence on the aspects of liability, taxes, and scalability of the business.