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8 MAY 2024
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11:19 AM

Know the Difference: Sdn Bhd vs Sole Proprietorship in Malaysia

Post title 'Sdn Bhd vs Sole Proprietorship' on white banner overlaying image of a signpost with 2 signs pointing in different directions

It’s relatively easy to start a new business in Malaysia, known for its conducive environment and governmental support towards entrepreneurship. For many entrepreneurs, a private limited company (also known as Sendirian Berhad or Sdn Bhd) is the most common choice. On the other hand, some prefer a sole proprietorship which comes with less paperwork and simpler tax system.

Prior to completing your company registration in Malaysia, it’s essential to understand the main differences between a Sdn Bhd and a sole proprietorship to ensure you are structuring your business entity optimally to achieve your long-term business goals.

8 Key Differences between Sdn Bhd and Sole Proprietorship

The table below outlines the top differences between the two business types:

AspectSdn Bhd (Private Limited Company)Sole Proprietorship
Ownership structureOwned by shareholders who may not be involved in daily operationsAt least 1 director, 1 company secretary & 1 shareholderOwned and operated by 1 individual
EligibilityOpen for incorporation by Malaysian citizens and non-citizensOnly eligible for Malaysian citizens (Blue IC holders)Cannot be incorporated by non-citizens
Registration & ComplianceRequires registration with the Companies Commission of Malaysia (SSM)Requires other supporting documentsRegistration with SSM not required, but may need other licenses
Legal StatusSeparate legal entity from its ownersNo legal distinction between the business and its owner
LiabilityCompany’s liabilities is separate from shareholdersUnlimited liabilityOwner is personally responsible for business debts
Minimum CapitalMinimum paid up capital of RM1No minimum capital required
Tax & Financial ReportingSubject to corporate tax ratesRequires audited financial statementsSubject to personal income tax ratesLess formal reporting requirements, auditor not required
ManagementGoverned by directors and managed by shareholdersOwner has full control in running the business
Continuity & TerminationPerpetual succession, not affected by changes in ownershipComplex termination processCost of RM10,000 or more to wind up companyBusiness ceases upon owner’s death or decision to closeEasily terminated via form or passing of owner

Which is the right business entity for you?

Reasons to Choose and Register Your Business as Sdn Bhd

Choosing to register your business as a Sdn Bhd offers several advantages. Here are the top five reasons:

  1. Limited Liability Protection:

One of the primary advantages of registering your business as an Sdn Bhd is the limited liability protection it offers. As a separate legal entity, the company’s shareholders are generally not personally liable for the company’s debts and obligations. This means that your personal assets are protected in the event of business losses or legal claims against the company.

  1. Better Credibility:

Many clients, suppliers, and investors prefer to deal with registered companies due to the assurance of legal compliance and accountability. Being an Sdn Bhd can instill trust and confidence in stakeholders, helping your business attract better opportunities and partnerships. It’s also easer to secure funding for your business with less personal risk.

  1. Access to Funding:

Registering as an Sdn Bhd may improve your access to funding sources such as bank loans, venture capital, and angel investors. Banks and financial institutions often prefer to lend to registered companies with clear ownership structures and legal frameworks. Moreover, investors typically perceive Sdn Bhd companies as more investable due to their limited liability status and potential for growth.

  1. Tax Advantages:

Companies enjoy a lower tax rate compared to individuals if the annual taxable profit is more than RM70,000. Companies are also entitled to more tax-deductible business expenses and more tax incentives.

  1. Business Continuity and Succession Planning:

When a Sdn Bhd’s owner incurs a disabling illness or dies, the company does not cease to exist as ownership is easily transferable through the sale of shares. The company’s perpetual existence means that it can continue to operate even if shareholders change or pass away. This stability is essential for long-term business sustainability and can reassure stakeholders, including customers, employees, and investors, about the company’s future prospects.

Reasons to Choose and Register Your Business as Sole Proprietorship

Opting for a sole proprietorship in Malaysia is particularly suited for certain types of businesses and individuals and comes with its own set of advantages:

  1. Ease of Creation:

Registering a Sole Proprietorship is straightforward and can be done within an hour at any SSM branch or online via Ezbiz ( Registration fees are RM30 for personal name and RM60 for trade name.

  1. Direct Control and Ownership:

Being a sole proprietor grants you sole ownership of the business and decision making power. You have full control over business operations, including management, finances, and strategic direction. This autonomy allows for deciding and executing quickly in response to market changes and customer needs.

  1. Minimal Compliance Requirements and Costs:

Unlike Sdn Bhd, sole proprietorships are subject to fewer compliance requirements such as statutory requirement for annual audit, annual general meeting, annual returns etc. However, the sole-proprietorship / partnership must still obtain the necessary business licenses and permits to operate.

Consequently, there are also fewer ongoing compliance requirements. Annual business renewal fees with SSM are only RM30 for personal name and RM60 for trade name.

  1. Relatively Lower Tax Rate

For businesses that make an annual taxable profit below RM70,000, sole proprietorships are taxed at individual scaled tax rates and can also enjoy personal reliefs.

  1. Full Profit Retention:

In a sole proprietorship, you are entitled to keep all the profits generated by the business after covering expenses and taxes. Unlike in a partnership or corporation where profits are shared among multiple owners or shareholders, as a sole proprietor, you retain full ownership of the business’s earnings. This can be advantageous for individuals seeking to maximize their personal income from the business.

Do note: Sole proprietorship and partnership in Malaysia is only eligible for Malaysian citizens (Blue IC holders), and cannot be incorporated by non-citizens.

Get Set Up For Business Success

Be it from a tax or legal perspective, speak to any of our tax and business advisors to decide on the most beneficial business entity for your situation.

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