the complete guide to comparing sdn bhd, limited liability partnership, conventional partnership, and enterprise

Comparing 4 Main Types Of Business Entities For SMEs In Malaysia

A business entity is the foundation upon which the business is built, and entrepreneurs looking to start a venture in Malaysia must commonly decide between four options:

  • Private Limited Company (Sdn Bhd)
  • Limited Liability Partnership (LLP)
  • Conventional Partnerships, and
  • Sole Proprietorships (also known as Enterprises)

Each comes with its own pros and cons that impact the set up and operation of a business.

Entrepreneurs should therefore carefully align the entity’s strengths with their venture’s goals.

a car crash as a play on words to show the consequences of choosing the wrong business vehicle
The wrong business vehicle may crash your venture.

This guide provides a complete side-by-side comparison of all four business vehicles, as well as a breakdown of their strengths, drawbacks, and common use cases. 

By the end, you’ll know which structure serves you best, and hopefully let MISHU help you set it up!

Let’s begin.

Comparison of business entities in Malaysia

The table below shows key similarities and differences between the four business structures including ownership, compliance requirements, set up costs, tax treatment, and more. 

 Sdn BhdLLPConventional PartnershipSole Proprietorship
Foreign ownershipAllowedAllowedNot allowedNot allowed
Formation costs (on average)RM4,000RM1,500RM60RM60
Capital contributionShare capitalPartners contributionPartners contributionOwner contribution
Owner(s)Shareholders own ‘shares’ in the companyPartners have a share in LLP capital and profitsPartnersSole owner
Number of ownersMinimum 2, maximum 50Minimum 2, no maximum limit2 to 20 partners (Except certain industries)Sole owner
Legal StatusSeparate legal entitySeparate legal entityNot a separate legal entityNot a separate legal entity
Liability for business debtsCompanyLLPPartnersSole owner
Tax on profitsCorporate income tax (15 – 24%)Corporate income tax (15 – 24%)Personal income tax (0-30%)Personal income tax (0-30%)
ManagementBoard of DirectorsPartnersPartnersSole owner
Personal liabilityTo extent of share ownershipLiable to extent of capital contribution and own misconduct. Unlimited liabilityUnlimited liability
Mandatory appointmentsOne Director

One Shareholder

One Company Secretary

One External Auditor
One Compliance OfficerNoneNone
Statutory compliance requirementsAnnual audited Financial

Statements Annual Returns

Monthly Tax Estimates
Annual Declaration

Monthly Tax Estimates

Here are some key takeaways from the table:

  • Sdn Bhds have the strictest statutory compliance demands and are the costliest to set up.
  • Sole Proprietorships and Conventional Partnerships are identical except the former is fully owned by one individual while the latter can be co-owned by up to 20. 
  • LLPs and Sdn Bhds provide limited liability protection to parties that own and run the business.
  • Non-Malaysian residents are not allowed to own Sole Proprietorships or Conventional Partnerships.

For a more focused comparison between two specific business vehicles, check out our guides below:

  1. Conventional Partnership vs LLP
  2. Enterprise vs Sdn Bhd
  3. Sdn Bhd VS LLP
  4. Enterprise vs LLP

Otherwise, let’s proceed to a more in depth look at each structure.

SDN BHD (Private Limited Company)

examples of typical businesses that use sdn bhd as their entity or vehicle
We’d bet a couple of fingers these are ALL Sdn Bhds

Sdn Bhds are the go-to structure for businesses seeking:

  • limited liability protection
  • structured organisation
  • long-term stability

This of course includes a huge range of use cases, which is why many small, medium, and large-sized businesses opt for a Sdn Bhd, with over 3,000 new companies incorporated every month. 

The only requirement is to have at least one director who resides in Malaysia, which can be fulfilled by the sole shareholder.

Note: For Sdn Bhds with multiple shareholders, it is HIGHLY recommended to draft a Shareholders’ Agreement to define a clear protocol for conflict resolution between shareholders.


  • Limited liability: The personal assets of shareholders and directors cannot be seized to settle company debts and liabilities.
  • Perpetual succession: Sdn Bhds continue in spite of ownership and shareholder changes, ensuring continuity and stability for the business.
  • Separation of assets: There is clear separation of owner and firm assets, such as a dedicated corporate bank account for business funds. This limits opportunities for abuse.
  • Separation of governance: Sdn Bhds are owned by shareholders but managed by a Board of Directors who act in the interests of the company, preventing bias towards any one shareholder.
  • Tax advantages: Sdn Bhds enjoy favourable tax treatment including corporate income tax rates as well as other tax incentives, allowing them to invest more into the business. 
  • Ease of securing funding: The well-defined organisation structure and transparency of Sdn Bhds appeals more to investors and lenders, all other things being equal.
  • Ease of growth: Due to the advantages above, a Sdn Bhd is the most conducive structure for long-term growth and scalability such as entering new markets and funding internal R&D.


  • Complex formation: Incorporating a Sdn Bhd is much more time-consuming compared to every other business structure as it involves more legal and regulatory steps.
  • Stringent regulations: Private limited companies are subject to the strictest regulatory compliance, reporting, and auditing requirements (in fact, Sdn Bhds are the only entity where an annual audit is mandatory).
  • Higher costs: Sdn Bhds incur higher operational costs that other structures due to compliance fees, professional services for a Company Secretary and Certified Auditor, and ongoing administrative expenses.
  • Less privacy: The public will be able to access financial details and performance of the company, such as through a CTOS Company Check.

Ultimately, these drawbacks are simply the cost of a business structure that promotes growth and transparency while protecting the personal assets of its owners. 

LLP (Limited Liability Partnership)

a law firm which is one of the biggest use cases for a limited liability partnership in malaysia
Law firms: The quintessential LLP use case.

Think of a Limited Liability Partnership as a combination of the most desirable qualities of a Sdn Bhd with a Conventional Partnership. Unsurprisingly, LLPs are most popular among teams of professional service providers such as lawyers and accountants who want the assurance of working alongside partners and the protection of limited liability.

As we’ve said before, good luck getting a lawyer with unlimited liability to give a word of advice!

One requirement of an LLP is to appoint a Compliance Officer who is a resident in Malaysia, who will be responsible for ensuring the business complies with the law.


  • Limited Liability: Similar to an Sdn Bhds, an LLP provides limited liability to its partners, protecting personal assets from business debts and obligations.
  • Flexible management: Partners are free to tailor the organisation’s structure in operations.
  • No partner limit: We’ve never actually seen an LLP with more than 20 partners, but at least this structure won’t limit a team that wants to grow that big!
  • Tax advantages: LLPs also enjoy corporate income tax rates, which are much more favourable at higher profit levels compared to a Conventional Partnership. 
  • Pass-through taxation: LLPs enjoy pass-through taxation, where profits and losses pass through to the individual partners’ personal tax returns, avoiding double taxation.
  • Perpetual succession: LLPs continue in spite of partnership changes (so long as it never goes without at least two partners) ensuring continuity for the business.


  • Limited fund raising: Raising capital is more challenging for LLPs compared to Sdn Bhds as they cannot issue shares, though they can still invite a new partner to contribute funds.
  • Potential for Disputes: If partners have a major disagreement, the operation of the business will absolutely be affected.

Conventional Partnership

a automobile workshop with two mecchanics as partners to show a common use case for a conventional partnership in malaysia
Both a vehicle for business AND a business for vehicles.

A Conventional Partnership is essentially a Sole Proprietorship with more than one owner and is most commonly used for more blue-collar service providers such as F&B outlets, workshops, and various smaller construction businesses where multiple partners pool their resources and share ownership and decision making.

Often times, the amount of annual profits generated wouldn’t benefit from corporate income tax rates, and the business is relatively low-risk, so the absence of limited liability protection is inconsequential. 


  • Ease of Formation: Partnerships are easy and cost-effective to form, typically requiring minimal paperwork and formalities.
  • Flexibility in Decision-Making: Partners are often expected to equally and actively participate in business operations.


  • Unlimited Liability: Each partners’ personal assets can and will be seized if needed to settle any business debts.
  • Instability: In the event of a partner’s departure, the business must be dissolved.

Sole Proprietorship / Enterprise

A very small roadside fb outlet to show a common use case for a sole proprietorship in malaysia
Don’t expect them to submit Annual Returns!

As the simplest structure to set up, Sole Proprietorships, also known as Enterprises, offer the lowest ceiling for long-term growth and as a result are commonly chosen by the smallest of businesses, freelancers, and individuals operating low-risk, low-revenue ventures where the value of a business structure is simplicity, not its ability to attract angel investors for a startup.

However, we should add that it’s extremely common for new entrepreneurs to start with a Sole Proprietorship and later convert the Enterprise to a Sdn Bhd once it reaches a certain level of growth.


  • Simplicity: Truly minimal paperwork and formalities required for establishment.
  • Full Control: Sole proprietors have complete control over business decisions and operations.
  • Low set up and maintenance costs: A Sole Proprietorship can be registered for as low as RM30!


  • Unlimited liability: The owner has unlimited personal liability for the business’s debts.
  • Limited growth: Sole proprietors may face challenges in raising significant capital, and the potential for growth will be limited compared to more structured business vehicles.

Commonly compared business entities

Due to their similarities or differences, some business entities have a large overlap in application and are frequently compared by entrepreneurs.

Sole Proprietorship vs Sdn Bhd

father and son armwrestling to show the difference in size between sdn bhd vs enterprise

These two are by far the most compared business structures as they both allow full ownership by one person. That aside, they are near opposites, making it easy to decide between them.

Choose a Sdn Bhd if you:

  • Value limited liability protection
  • Have plans for extensive business growth
  • Need to raise funding or apply for grants

Choose a Sole Proprietorship if you:

  • Plan to indefinitely run a very small enterprise
  • Do not forsee annual profits above RM70,000

Conventional Partnership vs LLP

tug of war between two groups of roughly equal size to show similarity between llp and conventional partnership

Differences between an LLP and Conventional Partnership may not be immediately clear, making it harder to choose between these two business entities. However, there certainly are key differences that affect business operations.

Choose an LLP if you:

  • Value limited liability protection
  • Forsee annual profits above RM70,000
  • Work in a white-collar professional service industry

Choose a Conventional Partnership if you:

  • Do not foresee annual profits above RM70,000
  • Don’t work in an industry that benefits from displaying a professional image

Sdn Bhd VS LLP

two buff men armwrestling to show the roughly even matchup between sdn bhd vs llp
A worthy matchup!

Because both entities offer limited liability and corporate income tax treatment, it can be tempting to opt for an LLP with its lower set up costs and less strict compliance requirements, but Sdn Bhds offer far more potential for growth due to the ability to issue stock.

Choose a Sdn Bhd if you:

  • Want the protection of limited liability protection
  • Need to raise funds from external investors
  • Are prepared to meet the stricter statutory compliance requirements

Choose an LLP if you:

  • Want the protection of limited liability protection
  • Don’t need to raise funds from external investors

The value of limited liability protection

Setting aside specific industries that mandate the use of Sdn Bhds or LLPs, we advise entrepreneurs to consider the biggest advantage Sdn Bhds and LLPs offer which is limited liability protection.

Specifically, consider if it affects their business decision-making process.

Assessment of industry risk

Below is an article of a property developer being sued by its partner for unpaid sums of RM20 million.

example of limited liability protection for directors and shareholders of a company in a lawsuit against the company itself

If you read the article, you’ll notice that at no point are the company directors or shareholders named. Neither are they named as plaintiffs, and that’s the value of limited liability protection – so long as there is no foul play, only the business can be the subject of legal action.

In higher-risk industries where unforeseen challenges are more prevalent, opting for a business structure that offers limited liability, such as an Sdn Bhd or LLP is beneficial to protect personal assets of business owners.

Managing risk aversion

Growing from a small business into a big business cannot happen without taking risks.

However, our heartbreaking story on personal bankruptcy shows combining risks and unlimited liability can end in disaster.

personal bankruptcy due to business debts because of unlimited personal liability
personal bankruptcy due to business debts because of unlimited personal liability

The absence of liability protection can carry a substantial risk to the business owner.

Inversely, this can lead to a high level of risk aversion that hinders entrepreneurial decision-making, accepting some measure of calculated risk for the potential rewards. 

Opting for a business structure with limited liability protection safeguards personal assets and frees entrepreneurs to think and act as entrepreneurs should.

Let MISHU help you set up your new business

Co sec Manager Fenny

Regardless of business structure, you’ll still need a great business consultant who understands Malaysian SME pain points. The MISHU team is here to help you start, build, and grow your business to its fullest potential.

Powered by MISHU AI

Hello, I am Maya, your AI assistant. I have been trained to answer any questions about our services to make things easier and faster for you. Feel free to ask me anything!

Dont worry, for peace of mind, a human colleague will follow up after our chat to confirm important details and offer further assistance.

Let's get started. How can I help you today?

Leave a Reply

Your email address will not be published. Required fields are marked *

Scroll to top