Types of Business Entity
Updated: May 13, 2021
Before starting a business, you will need to consider the type of business entities that suit you best.
Methods of Conducting Business in Malaysia
In Malaysia, a business may be conducted:
i. By an individual operating as a sole proprietor, or
ii. By two or more (but not more than 20) persons in partnership, or
iii. By a limited liability partnership (LLP), or
iv. By a locally incorporated company or by a foreign company registered under the provisions of the Companies Act (CA) 2016.
Types of Businesses
1. Sole Proprietorship/Enterprise
A sole proprietorship or enterprise is a business that owned by a single individual owner. The name of the company and its business is also registered under a private name or the name of the business owner himself/herself. This business is registered at the Suruhanjaya Syarikat Malaysia (SSM)
It only takes 1 hour to register this type of business. Usually, the capital used for this business is small, and can be raised by the owner’s assets, or borrowed from friends, family, and banks that offer microfinance. For example grocery store, shoe shop and so on.
A partnership business is similar to a sole proprietorship, except it has more than one (1) owners but no more than 20 owners. Usually, the capital used for this business is small, and can be raised by the owner’s assets, or borrowed from friends, family, and bank loans. The profit of the company can be distributed according to the amount of capital, labour and under agreement from the members of the partnership. Losses are also shared equally. An example of a partnership business is accounting firms, law firms and so on.
In the case of partnerships, partners are both jointly and severally liable for the debts and obligations of the partnership should its assets be insufficient. Formal partnership deeds may be drawn up governing the rights and obligations of each partner but this is not obligatory.
3. Limited Liability Company (Sdn Bhd)
A limited liability company (Sendirian Berhad or Sdn Bhd) is a business that registered under the Company Act 2016. A limited liability company has Sdn Bhd at the end of its name, for example Peach Sdn Bhd and Forge Ahead Sdn Bhd. The ownership of a limited liability company is between 2-50 people.
A limited liability company does not involve personal assets, where its liabilities are limited. If there are any losses to the company or it becomes bankrupt, the losses do not involve the owner’s assets, but the company’s assets. This is one of the advantage of a Sdn Bhd.
4. Public Limited Company (Berhad)
A public limited company is easily defined as companies which are listed in Bursa Malaysia. The shares of the company listed in Bursa Malaysia can be bought or sold by the public. For examples TM, Padini, Aeon, Petron, Nestle and many more. A public limited company can be owned by a minimum of two owners, up to an unlimited number of owners. The liabilities and debts are limited, which does not involve personal assets. Its capital can be gained from the sales of shares to the public, and the minimum amount is 100 units and its price depends on the price of the units on that particular time.
A cooperation is formed to increase the income of its members. Each cooperation must have at least 50 active members, and if either one of the 50 active members become inactive, the cooperation cannot run. A cooperation is established according to Cooperation Act 1993 where members can profit through dividends if the cooperation profits. They can also vote for a Board Member in an Annual General Meeting. A cooperation must register under Suruhanjaya Koperasi Malaysia (KPM).
If you would like to know more, please contact Bestar.