Types of Business Entities in Malaysia: Guide for Foreign Entrepreneurs

Are you planning to start a business in Malaysia? One of the first decisions you will need to make as a foreign entrepreneur is choosing the right business entity. 

Malaysia offers a range of business structures from simple sole proprietorships to more complex structures like public or private limited companies. The type of business entity you choose can have significant implications for your business operations, taxation, and your liabilities as a business owner.

In this article, we will explore these various business entities in Malaysia and look at the most suitable options for foreign entrepreneurs. 

Types of Business Entities in Malaysia

Under the Companies Act 2016 and the Registration of Businesses Act 1956, there are 8 primary types of business entities regulated by the Companies Commission of Malaysia (SSM). While their suitability depends on your objectives, each comes with specific benefits and limitations.

Business Entity Type	Main Characteristics	Eligibility for Establishment
Sole Proprietorship	Owned by one person with unlimited liability.	Malaysian citizens/ Permanent residents
Partnership	Owned by 2 or more, with unlimited liability for each.	Malaysian citizens/ Permanent residents
Limited Liability Partnership (LLP)	Combines partnership flexibility with limited liability.	Open to all, including foreigners
Private Limited Company (Sdn Bhd)	Separate legal entity, limited liability, up to 50 shareholders.	Open to all, including foreigners
Public Limited Company (Barhad/Bhd)	Can raise public capital, limited liability, unlimited shareholders.	Open to all, including foreigners
Unlimited Company	No limit on members’ liability for the company’s debts.	Open to all, including foreigners
Branch Office	Foreign company extension, no separate legal identity.	Foreign companies only
Representative Office	For market research or promoting the parent company, no income activities.	Foreign companies only

Note: The entities above represent the standard mainland structures in Malaysia. For companies focused on global trading or investment holding, the Labuan Company offers a separate “mid-shore” jurisdiction regulated by the Labuan FSA. We explore this alternative below.

Business Entities Foreigners Can Register in Malaysia

Foreigners have plenty of options for starting a business in Malaysia, tailored to your organization’s complexity, capital, and overall business plan. These structures primarily provide a separate legal personality or serve as a formal extension of an existing foreign corporation.

While Malaysian citizens and Permanent Residents (MyPR) can also utilize Sole Proprietorships and Conventional Partnerships, these specific formats are restricted under the Registration of Businesses Act 1956. This is because the SSM recognizes the owner and the business as legally identical. Consequently, they mandate local residency to ensure jurisdictional reach and personal legal accountability for any financial defaults or claims. 

Below are the primary entities available to foreign investors, along with their practical implications.

1. Private Limited Company (Sdn. Bhd.)

If you plan to open a company in Malaysia with 100% foreign ownership, the popular choice is to set up a private limited company, otherwise known as Sendirian Berhad (Sdn. Bhd). This entity is incorporated under the Companies Commission of Malaysia (SSM) and is legally separate from its shareholders, meaning your liability is limited to your investment in the company.

An Sdn. Bhd. is suitable for most commercial activities, including trading, consulting, manufacturing, and regional operations. It offers the flexibility to scale business operations while protecting your personal assets because of limited liability. Below are the core requirements to register a private limited company (Sdn Bhd) in Malaysia:

• A minimum of 1 shareholder
• A minimum of 1 director who is residing in Malaysia
• A company secretary who is either licensed by SSM or is part of a recognized professional body
• Registered office in Malaysia

For foreign-owned companies, the primary consideration is paid-up capital. While the legal minimum is RM 1, this is rarely applicable to foreigners in practice. To open a corporate bank account or apply for work permits (Employment Pass), higher thresholds apply. Here are the most common requirements:

• General Foreign-Owned (EP Sponsorship): Min. RM 500,000 (~USD 128,500). Suitable for manufacturing-focused projects or niche tech services that don’t involve local distribution.
• Joint Venture (Min 50% Local Equity): Min. RM 350,000 (~USD 90,000). For shared ownership with a Malaysian partner in regulated sectors such as oil and gas downstream services, telecommunications, financial services, and specialized logistics (e.g., freight forwarding).
• Wholesale, Retail, & Trade (WRT): Min. RM 1,000,000 (~USD 257,000). For businesses involving physical goods, F&B outlets, or franchises serving the Malaysian public.
• Unregulated Services Sector (USS): Min. RM 1,000,000 (~USD 257,000). For service-based consultancies, digital marketing firms, and technical advisory firms targeting the local market.

Pro Tip: Sdn Bhds are the primary vehicle for securing Malaysian tax incentives and grants. These benefits are typically tied to industry or location. For instance, in Free Industrial Zones (FIZ) or Special Economic Zones (SEZ), you maintain a standard Sdn Bhd structure while your physical presence triggers specialized tax exemptions and operational perks.

2. Labuan Company (an Offshore Alternative)

If your business prioritizes regional and international markets over domestic trade, a Labuan company, is likely your most efficient vehicle. This entity operates within the Labuan International Business and Financial Centre (IBFC), a specialized “mid-shore” jurisdiction on Labuan Island, regulated by the Labuan Financial Services Authority (Labuan FSA).

While mainland entities are governed by the Companies Act 2016, Labuan companies fall under the Labuan Companies Act 1990. The framework allows you to combine offshore tax benefits with onshore transparency, offering 100% foreign ownership with capital as low as USD 1. 

The IBFC serves as a dedicated platform for cross-border activities, including:

• Invoicing clients outside Malaysia.
• Running an international trading business.
• Operating digital or consulting services globally.
• Holding shares in foreign subsidiaries.

Here are several key considerations to keep in mind before committing to this structure:

• Taxation: Trading profits are taxed at a flat 3%, while holding activities often hit 0%.
• Economic Substance: These rates are contingent on having a physical office and at least two full-time staff based on the island.
• Market Focus: The structure is most effective for international work. If you transact in Ringgit with Malaysian customers, those specific profits may be taxed at the standard corporate rate of 24%.

For details on key requirements and the overall registration process, visit our complete guide here.

3. Public Limited Company (Berhad)

A Public Limited Company, or Berhad (Bhd), is best for investors pursuing large-scale operations with the intent to list on the Bursa Malaysia stock exchange. Unlike the private Sdn. Bhd., a Berhad can raise capital by offering shares to the public and has no limit on its number of shareholders.

However, it is rarely the first choice for foreign SMEs due to its intense regulatory burden. It requires a minimum of two resident directors and is subject to rigorous reporting standards, mandatory annual audits, and high transparency requirements. 

Furthermore, while the entity itself can be foreign-incorporated, many sectors listed on the exchange impose a 70% foreign equity cap or require a local Bumiputera partner to comply with listing requirements.

4. Branch Office vs Representative Office of a Foreign Company

If you prefer to maintain the legal identity of your existing foreign corporation rather than incorporating a local subsidiary, you may opt for a Branch Office or a Representative Office. Both require your parent company to have been operational for at least two years.

• Branch Office: Functioning as a direct extension of your foreign parent company, a branch office is authorized to conduct commercial activities and generate revenue within Malaysia. It must mirror the parent company’s business activities and is taxed at the standard corporate rate of 24%. Crucially, the parent company assumes full legal liability for all Malaysian operations.
• Representative Office (RO): Designed solely for market exploration, an RO is strictly non-commercial. It serves as a liaison office to conduct market research or coordinate feasibility studies. You cannot sign contracts, issue invoices, or provide services for a fee. While it is not subject to corporate tax, it is subject to a minimum annual operating expenditure (typically RM 300,000) and is generally limited to a 2-to-5-year operational term.

Choosing the Right Entity for Your Foreign Company in Malaysia

Choosing the right entity depends on your target market, tax obligations, and long-term residency goals. We’ve designed the following decision tree to identify the most suitable structure for your activities in Malaysia.

Register Your Company in Malaysia with Emerhub

With over 14 years of experience assisting foreign setups across emerging markets across Asia, Emerhub can also act as your local partner in Malaysia. We can handle the entire process of your market entry– from company registration to corporate bank account opening, as well as visa and relocation support for your team.

Based on your specific business goals, we can recommend the most suitable entity and help you throughout the incorporation phase. We also provide ongoing support with accounting, tax filings, and HR compliance, ensuring your operations remain up-to-date with the most current regulations.

Planning to set up a business in Malaysia? Schedule a free consultation with our local advisors today.