Different types of Entities in Malaysia

Sole Proprietor

This is one of the simplest and cheapest form of business entity to establish among the others. You are only required to pay an annual fee to the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia). Sole proprietorship companies are not required to submit audits or perform annual filling with SSM. This type of entity is owned solely by one individual where his or her liability is unlimited which means that creditors will be able to sue the sole proprietor’s owner for all the debts owned. Personal income, personal assets as well as income are all liable in this context. Only Malaysian citizens or permanent residents are permitted to register under this business entity.  

Partnership

A business that is registered under partnership has to have at least two persons and not more than 20 persons as partners. Its legal responsibility to external parties is similar to sole proprietorship. This type of business set ups is most suitable for professional firms such as auditors and lawyers. The partners in a partnership business entity are also bounded by unlimited liability.  The internal relationship between partners depends on the terms of the partnership agreement made between them. The Business Registration Act 1956 does not specify that the formation of a partnership business requires a written agreement between partners. However, it is advisable for partners to have a Partnership Agreement in order to avoid or minimize dispute between
partners. In the absence of a partnership agreement, the provisions of the Partnership Act1961 will be applicable.

For example, Section 26 and 27 of the Act stipulates that:

• profit or losses are to be shared equally;
• no interest is payable on a partner’s capital;
• each partner is entitled to actively participate in the management of the business;
• no partner is entitled to a salary for participating in the partnership business; and
• partners have the right to be paid based on their contribution to the business.

In the case of Lee Choo Yam Holdings Sdn Bhd & Ors V Khoo Yoke Wah & Ors [1990] 2 MLJ 431, it was held that upon the death of Lee Toh Seng, the partnership stands dissolved since there is no evidence that the partners had agreed otherwise. When the business is continued by the surviving partners, a new partnership comes into being. Therefore the administrators of Lee Toh Seng joined in a new partnership and not a continuing partnership. A new association then comes into existence. Like in the case of sole proprietorships, only Malaysian citizens of permanent residents arempermitted to register partnerships.  

Limited Liability Partnership(LLP)  

A limited liability partnership (LLP) is a type of business structure where two or more partners incorporate a partnership entity that shields co-partners from liabilities The Limited Liability Partnership or LLP is a hybrid between a partnership and private limited company. A Malaysia LLP’s name must include the words “Perkongsian Liabiliti Terhad.

Below are some of the features of LLP:  

• It is a body corporate and a separate legal entity from its partners.  
• For a LLP to exist, there must always be two or more partners LLP has perpetual successions.
• The LLP is capable of suing and being sued, acquiring, owning, holding and developing or disposing of property. 
• LLP has fewer compliance requirements and is a much more affordable business vehicle. For instance, LLP is not required to audit its accounts annually.
•  Every limited liability partnership must appoint at least one manager who is a natural person of at least 18 years of age and who is ordinarily resident in Malaysia, a Malaysia Citizen, Permanent Resident, or Employment Pass holder.

Although Malaysia’s Limited Liability Partnership Act of 2012 does not restrict the benefit of LLP structure to certain classes of professionals only, in practice, LLP structure makes the most sense for chartered professions only (such as lawyers, accountants, etc.) The mutual rights and duties of the LLP and its partners are governed by the limited liability partnership agreement. In the absence of agreement as to any matter, the irst Schedule of the Limited Liability Partnership Act 2012 shall apply.

A partner may cease to be a partner upon his death or dissolution or in accordance with the limited liability partnership agreement (if any) or, in the absence of such agreement, by giving 30 days’ notice to the other partners. A proposed new partner requires the consent of all existing partners. Other matters are decided by majority vote, with each partner having one vote.

Private Limited Company/Sendirian Berhad (Sdn Bhd) 

A private limited company by shareholding is known as Sendirian Berhad (Sdn Bhd) Company. This type of company is a separate legal entity from its owners where the company is considered as a legal ‘person’ that can buy or sell property, present into legal contracts, sue or get sued in courts of law.  Choosing this type of entity allows an entrepreneur to keep their finances and assets separately from the business. This means that the people who have invested in the business, namely the shareholders, are only responsible for any company debts up to the amount that they have invested and no more. Hence, this type of entity is a good way for a company to get investment without risk to a personal wealth.   

Under the CA 2016, a private company is required to have the following characteristics:

• It is a company limited by shares (s42(1)).
• It has not more than 50 shareholders (s42(1)).
• It restricts the transfer of its shares (s42(2)).
• It cannot offer its shares or debentures to the public (s43(1)). Under s15(1) of the CA 1965, a private company was prohibited from inviting the public to subscribe its shares or debentures.
• It cannot allot shares or debentures with a view of offering them to the public (s43(1)). This prohibition was not found in the CA 1965.
• It cannot invite the public to deposit money with the company (s43(1)).

Other than the above characteristics, s25(1) mandates that the name of a private company should end with the words ‘Sendirian Berhad’ or its abbreviation ‘Sdn. Bhd.’ A private company may convert to a public company by a special resolution and shall lodge the following documents with the Registrar :-

1. a notice for conversion specifying an appropriate alteration to its name and compliance with restrictions on private companies;
2. a statement in lieu of prospectus;
3. a statutory declaration verifying that paragraph 190(2) has been complied with;
4. fee of RM500;
5. original copy of notice of registration or certificate of incorporation.

The shareholders are not liable for the debts of the company beyond the amount they hold as shares. The shareholders are involved in the management of the financial affairs of the company through the annual general meeting. The death or leaving of shareholders does not mean that the company is wound up. The company must appoint an auditor to record and verify financial documents, and a company secretary who reports the company’s progress during the annual general meeting。

Public Limited Company /Berhad(Bhd)

A public limited company, also known as Berhad (Bhd) is rather similar to private limited companies except that its shares can be offered to the public for fixed periods and any other forms of subscription. This type of business entity usually involves the company being listed and is governed by the Securities Commission of Malaysia. Public listed companies are usually the preferred business model for large businesses. The shareholding of this company is open to the larger public where the minimum number of shareholders is two and the maximum number is unlimited.

A public company having a share capital may convert to a private company by passing a special resolution and shall lodge the following documents with the Registrar: -

1. a notice of conversion specifying an appropriate alteration to its name;
2. fee of RM500; and
3. original copy of notice of registration or certificate of incorporation.

On lodgement of the notice of conversion by the private company, it will be issued with a notice of conversion by the Registrar with such endorsements to the register to record the conversion (Section 41(3), CA 2016). Upon conversion of a private company to a public company, it may not re-convert to become a private company again without leave of the court (Section 42(6), CA 2016).

With the dispensation of the requirement to have a constitution under the CA 2016, conversion of a public company to private company does not involve amending its memorandum and articles of association which was previously required under Section 26 of the CA 1965.