Types of Business in Malaysia

Foreign investors looking to establish a business entity in Malaysia must register under either the Registration of Business Act 1956 (ROBA 1956), Companies Act 2016 (CA 2016), or the Limited Liability Partnerships Act 2012.

Contributing Advisor

Quinn Lu

Senior Associate, International Business Advisory

There are seven types of business entities in Malaysia:

• Limited liability partnerships;
• Partnerships;
• Sole proprietorship;
• Private limited company;
• Public limited company;
• Unlimited company;
• Labuan companies; and
• Branch of a foreign company.

Foreign investors are only allowed to establish a company limited by shares (Sdn Bhd) or a branch office unless the person has permanent residence status, in which case they are eligible to start a partnership or a sole proprietorship.

Private limited company (Sdn Bhd)

This type of business entity is more well-known as Sendirian Berhad (private limited company) or Berhad (public limited company) and is the most common type of business entity in Malaysia.

A foreign investor can own the majority shares (100 percent) of a private limited company, depending on the industry the business is engaging in. The CA 2016 restricts the members of a private limited company to 50 and restricts the rights of members to transfer their shares. Establishing a private limited company is the most common type of business entity in Malaysia for foreign investors.

Setup requirements

The registration process can take between five to 10 working days, and there are several documents’ that applicants need to submit to the Companies Commission of Malaysia, or Suruhanjaya Syarikat Malaysia (SSM). The SSM is the governing body that oversees companies operating in Malaysia.

To begin the setup, applicants must provide the following documentation:

• Company name;
• Constitution of the company
• Declaration of compliance with the Companies Act;
• Primary business activities;
• Details of directors and shareholders;
• Address in Malaysia;
• Minimum paid-up capital;
• Percentage of the shareholding of each shareholder; and
• A declaration by the directors that they have not been convicted of any offense and are not undischarged bankrupts.

There must be at least one shareholder who can be a foreign or local individual or private entity, and at least one resident director who ordinarily resides in Malaysia. Further, the company must have a company secretary who must be a qualified person living in the country.

Registration fees

There is a flat rate of RM 1,010 (US$ 223) to register the company with the SSM.

If the foreign company does not prescribe any share capital, then the registration fee is charged at the flat rate of RM 1,010 (US$ 223).

Paid-up capital

Incorporating a company in Malaysia requires no paid-up capital. However, if the company wants to issue work permits for foreign employees, a 100 percent foreign-owned company must commit to a minimum paid-up capital, the amount of which is decided as follows:

• IT services – RM500,000 (US$ 111,862)
• Advisory and consultancy businesses – RM 1,000,000 (US$ 223,295);
• Import, export, trading, and restaurant businesses – RM 1 million (US$ 223,295);
• Joint venture with a Malaysian partner (with at least 51 percent shares) – RM 350,000 (US$ 78,295) in paid-up capital and
• 100% Local owned companies – RM250,000
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Advantages of a private limited company

There are some key characteristics of a private limited company in Malaysia.

• The company’s shareholders are liable for the debts accrued by the company in accordance with the amount they invested, and no more.
• The private limited company is a separate legal entity from its shareholders and thus allows the company to operate regardless of if the directors and shareholders have retired, died, or changed unless the entity is dissolved.
• The Sdn Bhd company can raise loans and the entity can borrow from banks at lower rates compared to other business structures. This is because many banks view loans issued to private limited companies as a lower risk compared to loans for other business entities. 
• There are more financial and non-financial incentives given to private limited companies compared to other business structures, such as an investment tax allowance.

Public limited company (Bhd)

A public limited company (Berhad or Bhd) resembles a private limited company but can offer shares to the public and be listed on the stock exchange. This form suits large corporations seeking public capital. Public limited companies pay corporate tax like private companies, but may qualify for tax incentives if listed. Types of limited companies include:

• Limited by shares: Most common, where member liability is limited to unpaid share amounts.
• Limited by guarantee: Usually for non-profits, charities, clubs, or societies; members’ liability is limited to amounts guaranteed. Profits are reinvested rather than distributed. Charities with more than 20 members must register with SSM.

Formation and registration

Public companies incorporate through SSM under the Companies Act 2016. The process is similar to private limited companies but includes additional requirements for public listings and offerings. Key features include a minimum of two directors and no shareholder limit.

Unlimited company

Although Malaysia does not have a direct equivalent to the limited liability company model seen elsewhere, unlimited companies are recognized and denoted by Sdn (Sendirian). They provide unlimited liability to members and shareholders, holding them personally responsible for the company’s debts and losses. Unlimited companies may convert to limited companies by special resolution and notifying SSM.

This structure may suit owners willing to accept personal liability in exchange for flexibility but is generally less common due to the substantial financial risk involved.

Sole proprietorship

A sole proprietorship is the most straightforward and widely used business entity in Malaysia, especially favored by small business owners and individual entrepreneurs such as freelancers, lawyers, doctors, or independent consultants. This structure is defined by a single owner who has full control over business operations and is entitled to all profits. Sole proprietorships are not separate taxable entities. Instead, the owner declares the business income on their personal tax return and pays tax at individual rates.

Formation and registration

To establish a sole proprietorship in Malaysia, the owner must register with the Companies Commission of Malaysia (SSM) under the Registration of Businesses Act 1956. The process is straightforward and requires minimal documentation, making it attractive for those wanting a quick, low-cost start.

After registration, the administrative requirements are minimal. An annual fee maintains registration but there is no requirement for audits or annual filings. This ease of compliance and setup makes sole proprietorships appealing for small local entrepreneurs favoring simple business operations with reduced regulation.

Partnership

A partnership is a business entity formed when two or more individuals or corporations agree to share profits, losses, and management duties. Malaysian partnerships can have up to 20 partners. Similar to sole proprietorships, only Malaysian citizens or permanent residents may register partnerships, which foreign investors must consider when planning. Governed by the Partnership Act 1961, partnerships suit professional service firms (like law and accounting firms) and SMEs with complementary partners.

Two types of partnerships exist:

• General partnership: Partners have unlimited liability for debts and obligations.
• Limited partnership: Consists of general partners with unlimited liability and limited partners whose liability is limited to their capital contribution.

Partnerships are not taxed as entities; each partner reports their share of income on individual tax returns.

Formation and registration

General partnerships register with SSM under the Registration of Businesses Act, while limited partnerships register under the Limited Partnerships Act 2012. A partnership agreement addressing each partner’s rights and responsibilities is key.

Limited Liability Partnership

Introduced in 2012 through the Limited Liability Partnerships Act, LLPs blend features of partnerships and companies, providing partnership flexibility with limited liability protection.

LLPs are tax-transparent, with income taxed at the partner level, like regular partnerships. This structure fits joint ventures, professional services, and businesses desiring limited liability alongside flexible management.

Formation and registration

LLPs register with the SSM and require at least two partners, who may be individuals or corporate entities. An agreement governs internal operations.

Branch office

Establishing a branch office can be a quick and cost-effective way for foreign businesses looking to explore the Malaysian market.

Operations and characteristics of branch offices in Malaysia

Introduced in 2016, the Malaysian Companies Act allows foreign organizations to set up branch offices in Malaysia by registering through the Companies Commission of Malaysia (SSM). Unlike a representative office, a Malaysian branch office can act independently and engage in legitimate profit-making activities.

However, the branch office is not viewed as a separate legal entity from the foreign parent company, and thus the legal obligations, liabilities, debts, as well as all the contracts the branch office enters into, shall be enforceable against the foreign parent company. Moreover, as a sub-division of the parent company, any management decision undertaken by the branch office must be approved by the parent company.

The branch office is only taxed on income in Malaysia and is also subject to double taxation agreements Malaysia is a party to, an advantage for foreign businesses who are new to the market.

Setup requirements

As the branch office would be seen as an extension of the parent organization, several legal requirements must be met:

• The branch office must use the same brand and name as its parent organization;
• Branch offices must perform the same business activities as parent organizations;
• As a result of the control a parent organization has over its branch office, the office is therefore considered a non-resident entity in Malaysia and will not be authorized for certain tax exemptions and incentives otherwise reserved for local organizations; and
• The branch office must appoint a branch agent who is a Malaysian resident and this individual will also be legally bound to the branch office in the case of any legal breaches.

What is the registration process for establishing a branch office in Malaysia?

The registration process for establishing a branch office in Malaysia is as follows.

Name approval

The organization must propose a name to the SSM system at a fee of 50 RM (US$ 10.75) The name must be the same as the foreign parent company.

Required documentation

Within 30 days of the name approval, the following information must be provided to the SSM:

• Name, identification, nationality, and place of residence of all shareholders and employees within Malaysia;
• List of shareholders from organization’s place of origin;
• If the foreign organization has share capital, the details of class and number of shares in the organization’s place of origin;
• Certified copy of the certificate of incorporation/registration of foreign organization; and
• Certified copy of the memorandum and articles of association or another constitutional certificate.

All documents must be submitted in either Malay or English.

How much are the registration fees?

In the event a foreign organization does not prescribe any share capital, a flat rate of RM 70,000 (US$  15,046) shall be paid to SSM.

Representative office

Establishing a representative office (RO) is the fastest way of establishing a legal entity and studying the local market before determining if setting up operations in Malaysia is a viable proposition.

Foreign businesses should also know that the RO is a non-trading entity and is thus not governed by the regulations under the Companies Act 2016. The RO is not permitted to earn any revenue in Malaysia.

Setup requirements

Most applications (excluding tourism, banking, and finance) are submitted to the Malaysian Investment Development Authority (MIDA).

Applications for ROs in banking and finance must be submitted to the Central Bank of Malaysia, and RO applications for tourism services must be submitted to the country’s Ministry of Tourism.

What are the required documents for setting up the representative office in Malaysia?

All documents must be certified by the notary and must be in the English language. The required documents include:

• Company profile of the parent company;
• A completed application form stating the purpose of establishment, the activities of the proposed RO, the benefits the RO will bring to Malaysia, and the estimated cash flow and human resources requirements;
• Copy of the parent company’s certificate of incorporation;
• A copy of the parent company’s latest annual reports and audited accounts from the last two years;
• Tenancy agreement for their business address in Malaysia;
• Copy of passport for the approved expatriate;
• Copy of their resume;
• Copies of employment testimonials; and
• One passport-size recent photo.

What are the permissible activities of a representative office in Malaysia?

The RO can undertake any of the following activities:

• Gathering information on investment opportunities in Malaysia and the region;
• Identifying components, sources of raw materials, or suppliers;
• Undertake market research and development;
• Act as a coordination center for the parent company’s affiliates, agents, and subsidiaries in the region; and
• Other activities that do not result in commercial transactions.

What activities are representative offices not permitted to do in Malaysia?

In addition to commercial activities, ROs are also prohibited from:

• Signing business contracts;
• Participate in the daily operations of any subsidiaries or branches in Malaysia; and
• Lease warehousing facilities.

What is the duration of the RO?

A company can establish the RO for a minimum of two years, which can be considered for extension depending on the company’s commitment to operating expenditure and based on the merits of each case.

For government entities or trade associations, the RO duration is for a maximum of five years, which can also be extended based on the merits of each case.

What is the operational expenditure to set up an RO in Malaysia?

The ROs operational expenditure must be at least RM 300,000 (US$  64,484) per annum. Further, the RO needs to be financed from sources outside of Malaysia.

Expatriate posts

The RO is eligible for expatriate hiring, although expatriates can only be considered for managerial and technical posts. Further, the expatriate must be currently working for the parent company or within the group or subsidiary.

Their tax is based on the portion of chargeable income attributed to the number of days they are in Malaysia.

Labuan companies

Labuan companies are established under the Labuan Companies Act 1990 (LCA) and regulated by Labuan FSA, which oversees their incorporation, registration, and ongoing compliance. Prospective applicants must engage a licensed Labuan trust company that will conduct due diligence following the regulatory framework.

Incorporation and registration procedures

The general procedure for incorporating a Labuan company includes the following steps:

• The applicant must understand the legislative framework of Labuan IBFC, along with the powers and responsibilities of a Labuan company and its members as per the Labuan Companies Act 1990 (LCA).
• The applicant is required to appoint a licensed Labuan trust company, which will carry out its own due diligence on the potential client.
• Reservation of a company name is subject to the following conditions:
  • The client may select any name, but Labuan FSA reserves the right to reject it if deemed undesirable or if the Registrar refuses acceptance;
  • The name must include any word or abbreviation in the national language of any country, accompanied by an accurate and certified English version;
  • A name reservation fee of RM 50 applies (US$ 12); and,
  • The Registrar will approve within 24 hours, with the name reserved for a period of three months.
• The incorporation application must be submitted together with the following documents and payments:
  • Memorandum and Articles of Association of the company to be formed;
  • Statutory declaration of compliance from the trust company;
  • Consent forms indicating agreement to act as director(s);
  • Completed individual forms for each director; and
  • Applicable fees.

For business activities that require licensing, prior approval must be secured before incorporation.

Once all required documents are submitted, fees are paid, and the Labuan FSA completes its due diligence review, the incorporation or registration of a Labuan company can be approved within 24 hours.