Malaysia's robust business environment is a prime destination for investors seeking to expand their companies. Malaysia has experienced a positive and consistent economic outlook of a 14.2% increase in GDP in Q3 2022 and a significant influx of foreign direct investment (FDI) totaling RM 12.3 billion from major investments in the manufacturing, finance, and real estate sectors, primarily from investors in the US, Japan, the Netherlands, and Singapore.
Expanding into Malaysia may seem like a straightforward move; however, it’s important for investors to have a thorough understanding of the type of entity they should register in order to avoid future problems that could hinder company growth. The Malaysian business market has several entities available to investors, and navigating and choosing the right one can at times be challenging.
There are several popular entity options available to companies looking to register an entity in Malaysia.
1. Sole Proprietorship / Perniagaan Tunggal
This is a good option for Malaysian citizens or permanent residents looking to establish a small-scale business with a single owner. The business must be registered with the Registrar of Business (ROB), and the owner will have complete responsibility over the unlimited liability, meaning they will have full responsibility for the company’s financial operations, including its P&L.
2. Partnership / Perniagaan Perkongsian
This option allows two or more Malaysian citizens or permanent residents to become co-owners of the business. The partners jointly contribute resources and share the liability in running the business. Professional firms, such as auditors and lawyers, may be well-suited for this option.
3. Private Limited Company / Sendirian Berhad (SdnBhd)
The structure of this option is more formal than that of a sole proprietorship or partnership. It is ideal for Small and Medium Enterprises (SMEs) and the business can be opened by foreign citizens. However, at least one local citizen must be appointed as a director. The company can have between 1-50 shareholders in the business. SME businesses within the agriculture, banking, and education industries may find this option suitable.
4. Public Limited Company / Berhad (Bhd)
This option offers shares that are publicly traded on the Bursa Malaysia Stock Exchange, which is governed by the Securities Commission of Malaysia. This entity can raise funds from the public by issuing shares and can have an unlimited number of shareholders.
5. Foreign Company
A foreign company is a type of entity that enables a foreign parent company to operate in Malaysia without the requirement of having local directors. This type of entity is not considered a separate legal entity from the parent company. Two options available for foreign companies in Malaysia are the representative office and the foreign branch office. The representative office is mainly used for market research and gathering information, whereas the foreign branch office is suitable for businesses that are looking to expand and generate revenue in Malaysia.
6. Limited Liability Partnership (LLP) / Perkongsian Liabiliti Terhad (PLT)
Governed by the LLP Act 2012, the Limited Liability Partnership (LLP) is a hybrid of SdnBhd companies. It offers a hybrid structure for small businesses or a start-up with at least one business partner. The registration and maintenance costs are affordable.
As the business landscape continues to evolve, it's important for investors to consider a variety of options when it comes to structuring their operations. In addition to the traditional business types, there are alternative options such as Limited by Guarantee, Company Limited by Guarantee (CLG), and Unlimited Company (Sdn) that offer unique advantages and can help companies achieve their specific goals.
Navigating local regulations can be a formidable challenge when expanding operations abroad. The nuances of written laws and practical conditions can vary greatly, making it crucial for companies to have a thorough understanding of these regulations.
JAC Consulting offers a comprehensive range of business support services for organisations looking to enter or grow their business in Malaysia. For companies just starting out, our expertise in market entry strategy and operational management can help to overcome expansion challenges and ensure a smooth start for your launch into Malaysia.
For companies already operating but seeking further growth, our services can also help alleviate the burden of core operational activities. With our help, you can be confident that your business is compliant with all the necessary regulations so you can focus on growing your business into the Malaysian market.