Most new businesses in Malaysia choose between three legal structures: Sendirian Berhad (Sdn Bhd), a private limited company; Limited Liability Partnership (LLP); and Sole Proprietorship or Enterprise (general partnership). All three are registered with the Companies Commission of Malaysia (SSM), but they sit under different statutes and have very different rules on foreign ownership, tax, liability, and reporting. This guide walks through what each structure is for and how to decide between them.
1. Sdn Bhd — private limited company
A Sdn Bhd is incorporated under the Companies Act 2016. It is a separate legal person distinct from its shareholders, which means the company can own assets, sign contracts, and be sued in its own name — and shareholders enjoy limited liability capped at their unpaid share capital. It is the structure used by virtually every scaling business in Malaysia and is the only practical option for foreign founders.
- Foreign ownership: 100% foreign equity is generally permitted, subject to sector caps and licensing. See our guide to foreign equity rules in Malaysia for the exceptions (distributive trade, oil & gas, finance, etc.).
- Minimum paid-up capital: RM1 technically, but immigration practice for an Employment Pass typically expects at least RM500,000 for 100% foreign-owned companies and RM1 million for highly regulated sectors. RM2.5 million in shareholders' funds triggers the Manufacturing Licence threshold under the Industrial Coordination Act 1975.
- Corporate income tax: 24% standard rate; SMEs with paid-up capital ≤ RM2.5 million and gross income ≤ RM50 million pay 15% on the first RM150,000, 17% on the next RM450,000, and 24% thereafter (LHDN, Budget 2024 schedule).
- Reporting: annual return + audited financial statements lodged with SSM; corporate tax return to LHDN; statutory books; minimum one director ordinarily resident in Malaysia.
2. LLP — Limited Liability Partnership
Introduced by the Limited Liability Partnerships Act 2012, the LLP is a hybrid: partnership flexibility, but with limited liability and separate legal personality. There is no share capital and no requirement for audited accounts. It is most often used by professional firms (lawyers, accountants, architects, IT consultancies) where partners want to share profits directly without setting up a full company.
- Partners: at least two; at least one must be ordinarily resident in Malaysia. Foreign partners are allowed but the residency rule applies.
- Tax: taxed as a body of persons under the Income Tax Act 1967, at 24% (preferential SME bands also available where contribution of capital ≤ RM2.5 million).
- Reporting: annual declaration of solvency, but no mandatory audit. Significantly lighter than a Sdn Bhd.
- Restrictions: cannot list shares, cannot easily raise venture capital, and some regulated sectors (banking, insurance) are not open to LLPs.
3. Sole Proprietorship and Enterprise
These are registered under the Registration of Businesses Act 1956 (ROBA) and are the cheapest and fastest entities to set up — usually RM30–60 in registration fees and same-day approval at SSM. But the business has no separate legal personality, which means the owner is personally liable for every debt the business incurs.
- Eligibility: restricted to Malaysian citizens and permanent residents. Foreigners cannot register a sole proprietorship or general partnership.
- Tax: profits are added to the owner's personal income and taxed at progressive personal rates (0%–30%).
- Reporting: minimal — annual ROBA renewal, personal tax filing (Form B), and SST registration only above the threshold (see our SST registration guide).
Side-by-side
| Aspect | Sdn Bhd | LLP | Sole Prop / Enterprise |
|---|---|---|---|
| Governing Act | Companies Act 2016 | LLP Act 2012 | ROBA 1956 |
| Foreign ownership | Yes (subject to sector rules) | Allowed, but ≥1 resident partner | No — Malaysians / PRs only |
| Limited liability | Yes | Yes | No |
| Audit required | Yes (subject to exemption criteria) | No | No |
| Tax rate | 15% / 17% / 24% (SME bands) | 15% / 17% / 24% (SME bands) | Personal 0–30% |
| Setup cost | RM1,000–3,000+ | RM500–1,500 | RM30–60 |
Which should you pick?
- Foreign founder: Sdn Bhd is effectively the only option — sole prop and enterprise are not open to non-residents, and LLPs need a resident partner.
- Two or more Malaysian professionals (law firm, audit firm, software studio): an LLP is usually the simplest fit.
- Solo Malaysian operator below the SST threshold (RM500,000 in most sectors) with no employees: sole proprietorship will minimise filings and fees.
- Planning to raise external capital or hire foreign talent on Employment Pass: Sdn Bhd from day one.
- Manufacturing with ≥ RM2.5M shareholders' funds or ≥ 75 full-time employees: must be a Sdn Bhd and must hold a Manufacturing Licence from MIDA.
After choosing the structure
Once you have decided on the legal form, the next step is selecting the correct MSIC code for SSM registration. Every company in Malaysia must declare at least one 5-digit MSIC code for its primary activity — the code drives SST classification, e-Invoice categorisation, and eligibility for incentives such as Pioneer Status. Our MSIC code finder guide walks through how to identify and verify the right one. If you operate in F&B, see our restaurant setup guide for the full licence stack; for online retail, see the e-commerce setup guide.
Sources: Companies Commission of Malaysia (SSM); LHDN — Inland Revenue Board of Malaysia; Companies Act 2016; LLP Act 2012; Registration of Businesses Act 1956.
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