Overview of Business Entities in Malaysia
Understanding the various types of business entities in Malaysia is crucial for anyone looking to start a business in the country.
In Malaysia, there are five primary types of business entities:
- Sole Proprietorship
- Partnership
- Limited Partnership (available only in Labuan)
- Limited Liability Partnership (LLP)
- Company
Sole Proprietorship
A sole proprietorship is a business structure where one individual owns and controls the business. The sole proprietor holds all the business assets and liabilities, making them fully responsible for all debts and obligations incurred by the business. This structure has low start-up and operating costs, and there’s no requirement for audits or annual filings.
The Registration of Businesses Act 1956 mandates that a sole proprietorship must be registered with the Registrar of Businesses within 30 days of its establishment. Once registered, the business receives a Certificate of Registration, which must be displayed at the primary place of business.
Partnership
Partnerships in Malaysia are governed by the Registration of Businesses Act 1956 and the Partnership Act 1961. This structure involves 2-20 individuals working together with a common goal of making a profit. Partnerships formed under certain laws, such as the Legal Profession Act 1976, Accountants Act 1967, or Architects Act 1967, are allowed to have more than 20 partners.
Each partner is jointly and severally liable for the firm’s debts and obligations incurred during their tenure as a partner. Like sole proprietorships, partnerships have low start-up costs and are not subject to audits or annual filings. However, formal partnership agreements are recommended to avoid disputes and ensure business continuity.
Partnerships must register with the Registrar of Businesses, providing partner information and any existing agreements. Changes to the partnership structure must be reported to the Registrar within 30 days.
Limited Liability Partnership (LLP)
An LLP is a corporate body with a separate legal entity from its partners, limiting partners’ liability to their investment in the LLP. Under the Limited Liability Partnership Act 2012, an LLP can operate with just one partner for up to six months or longer, subject to approval by the Registrar. Typically, an LLP requires at least two partners but can have an unlimited number of partners.
In an LLP, each partner is an agent of the entity, not a co-partner, thereby limiting individual liability for acts of other partners. LLPs are primarily responsible for business-related debts and obligations, protecting partners from personal liability. However, if a partner commits a wrongful act, both the LLP and the responsible partner are liable.
Operating an LLP involves higher costs compared to sole proprietorships and partnerships, but the structure provides greater liability protection and business continuity. LLPs must maintain a registered office, appoint at least one compliance officer, and keep accounting records for at least seven years. An annual solvency declaration is also required.
Company
A company is a corporate entity with a separate legal personality from its shareholders and officers. This separation generally shields shareholders and officers from personal liability for company debts. Exceptions exist, such as when a shareholder or officer becomes a guarantor or when the corporate veil is lifted.
Companies require at least one director for private companies and two for public companies. The Companies Act 2016 governs the formation and operation of companies, mandating compliance with various corporate governance and reporting requirements. Companies must have a registered office, appoint a company secretary, and conduct annual audits.
Upon registration with the Companies Commission of Malaysia (SSM), companies receive a notice of registration and a unique registration number. Once the necessary documents and fees are submitted, a Certificate of Incorporation is issued.
Business Registration in Malaysia
All business entities in Malaysia, including sole proprietorships, partnerships, LLPs, and companies, must register through the SSM online portal. The SSM is responsible for the administration and enforcement of several pieces of legislation, including:
- Companies Commission of Malaysia Act 2001
- Companies Act 2016
- Interest Schemes Act 2016
- Registration of Businesses Act 1956
- Limited Liability Partnerships Act 2012
- Trust Companies Act 1949
- Kootu Funds (Prohibition) Act 1971
This overview provides a comprehensive understanding of business structures in Malaysia and the key regulatory requirements for each type.
