Are you planning to register your 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.
8 Types of Business Entities in Malaysia
Based on the Companies Act 2016 and the Registration of Businesses Act 1956 of Malaysia, there are 8 types of business entities. While their suitability depends on your business objectives, each one of them comes with certain benefits and limitations.
Here is an overview of the business entity types in Malaysia.
| Business Entity Type | Main Characteristics | Eligibility for Establishment |
| 1. Sole Proprietorship | Owned by one person with unlimited liability. | Malaysian citizens/ Permanent residents |
| 2. Partnership | Owned by 2 or more, with unlimited liability for each. | Malaysian citizens/ Permanent residents |
| 3. Limited Liability Partnership (LLP) | Combines partnership flexibility with limited liability. | Open to all, including foreigners |
| 4. Private Limited Company (Sdn Bhd) | Separate legal entity, limited liability, up to 50 shareholders. | Open to all, including foreigners |
| 5. Public Limited Company (Barhad/Bhd) | Can raise public capital, limited liability, unlimited shareholders. | Open to all, including foreigners |
| 6. Unlimited Company | No limit on members’ liability for the company’s debts. | Open to all, including foreigners |
| 7. Branch Office | Foreign company extension, no separate legal identity. | Foreign companies only |
| 8. Representative Office | For market research or promoting the parent company, no income activities. | Foreign companies only |
Suitable Business Entities for Foreigners in Malaysia
While business entities such as sole proprietorships or partnerships are more common than Sdn Bhd in Malaysia because of their simplicity, foreigners are not eligible to incorporate any of them. To be able to do so, you must be a Malaysian citizen or a permanent resident.
1. Private Limited Company (Sdn Bhd)
If you plan to open a company in Malaysia with 100% foreign ownership, it is advisable to set up a private limited company also known as Sendirian Berhad or Sdn Bhd.
A private limited company is suitable for everything from setting up an import/export business to offering consultation services as a foreigner. It also offers you the flexibility to scale business operations and protects your personal assets because of limited liability.
Following are the 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
- The minimum paid-up capital of MYR 1 (0.21 USD)
Keep in mind that the minimum paid-up capital of MYR 1 is only applicable if the company is incorporated by Malaysian citizens.
In case the company is 100% foreign-owned, the minimum paid-up capital is MYR 1 million (USD 211,000). However, if you have a joint venture with a Malaysian partner who owns at least 50% shares in the company, then the minimum paid-up capital is MYR 350,000.
A unique benefit of private limited companies in Malaysia is that they are often offered special tax incentives and SME grants. These benefits depend on the company’s industry, location, and size, and aren’t available for other types of businesses.
2. Public Limited Company (Berhad)
A public limited company or Berhad (Bhd) is suitable for investors who are planning to set up large-scale operations in Malaysia and trade shares publicly. However, these companies are not common among foreigners as they require extensive regulatory compliance and reporting.
3. Branch Office of a Foreign Company
If you already own a company in another country and want to engage in business activities in Malaysia without opening a separate legal entity, a branch office might be an appropriate option.
A branch office in Malaysia is an extension of a foreign business and operates under the name and scope of that parent company. You can use a branch office to buy/sell products and services in Malaysia and generate income.
Keep in mind that a branch office is not a separate legal entity. Therefore, the parent company is responsible for all actions and liabilities of a branch office.
4. Representative Office of a Foreign Company
If you are planning to expand your business operations to Malaysia and want to understand the market, setting up a representative office for your foreign company could be a suitable option.
A representative office is similar to a branch office, however, it is meant for non-revenue generating activities such as conducting market research or product promotion. You cannot engage in any profit-generating activities or sign any contracts.
Choose the Right Business Entity and Set up Your Business in Malaysia with Emerhub
If you are thinking about starting your business in Malaysia, partnering with Emerhub makes this process much easier for you. Our experts have a deep understanding of Malaysian regulations and handle everything from company registration to licensing and visas.
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