Types of business ownership in Malaysia

Sole proprietorship
Sole proprietorships are the easiest kind of businesses to explore in the quest foan
an interesting career. Unlike private limited companies, a sole proprietorship is only
required to pay an annual fee to the Companies Commission of Malaysia to keep its
business renewed from year to year. There is no audit and annual filing requirement.
However, the danger of this set-up is that it has unlimited liability. That is to say that if
the sole proprietorship cannot meet its liabilities, the creditors may go after the owner’s
personal assets. There is no protection to the owner’s personal assets. There is no
separation between the owner and its personal assets.

Tax Gains or profits made from carrying on a business, trade, vocation or

profession under this business structure is considered a business income under individual
income. Only expenses directly incurred to generate the business income is allowed for
the purpose of calculation of chargeable income. Personal expenses such as phone bills,
personal car, pre-incorporation expenses is not allowable.

Partnership

A partnership is a legal form of business with two or more owners. The partner should
have a legal agreement that sets forth how decisions will be made,profits will be
shared,disputes will be resolve how future partners will be admitted to the
partnership,how partner can be bought out and so on.It is hard to breakup when business
is just getting starte,but many partnership split up at crisis time,and unless there is a
defined process,there will be even greater problems.This form of set-up is usually for
professional firms such as lawyers and auditors. Partners in a partnership business
entities are also bounded by unlimited liability. There are several types of partnership
that should be considered.
1. General partnership:

Partners divide responsibility for management and liability as well as the shares
of profit or loss according to their internal agreement. Equal shares are assumed
unless there is a written agreement that states differently.

2. Limited partnership:

Limited Partnership and Partnership with limited liability

Limited means that most of the partners have limited liability (to the extent of their
investment) as well as limited input regarding management decisions, which
generally encourages investors for short-term projects or for investing in capital
assets. This form of ownership is not often used for operating retail or service
businesses. Forming a limited partnership is more complex and formal than that of a
general partnership.
 3. Join Venture:

Acts like a general partnership, but is clearly for a limited period of time or a
single project. If the partners in a joint venture repeat the activity, they will be
recognized as an ongoing partnership and will have to file as such as well as distribute
accumulated partnership assets upon dissolution of the entity.

Company/Corporations
This kind of business is owned by at least 2 persons,up to any number and it can be either
a private limited company or public limited company.For example Microsoft,Walmart
and so on.The business is run or manage by diredtors.Stockholders are not liable for the
debts or other problems.They no need to worry about losing their house,cars and other
property.

 Limited Company (SDN BHD or BHD)

Sendirian Berhad (SDN BHD) is a private limited company, where it prohibits any
invitation to the public to subscribe to any of its shares, deposit money with the
company for investment or subscription. Minimum members in a private limited
company is TWO (2) and maximum is FIFTY (50).
Berhad (BHD) is a public limited company where its shares can be offered to the
public for fixed periods and any other forms of subscription. The minimum amount
of members’ (shareholders) are TWO (2) and maximum of unlimited amount of
members. This type of entity is usually the type selected by large businesses.

There are three (3) types of limited companies in Malaysia:

 Limited by Shares
 Limited by Guarantee
 Unlimited company with/without share capital

Companies Limited by Shares

Liability of members’ contribution to this company is limited to the amount
specified on their unpaid shares. Should the company becomes insolvent or goes into
liquidation, members are not obligated to pay off the company’s debts if and unless any
one of the members gives a personal guarantee.
Also, members’ personal assets, employment and personal income are not liable
to any of the company’s debts. This type of business entity is the most common one in
Malaysia.
Companies Limited by Guarantee
In a limited company’s Memorandum and Articles of Association, members’ liability is
limited to the amount they ‘guarantee’ or undertake during winding up – In which the
amount is specified in the Memorandum, agreed and signed by all members.
In many cases, companies limited by guarantee are often registered by non-profit
organizations, public societies and clubs such as charitable bodies, foundations etc.
Unlimited Companies
Unlimited companies are no different from sole proprietorship and partnership business
entities. One of the only difference is that they have a special articles of association and
are free to return capital to its members’.

Foreign Companies
Foreigners (non-Malaysian residents) are allowed to register a private limited company in
Malaysia, so long as TWO (2) of the company’s directors are permanent (principal place
of residence) residents in Malaysia.
Foreign companies are companies ALREADY incorporated (formed) outside of Malaysia
but set up its business premises and operations in Malaysia. There are two ways to go
about being a ‘foreign company’ in Malaysia.

Limited Liability Company (LLC)

The LLC is a relatively new type of hybrid business structure that is now permissible in
most states. It is designed to provide the limited liability features of a corporation and the
tax efficiencies and operational flexibility of a partnership. Formation is more complex
and formal than that of a general partnership.
The owners are members, and the duration of the LLC is usually determined when the
organization papers are filed. The time limit can be continued, if desired, by a vote of the
members at the time of expiration. LLCs must not have more than two of the four
characteristics that define corporations: Limited liability to the extent of assets, continuity
of life, centralization of management, and free transferability of ownership interests.

Federal Tax Forms for LLC:

Taxed as partnership in most cases; corporation forms must be used if there are more than
2 of the 4 corporate characteristics, as described above.

In summary, deciding the form of ownership that best suits your business venture should
be given careful consideration. Use your key advisers to assist you in the process.