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The basics of setting up a business entity in Malaysia isnt so difficult to understand: First off, lets start with Types

of Business Entities. There are three (3) different types of business entities to choose from: Sole Proprietorship (also known as Sole Trader) Partnership business entity Limited Company (SDN. BHD. or Sendirian Berhad or BHD. or Berhad)

Sole Proprietor (or Sole Trader)

Like many other countries out there, the Sole Proprietorship business entity in Malaysia is owned solely by one individual, as his/her liability is unlimited. What unlimited liability means is: If a business fails or is declared bankrupt, creditors can sue the sole proprietors owner for all debts owed to respective merchants. This means personal assets; personal income and employment income are all liable.

Advantages of a Sole Proprietorship Business Entity

Less paperwork & additional formalities (registration is easy, fast and fewer documents are needed) Price of entity formation is much cheaper and is not required by the Malaysian government to be audited. Not required to disclose financial statements to the public. Easy to convert into limited company (SDN BHD)

The Partnership business entity is a joint-entity holder with two or more persons to carry out a legal business in Malaysia. The Companies Commission of Malaysia requires that partnership entities MUST comprise of at least two (2) members and a maximum twenty (20) members. Partners in a partnership business entities are also bounded by unlimited liability.


Generally, the Sole Proprietorship & Partnership business entity is similar to each other in many ways. Some of the differences include: Own partnership agreements are to be made Or set to default, governed by Malaysias Partnership Act 1961. Sole Proprietors are owned by ONE (1) owner whereas Partnerships are owned by TWO (2) or more.

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. 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 companys 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 companys debts. This type of business entity is the most common one in Malaysia.

Companies Limited by Guarantee

In a limited companys 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.

Unlimited Companies

Unlimited companies are no different from sole proprietorship and partnership business entities. One of the only differences is that they have a special articles of association and are free to return capital to its members.

Advantages & Disadvantages

Members (also called Shareholders) are not liable for the companys debts beyond the amount of share capital theyve subscribed to. But in this case, the public will have access to financial affairs of the company. In event of death or changes among shareholders and/or directors of the company, it need not be winded up (striked-off). Every limited company has to appoint: (1) Auditors to verify & report financial affairs, records, accounts and statements; (2) Must have at least a company secretary for AGM, board & shareholders meetings.