1

Business
Entities in
Malaysia
TOPIC 1
 
1
The objectives of this chapter are:
 To identify the types of business entities
in Malaysia.
 To provide an understanding of the
Learning importance of registering a business.

outcomes:  To explain
procedures.
business registration

 To discuss legal aspects related to

business formation.
 
1
It is the responsibility of all business
operators who conduct business activities
with the objective of making profit to
register their businesses. The registration
works to legalize a company’s business
INTRODUCTIO activities.
 Business registration in Malaysia is
N
managed by the Companies Commission
of Malaysia (SSM), an agency under the
Ministry of Domestic Trade, Consumer
Affairs, Cooperative and Consumerism.
 
1
Basically, there are four types of business entities
that must be registered with the SSM:
 sole proprietorship
 partnership
 limited liability partnerships
 Private limited companies.
INTRODUCTIO  Cooperatives are another option of doing
business. Cooperatives have different objectives,
N (cont.) and the registration must be done at the
Cooperatives Commission of Malaysia (SKM). –
not so much about making money/ to serve
people
 Each of the entity above has its own advantages
and disadvantages, which should be considered
by an entrepreneur prior to registration.
 1
 Sole proprietorship
 A sole proprietorship is a business entity that is
solely owned, funded and managed by one
owner only. Sole proprietorship is the most
popular and the simplest or easiest form of

Types of business entity in Malaysia.

Business 

Partnership
A partnership is a business entity that is owned

Entities in by two or a maximum of 20 people. However,

for professional businesses such as accounting,
legal, quantity surveyors, architects, engineer
Malaysia firms, etc., the maximum number of members
could be up to 50 people.
 Both Sole Proprietorship and Partnership
business entities are registered under the
Business Registration Act 1956.
 
1
Limited Liability Partnership (LLP)
 Limited Liability Partnership (LLP) is an
Types of alternative business vehicle regulated
under the Limited Liability
Business Partnerships Act 2012, which combines
the characteristics of a private limited
company and a conventional partnership.
Entities in  LLP has a legal personality separate

Malaysia from partners (separate legal entity), like

private limited company.

(cont.)  LLP has perpetual succession (deceased

owner but business carries on) and offers
benefits of a private limited company.
 It has the flexibility of a partnership and
benefit of Limited Liability
  1
The LLP concept also supports start-ups,
small and medium enterprises (SMEs),
Types of joint ventures and venture capitals to
grow without having to worry too much
Business about personal liabilities, personal assets
and strict compliance requirements.

Entities in  An LLP can be formed by a minimum of

two persons up to an unlimited number
Malaysia of members.

(cont.)
  1
Private Limited Company
 A business that is registered as a company is
Types of allotted under the Companies Act 2016. A
company is a body that has a legal entity
separate from members or the founder.
Business  The concept of a company is based on several
individuals who are entrepreneurs contributing to
Entities in a bigger capital sourcing to make the business
easily manageable and expandable.

Malaysia  Several improvements have been made in the

Companies Act 2016 whereby the total number
of members or partners in a company starts from
(cont.) a minimum of one or single director to a
maximum of 50 individuals
 
1
Shareholders liability is limited to the
amount of share own or held by the
Types of members/SH only.
 The establishment of a company is quite
Business complicated.

Entities in  For example, there is legal requirements

to appoint a Company Secretary
responsible for company’s secretarial
Malaysia function and

(cont.)
 an Auditor responsible for financial
matters and financial reporting.
 
1
Well suited to manage family business.

Types of As it does not require public funding and

the founders of the business will wish to
be in control of the business and run the
Business business without disclosing its financial
records to public.
Entities in  Suited in carrying on small/medium

Malaysia 
business.
Purchase of shares is only possible if it is
(cont.) offered to selected persons.
 Has the term SDN BHD (private limited)
 


1
Public Companies
Have access to public funding

Types of  Invites the public to invest in its

securities.

Business  To protect the interest of the public who

are investing the Capital Market &
Entities in Services Act 2007 ( CMSA) have
provisions that must be complied with by
Malaysia public company before it can offer or
invite the public to subscribe to its
(cont.) 
securities.
Often enlist its security in the stock
exchange – must obtain permission of
Bursa Malaysia Securities Bhd.
 


1
Cooperative
A cooperative (also known as co-
Types of operative, co-op or coop) is an
autonomous association of people united

Business voluntarily to meet common economic,

social and cultural needs and aspirations

Entities in through a jointly owned

democratically controlled business.
and

Malaysia  In Malaysia, the minimum number of

members in a primary cooperative is 100;
(cont.) and in the Farmers’ Cooperative, it is 50.
 
1
A cooperative has a separate legal entity
and members, directors, managers and
employees are not liable for any debts
incurred unless the debts are the result of
Types of recklessness, negligence or fraud, or if the
members were guarantors to the
Business 
cooperative’s loan.
A cooperative usually only allows a limited
Entities in 
distribution of profits to members.
Every cooperative society must be
Malaysia registered under the cooperatives law,
supervised by the Malaysia Co-operative

(cont.) Society Commission or Suruhanjaya

Koperasi Malaysia (SKM).
 1

Benefits and Limitations of

Sole Proprietor
 1

Benefits and Limitations of Sole Proprietor

Benefits and Limitations of Partnership

1
Benefits and Limitations of
1
Limited Liability Partnership
Benefits and Limitations of
1 (Cont.)
Limited Liability Partnership
Benefits and Limitations of Private Limited
Company
1
Benefits and Limitations of
1
Private Limited Company (cont.)

-SH
Benefits and Limitations of Public
Companies 1
Benefits Limitations

Transparency Lack of confidentiality

Legally obliged to reveal its accounts/financial Must make full disclosure for everything, this is
reports /not confidential based on the regulatory requirement.

Members have Limited Liability Expensive Business Form

Liability is limited to the value of the business’s It takes a large sum of money and many
shares; they are protected from losing their procedural requirement to launch a public
assets if the company suffers financial loss. company.
- If I’m a SH, im liable as much as the value of - A lot of documentation
my shares.
- If comp goes bankrupt, I’m liable up to the Less Flexible
amount of shares I hold. Bound by strict rules and regulation – limiting
- More shares= more liability flexibility
Freely Transferable Shares
Shares can be sold to the public unlike in a
private company with much limitations.

Ability to raise more funds

As they can raise money from the public via
shares, debentures, and bonds.

Better financial opportunities

Since it has better transparency, easier to obtain
Benefits and Limitations of Cooperative

1
 1

Benefits and Limitations of

Cooperative (cont.)
 
1
A start-up entrepreneur will need to
know where and how to register the
business entity. There are only two
places to register:
 the Companies Commission of
Malaysia, or
Registration  the Cooperative Commission of
Procedures Malaysia.
 For more details, visit the websites
available: www.ssm.com.my and
www.skm.com.my.
 
1
Business registration is compulsory for
all entrepreneurs.
 Each of these business forms has
 distinct characteristics,
 advantages and disadvantages,
Summary  differing scope of business activities,
registration requirements, capital
requirements
 as well as registration procedures.