Overview of Malaysia Business Entities
Choosing the right structure for the business is very critical to the success of a venture. Tax and compliance to regulatory requirements varies depending on the type of entity. Not only that, to a large extent the entity type conveys, an image and status of the business among the commercial community in which it operates, thereby, it also determines the strength of the entity’s relationship with internal and external partners such as employees, suppliers, clients, financial institutions etc.
Private Limited Company, Sole Proprietorship and Partnership are the predominant types of business found in Malaysia. Our professional staff are available for consult should you have questions about a suitable business type for your investment.
Sole Proprietorship is suitable for small businesses that have negligible or no risks. It is owned by one person who is the decisive authority and owner of all assets and liabilities belonging to the business; therefore, sole proprietorship may be the simplest business setup but it is also the riskiest. Malaysia citizens, residents, employment pass holders may register a sole proprietorship. Foreigner individuals and companies may also register a sole proprietorship but must appoint a local resident manager.
A Partnership setup seeks to address certain inherent drawbacks in a sole proprietorship. With a partnership, it is possible to acquire capital, talent and strategic assets based on mutually agreed terms.
- Limited Partnership
Partnership requires a minimum of two partners and maximum of 20. The business must have a minimum of at least one active (general) partner and one dormant (limited) partner. This is suitable for low risk, low profile businesses. The partners are responsible for all liability and the earnings are taxed according to the partners’ personal tax rate. Malaysia citizens and permanent residents, Employment Pass holders may register a general partnership firm. Foreigner individuals and companies may also register for general partnership firms but must have a local manager.
- Limited Liability Partnership
Limited Liability Partnership or LLP is a perfect blend of partnership setup and private limited company. This type of entity has been allowed in Malaysia since 2005, following a widespread recognition of this entity type in other developed economies around the world.A LLP gives owners the flexibility of operating as a partnership while having a separate legal identity like a private limited company. There must be a minimum of two partners, but there is no cap on the maximum number of partners in a LLP. This type is highly favored by and suitable for individuals engaged in professional services such as lawyers, architects, accountants, management consultants and etc. Malaysia citizens and permanent residents, Employment Pass holders and local companies can register a LLP. Foreigner individuals and companies may also register for general partnership firms but must have a local manager.
Private Limited Company
A Private Limited company is a locally incorporated company in Malaysia. The name of the business includes the term ‘Private Limited’ or ‘Pte Ltd’. The number of shareholders cannot exceed 50. 100% foreign ownership is allowed, but must have a citizen or a resident or an employment pass holder as the local director.
Malaysia citizens and permanent residents, Employment Pass holders can incorporate a company. This type of business entity is highly suitable for a business that has substantial growth plans, and invariably, possesses commercial risks that comes with growth.
Types of Private Limited Company
- Private Company
It is a locally incorporated company where the maximum number of shareholders is limited to 50.
- Exempt Private Company
The company is an Exempt Private Company if it does not have more than 20 shareholders, and none of the shareholders is a corporation.
- Public Company Limited by Shares
A Public Company Limited by Shares is a locally incorporated company in which the number of shareholders can be more than 50. The company may raise capital by offering shares and debentures to the public. A public company must register a prospectus with Monetary Authority of Malaysia before making any public offering of shares and debentures.
- Public Company Limited by Guarantee
A Public Company Limited by Guarantee is one which carries out non-profit activities with national or public interest, such as promotion of art or charity. The Minister may approve the registration of the company without the addition of the word “Limited” or “Berhad” to its name.
Malaysia Branch Office
A foreign company that is registered outside of Malaysia but have substantial operations in Malaysia which generates income on a continual basis must register as a Branch Office in Malaysia as per Malaysia Companies Act. The Branch Office is an extension of the foreign company without a distinct legal identity. It must appoint two persons who are Malaysia residents as legal agents to provide office services and accept official notices from authorities. A Branch Office is considered a non-resident for tax purposes. Learn more
Malaysia Representative Office
A foreign company interested in establishing operations in Malaysia may explore the prospects first by establishing a Representative Office (RO). It is an ideal way to assess opportunities prior to making any long term or large scale commitment. RO are not allowed to engage in commercial revenue-generating activities.
Most ROs are registered with International Enterprise Malaysia (IE Malaysia), which is the representative office registration authority. Finance, insurance and banking foreign companies need to register their ROs with Monetary Authority of Malaysia (MAS). Finance ROs have to undergo stringent appraisal by MAS.
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