Starting a business is no small task especially for first time business founders but it is a necessity to get a venture successfully off the ground. We have encapsulated all the insights that an entrepreneur must know before starting a business here.

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Exploring the type of business entities in Malaysia

Registering a business entity with the Companies Commission of Malaysia is the first requirement to run a business legally in Malaysia. There are a number of business entities available for consideration in setting up businesses in Malaysia. Some notable examples being Sole Proprietorship, Partnerships, Private Limited Companies (Sdn Bhd) and Public Limited Companies (Bhd). All these are regulated by different laws respectively and each type presents their own distinct pros and cons, from the simplicity and flexibility in the formation process to their own respective capital raising capabilities.

It is therefore imperative for budding business owners and entrepreneurs to evaluate on the proper business structure to form their companies so as to properly align with their short term and long term goals and vision of the business.

1. Private Limited Companies (Sdn Bhd)

   It goes without saying that a Private Limited Company (Sdn Bhd) is the most common, prevalent and booming business entity to date in Malaysia which is often favored by start-up founders and young entrepreneurs alike due to the range of benefits the business entity provides. A Private Limited Company is one of two type of companies limited by shares and is under the purview of the Companies Act 2016.

   • Raising Capital

   Central to the formation of a business entity as a Private Limited Company is the ease of raising capital for the gradual and continued expansion and growth of the business with the issuance of shares for capital funds which no doubt is the lifeblood of most startups.

   • Separate Legal Entity

   A Private Limited Company is also a separate legal entity in itself where the company could enter into agreements and contracts, sue and be sued, have ownership over property and much more under its own name. This is beneficial for the business owners where the affairs of the company will be separate from their own individual personal life being two separate legal entities respectively. In other words, the personal wealth of the business owners are protected should the business fail or suffer losses.

   • Taxation Benefits

   The personal income tax rate will only be calculated on the amount of salary receive from the business in your capacity as an employee of the business whereas the company itself will be liable to a separate company tax for its taxable income each year. In contrast to a Sole Proprietorship or Partnership, there won’t be a differentiation between personal income tax and corporate tax for your business.

2. Public Limited Companies (Bhd)

   A Public Limited Company is the other business entity that is limited by shares and are similar to a Private Limited Company with the difference that the company shares can be offered to the Public. It also could accommodate to more than fifty shareholders unlike a private limited company that is limited to a maximum of 50 shareholders.

   Companies usually go public and are listed on the stock exchange to raise capital from the public markets or to enable its existing shareholders to sell their stakes of the business in an initial public offering.

3. Partnership

   A partnership is a type of business entity that is owned by a minimum of at least two partners and is regulated by the Partnership Act 1961 and Registration of Business Act 1956. There are several types of partnership arrangements with different rules and regulations regulating the different kind of partnerships. Core to a partnership is the concept that all profits and liabilities are shared equally between all the partners or in some situations, some partners may have a limited liability. Points to keep in mind about forming a partnership:

   • A partnership is not a separate legal entity from its business owners.
   • The partners are held personally liable for all the debts and losses in the event of such being incurred by the partnership.
   • The individual business owners can be sued under their own name for the partnership
   • Each partner is liable to disclose the profits earned from the business in their personal income tax filing and would lead to a higher taxable rate for their income tax.

4. Sole Proprietorship

   A sole-proprietorship is the simplest legal business structure in Malaysia and is under the purview of the Companies Commission of Malaysia and the Registration of Business Act 1956. A sole proprietorship is held entirely by one individual owner who operates using his own personal name, identity card or a trade name. Points to keep in mind on sole-proprietorship:

   • The Business Owner owns the business completely and fully. Thus, having control and decision making authority over it entirely. The business and the business owner are one of the same and are not two separate legal entities.
   • All taxable income of the sole-proprietorship is taxed at the personal income tax of the business owner
   • Easy and uncostly to set up

Starting a Business in Malaysia

Upon deciding on the appropriate business entity for the business comes the registration and application process. To successfully register and set up your company in Malaysia, there are several steps that needs to be taken in accordance with the Companies Act 2016 and conventions of the Companies Commission of Malaysia:

1. Application to the Companies Commission of Malaysia on the proposed company trade name, proposed business entity, proposed business type, registered business address, details of the directors, declaration of compliance forms, prescribed fees, and other relevant information
2. Obtain Approval from the Companies Commission of Malaysia to reserve your company trade name
3. Preparation and submission of all necessary registration documents
4. Obtaining the Certificate of Incorporation
5. Appoint a company secretary within 30 days of business incorporation

What's Next?

Application of relevant licenses

Depending on the nature of the business being undertaken and the relevant industry, business owners might need to obtain certain licenses from the appropriate parties depending on the nature of the business from the local governmental council of the locality where the business is operating to the Ministry of International Trade and Industry or any other relevant license issuing authorities.

Setting up a Local Bank Account and Registration of Relevant Applicable Taxes

The finances of the business should be kept separate and distinct from the personal finances of the business owners as per best corporate practices. Business owners are also responsible to ensure submission to the Royal Malaysian Customs of relevant company details for Sales and Services Tax before commencement of business operations.

In addition, new business entities are also required to register with the Inland Revenue Board of Malaysia for their tax filing. Documents that are required to be submitted include but not limited to the following:

1. Certificate of Incorporation (Form 9);
2. Information of the Directors, Managers, Company Secretary and Shareholders (Form 49);
3. List of the Shareholders (Form 24)

Registration with Employees Provident Fund

In the event the business employs employees into the business, the business is required to register with the Employees Provident Fund within 7 days of the hiring process through the submission of relevant documents i.e application Form KWSP 1, Form 49 and other relevant documents as required by Employees Provident Fund.

Responsibilities of the Company

Ensure filling of annual returns, financial statements and other documents and to update and lodge changes to the company’s statutory record with the Companies Commission of Malaysia within the stipulated time frame to avoid penalties from the relevant authorities

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