As Limited Liability Partnerships and Enterprises have little overlap in practical application, it’s rare for an entrepreneur to be unsure which of the two business structures better fits their needs.
However, MISHU’s Business Development team still gets the occasional enquiry!
And so, we thought it best to put it down in writing. Here’s a short but comprehensive guide to key differences between an Enterprise and Limited Liability Partnership (LLP) in Malaysia.
P.S. For side-by-side comparisons of other business structures, check out the following:
Otherwise, let’s begin.
Overview of Enterprise vs LLP
Enterprises and LLPs are very different in terms of compliance requirements, tax treatment, and ownership structure, as illustrated by the table below.
| Criteria | Enterprise | Limited Liability Partnership |
|---|---|---|
| Formation costs | ~ RM30 – 60 without third-party assistance. | ~ RM1,500 for a typical LLP |
| Compliance requirements | Less as no mandatory appointments or submissions | Legally required to appoint Compliance Officer and must submit Annual Declaration to SSM. |
| Liability protection | None. Personal assets can be seized to pay off company debt. | Limited. Partners are protected from company debt. |
| Number of owners | One. | Minimum two, with no upper limit. |
| Ownership structure | As simple as it gets. Sole owner makes 100% of business decisions. | Slightly more complicated as partners share ownership and decision making. |
| Tax on income | Company profits treated as owner’s income and subject to personal income tax as high as 30%. | Corporate tax rate on LLP profits which are treated separate from owner income. 17% on first RM600,000 24% on subsequent amounts |
| Ease of growth | Harder to secure loans / grants Perception of being a ‘small business’ with less compliance requirements. Cannot raise funds via share sales. | Harder to secure loans / grants. Perception of being a ‘small business’ with less compliance requirements. Cannot raise funds via share sales. |
In summary:
- It’s significantly more expensive to register and maintain an LLP compared to Enterprise.
- An Enterprise has one sole owner and decision maker, while an LLP has at least two.
- LLPs are subject to stricter record keeping and compliance requirements, including an annual submission and appointment of a Compliance Officer.
- Limited liability protects LLP owners’ personal assets from business debt while an Enterprise owner is fully liable, and their personal assets can be seized.
- At higher profit levels, LLPs pay less tax than Enterprises (around the RM70,000 mark) due to favourable corporate tax income rates.
- Neither an LLP or Enterprise are particularly good at getting support from external funders.
Let’s take a closer look at the main advantage of each structure.
Top LLP advantage: Limited liability
An LLP is recognised as a separate legal entity, while Enterprise and owner are treated as one.
Partners of an LLP therefore enjoy limited liability, which means their personal assets are separate from the LLP and therefore protected from business debts. As a partner, you are only at risk of losing as much as you have invested into the business.
Meanwhile, Enterprise owners are subject to unlimited liability where their personal assets can be seized to settle business debts.
When to choose an LLP
- You prioritise legally protecting personal assets from business-related liabilities.
- Your industry or sector frequently requires taking calculated risks.
- You have at least one business partner who shares your views on liability protection.
- The business will be co-owned by multiple owners and needs a clear decision-making process.
If these describe your requirements, MISHU can help you register an LLP!
Top Enterprise advantage: Ease of doing business
The low start up and maintenance costs, relaxed compliance requirements, and lack of mandatory appointments combine to make Enterprises the easiest business structure to operate – no question.
Meanwhile, all LLPs in Malaysia are required to appoint a Compliance Officer who will ensure the business complies with SSM’s various rules, including lodging an Annual Declaration every year or risking a heavy penalty.
When to choose an Enterprise
- You’re a solo entrepreneur starting out with a small management team.
- You plan to keep your business operations simple and localised.
- You prefer minimal legal requirements, less paperwork, and a quicker set up.
- You have no plans or need to raise funding from public investors.
- You’re comfortable being personally liable for business risks.
If that sounds like what you need, time to register your Enterprise with SSM.
Let MISHU help register your LLP or Enterprise
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 into its full potential.