Choose the Type of Business Entities that Suits You

Whether you've purchased an existing business or want to start a new business, you must first decide which type of business entity is best for you. There are several business types, and each has advantages and disadvantages.

Make sure that you consult with a professional advisor about which type of business is most beneficial for your particular situation from both legal and tax perspective before making a final decision.

Making your decision:

Sole Proprietorship or Conventional Partnerships are undoubtedly the easiest to create and have the lowest ongoing costs, but they also provide the highest risk to the business owners. Sole Proprietorship or Conventional Partnerships offer no liability protection to the owners. The owners are legally considered the same as the business, and personal assets can therefore be considered business assets. Additionally, partners in a general partnership bear responsibility for the actions of the other partners.

SDN BHD vs LLP

Sdn. Bhd and LLP provide you with personal liability protection and the tax treatments are generally the same except that Sdn. Bhd.are entitled for more tax incentives. LLP’s registration costs and on-going compliance costs are relatively cheaper due to fewer ongoing compliance requirements (i.e. no compulsory on appointment of qualified secretary, no statutory audit requirements and less paperworks). Nevertheless, Sdn. Bhd. still the most common business vehicle which associated with higher credibility, better access to funding and ease for future business expansion.

Company Limited Liability Partnership (LLP) Conventional Partnership Sole Proprietorship
Benefits
Limited Liability Protection
Owners typically are not personally responsible for business debts and liabilities Owners typically are not personally responsible for business debts and liabilities Owner has unlimited liability Partners are jointly responsible for business debts and liabilities
Business Continuity
Business Continuity Dissolves upon withdrawal or death of an owner, unless safeguards specified in partnership agreement Dissolves if owner ceases doing business or dies
Ease of Raising Funds
Shares of stock can be sold to raise capital Contributions can be made from partners and/or more partners can be added Contributions can be made from partners and/or more partners can be added Often difficult unless owner contributes funds
Ease of Adding Owner / Transferring Ownership Interest
Business Startup & Management
Time to Start 3 – 7 workings day
Starup Cost RM3,000 RM500++ RM100++ RM100++
Annual Compliance Costs
Ongoing Corporate Compliance Requirements
Flexibility in who manages the business Directors, who are elected by shareholders, make major business decisions Directors appoint officers, who oversee day-to-day operations All partners have the right to manage directlyManagement outlined in the partnership/operating agreement Owner has full control of management and operations Owner has full control of management and operations
Taxation
Tax Percentage SME – 19 % for Chargeable Income below RM500k, 24% Non SME – 24% SME – 19 % for Chargeable Income below RM500k, 24% Non SME – 24% Individual Tax 0% - 28% Individual Tax
0% - 28%
Tax Planning Opportunity Better Limited Limited Limited


Why Choose Sdn Bhd?

Limited liability protection. Sdn Bhd is a separate entity that offer limited liability protection to owners (shareholders). This mean shareholders’ assets are protected from business debts and liabilities.
Organisational Structure that provides flexibility in business management. Shareholders are the owners of the company and elect the board of directors, who in turn oversee and direct corporation affairs and decision-making but are not responsible for day-to-day operations. The directors elect the officers to manage daily business affairs.
Unlimited Life & Easy Transfer of Ownership. When a Sdn Bhd’s owner incurs a disabling illness or dies, the company does not cease to exist. Ownership is easily transferable through the sale of shares.
Credibility. Sdn Bhd may be perceived as a more professional/legitimate entity than a sole proprietorship, conventional partnership or limited liability partnership. Customer / Commercial partners will have more confidences in dealing with your Company. This also makes it easier to secure finance for your business with less personal risk.
Ease of Raising Funds. Additional capital can be raised by selling shares to new investors (not allowed to sell shares to the public) or loan from banks
Conversion into Public Listed Company. Should the Company grows to a level that need access significant funding from public, then Sdn Bhd can be converted into a Public Listed Company.
Greater Tax Advantages. Company enjoys lower tax rate compared to individual if the annual taxable profit is more than RM70,000. Company also entitles to more tax-deductible business expenses and more tax incentives.

Keep In Mind

There are relatively more costly and more administrative burdens due to more compliances requirements for Sdn Bhd. For example, Sdn Bhd is required to have annual statutory audit, annual general meetings and etc. Find out more on Compliance Requirements for a Sdn Bhd Company.

Why Choose Limited Liability Partnership (LLP)?

Combination of benefits of Sdn Bhd & Conventional Partnership

Limited liability protection. LLP is a separate entity that offer limited liability protection to owners (partners). This mean partners’ assets are protected from business debts and liabilities.
Organisational Structure that provides flexibility in business management. Having a partnership agreement that outlines how the partnership will be managed, the roles of each partner, and what events will cause the partnership to end operations is recommended.
Tax Advantages. Company enjoys lower tax rate compared to individual if the annual taxable profit is more than RM70,000,
Ease of creation. Registration of LLP can be done by one of the partners who is at least 18 years old and Malaysian citizen/permanent resident and usually living in Malaysia vide MyLLP portal. Registration Fee is RM500.
Fewer ongoing compliance requirements. Unlike Sdn. Bhd., LLP is subject to fewer compliance requirements – no statutory requirement for annual audit and less paperwork such as board resolutions.
Low compliance cost resulted from fewer ongoing compliance requirements.

Why Choose Sole Proprietorship & Conventional Partnership?

Ease of creation. Very easy to set-up, registration can be done within one hour at any SSM branch or or through online via Ezbiz Online services at ezbiz.ssm.com.my. Registration Fee is only RM30 for personal name, RM60 for trade name.
Fewer ongoing compliance requirements. Unlike Sdn. Bhd., Sole Proprietorship or Conventional Partnerships are subject to fewer compliance requirements - no statutory requirement for annual audit, annual general meeting, annual returns and etc. The sole-proprietorship / partnership must still obtain the business licenses and permits required for operation however.
Low compliance cost resulted from fewer ongoing compliance requirements. Annual business renewal fees with SSM are only RM30 for personal name, RM60 for trade name.
Relatively lower tax if annual taxable profit is less than RM70,000. Sole Proprietorship or Conventional Partnerships are taxed at individual and resident individual can enjoy personal reliefs and scaled tax rates

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