For decades, Malaysia has stood as a beacon for entrepreneurial opportunities, boasting technological advancement that rivals its Southeast Asian counterparts. Additionally, investors and companies alike are presented with a diverse array of five business entity options to select from.
Key reasons to open a business in Malaysia
Despite facing challenges in 2020, Malaysia’s economic prospects, along with its investment potential, continue to hold promise. This is largely attributed to the nation’s renowned characteristics, including:
Ideally located in ASEAN
Situated at the heart of ASEAN, Malaysia is part of the rapidly evolving landscape of Southeast Asia, which has emerged as a key driver of global GDP growth. As a member of ASEAN, Malaysia actively fosters collaboration among its ten counterparts, contributing to the formation of the world’s third-largest business bloc.
Quality and inexpensive living
Characterized by its diverse racial groups, Malaysia is celebrated as a vibrant cultural melting pot. This dynamic fusion gives rise to an exhilarating atmosphere, making Malaysia an enticing destination. Coupled with its relatively affordable cost of living and bustling lifestyle, Malaysia emerges as a prime choice for expatriates seeking a fulfilling residency experience.
Robust infrastructure
Malaysia boasts top-notch infrastructure strategically designed to cater to businesses effectively. With outstanding sea, land, and air cargo facilities, transporting goods is seamless. Its extensive global air and sea connections offer offshore corporations convenient access to supply services and goods to destinations worldwide.
Politically stable environment
Malaysia’s political landscape stands out as one of the most stable in Southeast Asia, providing businesses with the certainty necessary for sustained prosperity. Moreover, the government adopts an exceedingly pro-business approach, implementing policies aimed at enhancing the business environment for private enterprises.
Educated workforce
Thanks to its robust education system, foreigners find it effortless to communicate with locals in Malaysia. Additionally, English is widely spoken among the population, further facilitating interactions. The country’s skilled workforce possesses all the necessary competencies to effectively operate businesses. Furthermore, Malaysia’s legal framework, modeled after the British system, provides companies with excellent protection, ensuring a conducive business environment.
Opting for the ideal business entity
When conducting business anywhere globally, the initial step entails incorporation. In Malaysia, this necessitates registering the chosen business entity with the Companies Commission of Malaysia within 30 days of commencing operations. Therefore, selecting the most suitable business entity is of the utmost concern. To accomplish this, it is crucial to first understand the roles, advantages, and disadvantages of each of the five types of business entities in Malaysia. These entities encompass:
1. Sole Proprietorship or Enterprise
The simplest form of business to start, especially for those aiming to establish a small enterprise, is a sole proprietorship. In this structure, ownership rests solely with one individual, who bears unlimited liability. Sole proprietorships can only be initiated by Malaysian citizens or permanent residents, and they do not necessitate the appointment of a company secretary. Owners retain all profits or losses generated by the business.
The key advantages of this setup include low registration costs, straightforward establishment procedures, and exemption from mandatory statutory audits. Additionally, owners enjoy complete autonomy over decision-making processes. However, it’s important to note that personal assets and income are not shielded in cases of bankruptcy or debt settlement. Moreover, business profits are treated as part of the owner’s personal income and are taxed accordingly.
2. Partnership
An ideal choice for businesses comprising 20 associates or fewer is a partnership. Setting up this entity is straightforward, with no requirement for a company secretary, and it carries unlimited liability. Governed by either the 1961 Partnership Act or agreements crafted by Malaysian citizens or permanent residents who own the business, partnerships offer flexibility in their structure.
Benefits of this arrangement include low-cost registration, ease of establishment, exemption from statutory audits, and the distribution of liability among partners. However, partnerships lack the distinction of a separate legal entity, leaving partners jointly liable for debts. Additionally, business profits are taxed individually at personal tax rates, presenting a potential drawback.
3. Limited Liability Partnership
The Limited Liability Partnership (LLP), established under Malaysia’s 2012 LLP Act, represents a pioneering corporate arrangement blending features of both partnerships and private limited companies. It mandates the involvement of two or more Malaysian permanent residents or citizens for formation. This innovative structure offers numerous advantages, such as a limited liability shield for each partner in case of bankruptcy or legal disputes, cost-effectiveness in terms of setup and maintenance, exemption from annual audits, reduced compliance obligations, and taxation of income at the corporate rate.
However, the LLP model faces certain challenges, including hurdles in securing bank financing, the necessity of at least one qualified company secretary, and a general lack of familiarity owing to its relative novelty. Despite these drawbacks, the LLP presents an enticing proposition for entrepreneurs seeking a flexible yet secure business framework in Malaysia’s evolving corporate landscape.
4. Public Limited Company
Public limited companies in Malaysia offer an open platform for share purchase, often initiated by transforming from a private limited entity to access funds. This transition is typically facilitated through avenues like Initial Public Offerings (IPOs), Special Purpose Acquisition Companies (SPACs), or Reverse Takeover offerings, enabling unrestricted shareholder participation and oversight by Malaysia’s Securities Commission. Such companies are publicly listed on the Bursa Malaysia Stock Exchange, mandating at least one qualified company secretary. They benefit from capital accumulation via share issuance, limited liability confined to share ownership, and streamlined access to capital markets for sustainable expansion.
However, the journey to becoming a public limited company entails arduous and costly registration processes along with stringent regulatory obligations. Compliance demands, including public financial disclosures and annual reporting, impose additional operational challenges. Despite these drawbacks, the structure empowers companies to tap into diverse investment pools, ensuring efficient growth and market presence within Malaysia’s dynamic business landscape.
5. Private Limited Company
This private firm, structured as a company restricted by shares, offers a distinct legal entity separate from its owners, making it an ideal choice for small and medium businesses seeking credibility and financial stability. With a maximum of 50 shareholders, this entity permits foreign ownership but mandates at least one Malaysian resident as a director, along with a qualified company secretary. It requires a minimum paid-up capital of RM1 and grants the ability to engage in business activities, including contract negotiation and legal proceedings.
Key advantages of this structure include a favorable tax rate on income, limited liability for owners and shareholders, and the possibility of full foreign ownership. Furthermore, it can transition into a public limited company, facilitating access to additional capital through public fundraising. However, drawbacks include higher initial and ongoing costs for incorporation and maintenance, as well as the obligation for annual audits.
Incorporate in Malaysia the right way
Premia TNC acknowledges that different business entities are suited to various stages or fulfill diverse needs. We can assist you in understanding the five types of business entities in Malaysia and their respective functions. Explore how your business idea fits into these frameworks by visiting us at https://premiatnc.com/idn/services/malaysia-incorporation/.
