Photo courtesy of Thomas Hawk

After you’ve decided that your idea is going to change the world, your next step is to move out from your house garage and start commercializing the idea into a product or service that can be enjoyed by the consumers. In Malaysia, it’s relatively easy for an ambitious entrepreneur to setup a business, although running one is an entirely different thing.

To start out, an entrepreneur can look into the following options:

i) if you’re a lone ranger with a tight budget, your product probably won’t be making much profits in the near future and there’s not much risk of facing a lawsuit, you should consider setting up a Sole Proprietorship.

ii) if you have a few partners joining the fray, where each of you are also starting out on a shoestring budget and there’s not much risk of facing a lawsuit, you should consider setting up a Partnership.

iii) if you are going into a business where you prefer the liability of the business is separated from the founders and shareholders, you should consider setting up a Private Limited Company, also known commonly as Sendirian Berhad (Sdn Bhd).

Sole Proprietorship
A Sole Proprietorship is a business with an unlimited liability, which means the founder can be held personally liable for the debts owed by the business. Creditors can sue and obtain a court order to claim the debts owed by the business, against the founder’s personal assets.

The only few practical reasons to setup a Sole Proprietorship business are it is cheap and easy to setup. Also, running a Sole Proprietorship business requires minimal paperwork and documentation.

Partnership
Partnership is almost identical to a Sole Proprietorship setup. All liabilities, profits and losses are equally distributed amongst its partners.

The maximum number of partners in a Partnership is 20. All Partnerships formed in Malaysia is governed by the Partnership Act 1961.

Sendirian Berhad
Registering a business entity as a Sdn Bhd is somewhat different from registering a Business as a Sole Proprietorship or Partnership. Unlike a Sole Proprietorship and Partnership, a Sdn Bhd is a legal entity by itself, and it is separated from the directors and shareholders.

The incorporation of a Sdn Bhd in Malaysia is governed by the Companies Act 1965.

Here are some benefits of registering your company as a Sdn Bhd:

• Your liability is limited only to the amount of Capital that the shareholders contribute into the Company. However, it is still quite common for Malaysian business owners to enter into agreements using their own name on behalf of the Company.
• A Sdn Bhd’s shareholding is much more liquid, as compared to a Sole Proprietorship’s or Partnership’s. It is much easier to amend existing shareholding or add additional shares into the Company for new investors.
• A Sdn Bhd entity is deemed more established and are more likely to help your business’s credibility.
• A better transparency and accountability in terms of auditing and tracking the Company’s balance sheet.
• The business does not die with the founders, because the incorporation of a Sdn Bhd makes it a legal entity in itself.
• You can appoint non-Malaysian directors into the business venture.

With these benefits, a Sdn Bhd entity also comes with a few disadvantages:

• The company’s financial records and accounts will be accessible to the public.
• The cost of setting up a Sdn Bhd is relatively higher. An average setup would cost around RM2,300, which would include include the payment charged according to the authorized capital, professional fess, filing charges, the printing of the company’s Memorandum of Association and Articles of Association, shares certificates and company’s seal.
• You are required to audit your business on a yearly basis. The audit fee is usually based on the annual turnover of your business.
• A monthly secretarial fee (depending on the amount of administrative workload required) is also required. The minimum fee is about RM60 monthly.

You might also want to look at the Registration of Businesses Act 1956 (Revised 1978) that governs the registration of all businesses in Malaysia.

Summary of the Business Entities

Register a Private Limited Company (Sendirian Berhad)

Registration Requirements Details

Here are the steps documented by DoingBusiness.org on the registration of a Private Limited Company in Malaysia: