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Sohaib Ikram
Sohaib Ikram serves as the Director of Emerhub in Malaysia.
If you’re planning to start a business in Malaysia, choosing the right business structure is one of the most important decisions as it will impact your operations, business credibility, taxation, and liabilities.
The two most common options for small and medium-sized businesses are Enterprise (Sole Proprietorship or Partnership) and Sendirian Berhad (Sdn Bhd).
But which structure is best for your business?
In this guide, we’ll break down the key differences, advantages, and legal requirements for both options to help you make the right decision.
What is an Enterprise in Malaysia?
An Enterprise is an unincorporated business structure that is owned and operated by an individual (Sole Proprietorship) or a group of individuals (Partnership) under the Registration of Business Act 1956.
It is the simplest and most cost-effective way to start a business in Malaysia, making it appropriate for freelancers, small traders, and new entrepreneurs who want to test the market with minimal financial risk.
There are two types of enterprise structures in Malaysia:
- Sole Proprietorship: Owned by one person who has full control over the business.
- Partnership: Owned by two to 20 individuals, with shared profits, liabilities, and decision-making.
Here are some of the key limitations of enterprises in Malaysia:
- Foreign Ownership Restrictions: Under the Registration of Business Act 1956, only Malaysian citizens and permanent residents (PR holders) can register an enterprise.
- Unlimited Personal Liability: The business is not a separate legal entity, meaning owners are personally liable for all debts and lawsuits. In financial distress, personal assets, including savings and real estate can be seized.
- Higher personal tax rates: Business income is taxed as personal income, with rates of up to 30%.
- Less credibility: Enterprises may find it harder to secure bank loans, partnerships, or investor funding.
- Business continuity issues: The business ceases to exist if the owner dies or withdraws.
An Enterprise is best suited for small businesses, freelancers, and self-employed professionals who want a simple business structure without high compliance costs. However, the lack of liability protection makes it a risky choice for growing businesses.
What is a Sendirian Berhad (Sdn Bhd)?
Sendirian Berhad (Sdn Bhd) is a private limited company, meaning it is a separate legal entity from its owners. This structure is highly recommended for businesses looking to expand, as it protects the personal assets of shareholders and offers better access to financing, contracts, and business opportunities.
If you’re a foreign entrepreneur, Sdn Bhd is the most suitable structure for setting up a company in Malaysia. You can own 100% of the shares in most industries, except for restricted sectors like agriculture and oil & gas, where local ownership is required.
An Sdn Bhd company offers the following advantages:
- Full Foreign Ownership– Most industries permit 100% foreign ownership, with exceptions to regulated sectors such as oil and gas, agriculture, banking, and telecommunications.
- Limited Liability Protection– Shareholders are only liable up to the value of their shares. This protects their personal assets from company debts and legal claims.
- Easier Access to Capital– Investors, banks, and corporate clients ultimately prefer dealing with a legally recognized entity. This makes it easier for you to secure loans, attract investors, and enter contracts.
- Business Continuity and Expansion– Unlike enterprises, a Sdn Bhd can issue shares, bring in investors, and scale operations without legal risks to owners.
An Sdn Bhd is best suited for entrepreneurs and investors looking to build a scalable, long-term business. Although it requires higher compliance and startup costs, the limited liability, tax advantages, and business credibility make it the preferred choice for companies aiming for sustainable growth.
Enterprise vs. Sdn Bhd: Key Differences
The main difference between an Enterprise and a Sendirian Berhad (Sdn Bhd) in Malaysia is liability and ownership. An Enterprise (Sole Proprietorship or Partnership) is simpler to set up but comes with unlimited liability. On the other hand, Sdn Bhd is a private limited company that provides limited liability protection.
Additionally, foreign entrepreneurs cannot register an Enterprise in Malaysia but can own 100% of an Sdn Bhd in most industries.
Below is a breakdown of the key differences between Enterprise and Sdn Bhd:
| Enterprise | Sdn Bhd (Private Limited Company) | |
| Ownership Structure | Sole proprietor or partnership (2-20 partners). | 1 to 50 shareholders |
| Legal Status | No separate legal entity from its owner | Separate legal entity |
| Foreign Ownership | Not allowed; only Malaysian citizens and PR holders can register. | Allowed; foreigners can own up to 100%, except in regulated sectors. |
| Liability | Unlimited liability; owners are personally liable for debts and lawsuits. | Limited liability; shareholders’ risk is limited to their share capital. |
| Taxation | Taxed as personal income: 0% – 30% (progressive). | Corporate tax (fixed):17% on first RM600,000 of chargeable income for eligible SMEs24% on income exceeding RM600,000 |
| Compliance Requirements | Minimal requirements; basic registration with the Companies Commission of Malaysia (SSM) with no statutory audits or detailed annual reporting. | Higher compliance; – Appointment of at least one resident director and a licensed company secretary – Annual audited financial statements filed with SSM – Submission of annual tax returns and other statutory reports |
| Business Growth | Limited growth; lacks investor credibility and access to corporate funding. | Scalable; better access to funding, contracts, and expansion opportunities. |
| Suitability | Suitable for small businesses, freelancers, and self-employed professionals | Recommended for scalable businesses, foreign investors, and those seeking liability protection |
Which Business Structure is Right for You?
If your priority is low cost and ease of setup, an Enterprise is ideal for small businesses, freelancers, and self-employed professionals. However, if you want liability protection, access to funding, and long-term growth potential, an Sdn Bhd is the best option, especially for foreign investors.
You can fill out the form below and discuss your needs and plans with our business advisors. We will guide you on the most appropriate legal structure that suits your needs and handle the registration process on your behalf.
FAQs about Enterprise vs Sdn Bhd
An Enterprise is a sole proprietorship or partnership with unlimited liability, meaning the owner(s) are personally responsible for business debts. It has minimal compliance requirements but lacks access to corporate funding and investors.
A Sdn Bhd (Private Limited Company) is a separate legal entity that offers limited liability protection, corporate tax advantages, and the ability to raise capital through shareholding. It is also the only viable option for foreign investors to fully own a business in Malaysia (unless operating in a regulated sector).
Foreigners cannot register an Enterprise, as it is restricted to Malaysian citizens and permanent residents (PR holders) under the Registration of Business Act 1956.
However, most industries allow 100% foreign ownership of a Sdn Bhd, making it the preferred business structure for international investors. Regulated sectors such as oil & gas, banking, agriculture, and telecommunications require local partnerships or specific ministerial approvals.
There are no minimum capital requirements for enterprises, making it an affordable option for small local businesses. For Sdn Bhd companies however, the minimum paid-up capital can be as low as RM 1 for local investors. For foreign-owned companies though, you’ll need to meet higher capital requirements, typically ranging from RM 500,000 to RM 1 million, depending on specific industry regulations and licensing requirements.
An enterprise can be registered within 1-2 days, as it has significantly fewer compliance steps to meet. A Sdn Bhd typically takes from 3-7 working days or more, depending on your document preparation, company name approval, and industry-specific regulatory processing.
