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6 types of company registration every soon-to-be entrepreneur should know about

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There are 6 types of company registration that can be done with SSM by entrepreneurs, each with advantages and disadvantages according to your business' needs.

This is it! It is time to quit the 9 to 5 office job and turn the business proposal that you have been working hard on for the past few months into a reality. As required by the Companies Commission of Malaysia (SSM), your company has to be registered in order to run the business as a separate legal entity. According to Companies Act 2016, a company can be limited by shares, limited by guarantee, or unlimited, and further categorized as a private or public company. It is crucial to understand the nature of each company registration type to determine which one suits your business’ needs.

1. Sendirian Berhad (Sdn Bhd) / Private Limited Company

Sdn Bhd company is a private company limited by shares which is the most common company registration type in Malaysia. In light of the Companies Act 2016, only 1 director and 1 shareholder is required to form a Sdn Bhd company, instead of 2 directors. Thus, you can register a Sdn Bhd company without other business partners, acting as the sole director and sole shareholder for the company. However, there can be only up to 50 shareholders in a Sdn Bhd company, without the right to offer shares to the public.

Who should register their company as Sdn Bhd?

Malaysian or non-Malaysian residents who want to run SME businesses

Advantages

  • Require only 1 person to form the company
  • Does not require a constitution, the rights and obligations of directors and shareholders are stated in Companies Act 2016
  • Relatively cheap to set up

Disadvantages

  • Unable to expand beyond 50 shareholders
  • Unable to offer shares to the public
  • Unable to invite the public to deposit money
  • Restricted on the transfer of shares

2. Company Limited by Guarantee

A Company Limited by Guarantee is a public company without share capital for non-profit purposes. It means that there is no shareholder, only members who act as guarantors to run the operation. You and other members do not contribute capital to the startup but are responsible to pay the debt if it closed down according to the amount of guarantee as promised. Hence it has no right to own or release property rights and also is unable to use the profits for purposes other than those stated as objectives in the constitution.

Who should register their company as Company Limited by Guarantee?

Non-profit organizations

Advantages

  • No upfront capital contribution is required from members
  • The only company registration type that can promote art, science, religion, charity and pension scheme
  • Can apply to omit the word ‘Berhad’ or ‘Bhd’ from the company name

Disadvantages

  • Costly and difficult to incorporate
  • A constitution that states the objectives of the company is required
  • All profits are used for the purpose of the organization only
  • Not allowed to release or own any property rights
  • Unable to convert to other company registration type
  • Members are still liable towards company debt if the company closed down within one year after they left the company

3. Sendirian (Sdn) / Unlimited Company

All company registration types limit the liability of its shareholders towards the company, except for a Sdn company which can either be a private or public company. You can register a Sdn company to form a mutual fund that holds assets for investment purposes, rather than to carry out businesses. Since it has unlimited liability among its shareholders, it is similar to Partnership with flexibility in the ownership of shares where shareholders are free to sell their shares back to the company.

Who should register their company as Sdn?

Mutual funds

Advantages

  • Flexible ownership of shares

Disadvantages

  • Costly and difficult to incorporate
  • A constitution that states the objectives of the company is required
  • Shareholders have full liability towards company debts
  • Shareholders are still liable towards company debt if the company closed down within one year after they left the company

4. Berhad (Bhd) / Public Limited Company

Similar to a Sdn Bhd company, a Bhd company is a company limited by shares with a few differences - it can offer shares to the public without a limit on the number of shareholders, requires at least 2 directors and is governed by Bursa Malaysia Securities Berhad and the Security Commission of Malaysia. This type of company registration can be time-consuming and expensive due to strict compliance to follow. However, funding for the company would be easier to come by since it is publicly listed on the market.

Who should register their company as Bhd?

Entrepreneurs with large business models

Advantages

  • Easier to raise funds as the company is listed
  • Able to issue shares to the public
  • Flexible ownership of shares

Disadvantages

  • Costly and difficult to incorporate
  • Have to comply with stringent rules and regulations
  • Annual General Meeting is required to be held every year

5. Foreign Company

Companies owned by non-Malaysians who have established businesses in other countries and would like to set up a company branch in Malaysia for operation or customer service purposes falls under this category. It allows foreigners to run businesses in Malaysia without a director that resides in the country. Foreign companies have limited options in incorporating a company, except in Labuan which has different laws governing the company registration.

Who should register their company as Foreign Company?

Foreigners who want to start a business in Malaysia

Advantages

  • Can operate a business in Malaysia without a local director

Disadvantages

6. Perkongsian Liabiliti Terhad (PLT) / Limited Liability Partnership (LLP)

Unlike other company registration types, a PLT company is governed under the Limited Liability Partnerships Act 2012 which was newly introduced in Malaysia in 2012. It is a combination of Sdn Bhd company and partnership with some differences such as there must be at least 2 partners with no maximum number of partners you can have in the business. The registration on a PLT company should be done on the MyLLP portal which is different from other company registration.

Who should register their company as PLT?

Entrepreneurs in a partnership who carry out professional practices (accountancy, law, company secretary, etc.), in joint ventures, or venture capitals.

Advantages

  • No maximum limit on the number of partners
  • Flexible agreement among partners
  • Relatively cheap to set up

Disadvantages

  • Require at least 2 partners
  • Unable to offer shares to the public
  • Unable to invite the public to deposit money
  • Restricted on the transfer of shares
  • Governed by a different law, could be confusing

Deciding the most suitable company registration type gives entrepreneurs an upper hand in getting started with businesses legally in Malaysia. However, bear in mind that even though you may enjoy more financial security when running businesses as a company, all companies registered are required to fulfil obligations, such as getting a company secretary (for Foreign Company it would be an Agent while for PLT company, it would be a Compliance Officer), lodging annual returns, and filing taxes. Hence, it is crucial to understand all the rights and obligations of each company registration type in advance to make the most out of the process.

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Disclaimer: Information provided in this article is for general reference only. Please seek advice from company secretary, lawyer or other professionals according to your business's needs.