SDN BHD vs Sole Proprietor vs Partnership
Which is better for your business?
Choosing the right business structure is one of the most critical decisions an entrepreneur or business owner must make at the outset. In Malaysia, the most common forms of business vehicles are Sdn Bhd (Private Limited Company), Sole Proprietorship, and Partnership. Each carry distinct legal, tax, and operational implications.
PRIVATE LIMITED COMPANY (SDN BHD)
- Governed by the Companies Commission of Malaysia abbreviated SSM (Suruhanjaya Syarikat Malaysia) and the Company Act 2016.
- Can be solely owned by Malaysian citizens, Permanent Residents (PR) as well as foreigners alike.
- Considered a “legal entity” which can purchase assets under its own name, bind a contract as well as sue another entity in court.
- Easier to open a business bank account and be exposed to different types of loan packages.
- Is perceived to be a more professional and legitimate entity which will increase confidence for investors to invest within the Company.
SOLE PROPRIERTORSHIP
- Governed by the Companies Commission of Malaysia abbreviated SSM (Suruhanjaya Syarikat Malaysia) and the Registration of Businesses Act 1956.
- Simplest and most common type of business entity in Malaysia.
- The owner has complete control over the business and retains all the profits.
- The owner is personally liable for all debts and obligations of the business.
- Simple and cheap registration [Registration fee is only MYR 30 for personal name and MYR 60 for trade name]
PARTNERSHIP
- General partnerships are governed under the Partnership Act 1961.
- It can have more than one (1) owner but not more than twenty (20).
- The partnership is not a legal entity; hence all chargeable income will be split according to partnership percentage (%) and will be taxed based on their income.
- Partners are personally liable towards all the debts accumulated by the business according to the percentage (%) agreed.
- This type of business is normally used for start-up audit firms or law firms.
- All business owners must visit the SSM personally as Secretarial firms are not able to register this type of business structure on behalf of the owners.
- Partners are only required to submit their annual renewal fees to continue running a business.
To determine the most appropriate structure for a business in Malaysia, it is essential to understand the core distinctions between the available legal entities.
The table below provides a side-by-side comparison of these key features to assist in evaluating which structure aligns best with your commercial goals and risk profile.
This flowchart is meant to help you decide which structure suits your needs best by asking a few key questions about how you plan to run your business.
Disclaimer: This flowchart is intended solely as a general guideline and should not be relied upon as definitive advice or instruction.
