Sdn Bhd vs LLP vs Sole Proprietorship in Malaysia

By Axecta Management Services, Kuala Lumpur · Last verified: 29 October 2026

The three structures in one table

Malaysia gives small businesses three main vehicles, plus the ordinary partnership. They sit under different laws, are registered in different SSM systems and are taxed on different return forms, so the choice affects more than the name on your letterhead.

Sources: SSM’s sole proprietorship and partnership page, SSM’s LLP booklet, the LLP Act 2012 and the Companies Act 2016.pdf). The return forms come from LHDN’s 2026 return form filing programme.

Sole proprietorship

SSM describes a sole proprietorship as a business wholly owned by one individual. The owner can trade under the name on their identity card or under a trade name; a trade name needs the Registrar’s approval. Registration is under the Registration of Businesses Act 1956 and the business is not a separate legal person, so the owner and the business are one in law.

What you get

• The fastest and cheapest start. SSM’s renewal guideline lists RM30 for a business using the owner’s personal name and RM60 for a trade name, plus RM5 per branch, and says the certificate can be obtained within 15 minutes of payment (renewal guideline/Registration/GUIDELINES%20FOR%20RENEWAL%20OF%20BUSINESS%20REGISTRATION_new.pdf)).
• No company secretary, no annual return to SSM, no statutory audit.
• Business profit is taxed as the owner’s own income, reported on Form B. LHDN’s 2026 programme lists a 30 June due date for resident individuals who carry on business. See sole proprietor tax and Form B.

What you give up

• Unlimited personal liability. A supplier or landlord can pursue your personal assets for business debts.
• Weaker standing with larger customers, tenders and some banks.
• No way to bring in an owner. Adding a second person means a partnership or a new entity.
• Registration must be kept alive. The same SSM guideline says anyone who continues to carry on business after the registration period has expired commits an offence, with a fine of up to RM50,000, imprisonment of up to two years or both.

Partnership (the conventional kind)

A conventional partnership is owned by two or more persons, with a maximum of 20 according to SSM. The partners cannot use a personal identity card name; the partnership needs a trade name. It is also not a separate legal entity, and LHDN’s public ruling on LLPs summarises the key weakness plainly: partners are jointly and severally liable. Partnerships file Form P, with a 30 June due date in LHDN’s 2026 programme. Read partnership tax and Form P if you are in one.

Most people who search “partnership” today should compare it against an LLP, because the LLP delivers the same flexibility with a shield for the partners.

Limited liability partnership (LLP)

An LLP is a body corporate with separate legal personality and perpetual succession, formed by at least two persons who may be individuals or bodies corporate. Section 21 of the LLP Act 2012 makes an LLP’s obligations solely the LLP’s, and says a partner is not personally liable merely because they are a partner. The Act keeps two important limits: a partner remains liable for their own wrongful act or omission (section 21(3)), and a partner who receives a distribution while the LLP is insolvent, knowing or ought to have known, can be required to repay it if the winding up begins within two years (section 22).

Management is flexible: the LLP agreement governs partners’ rights and duties, and the Second Schedule of the Act fills any gaps. An LLP is not required to produce audited financial statements by an auditor, according to LHDN’s PR 8/2022, but it must keep proper accounting records.

For the full walkthrough see what an LLP is.

Private limited company (Sdn Bhd)

A Sdn Bhd is a company that is usually limited by shares. Section 10 of the Companies Act 2016 allows three types of company: limited by shares, limited by guarantee, or unlimited. A company limited by guarantee must be a public company (section 11(2)); a company limited by shares can be private or public. A “Sdn Bhd” is a private company limited by shares, and the Act requires at least one director and, per section 196, at least one director ordinarily resident in Malaysia.

Members’ liability is limited to the unpaid amount on their shares, directors carry statutory duties (section 213), and the company must appoint a secretary within 30 days of incorporation. The compliance cycle is heavier: secretary, registers, annual return, financial statements through MBRS, tax filing on Form C. See Sdn Bhd compliance checklist for the full cycle.

The upside is credibility and capacity to grow. Shares can be issued to investors or employees, ownership is easy to prove, and banks, landlords and larger customers know the model. Also note that the Companies Act 2016 has no authorised capital and shares have no par value, which simplifies capital planning; see paid-up vs authorised capital.

Tax: how each structure is assessed

LHDN’s PR 8/2022 states that an LLP’s income is taxed at the LLP level, and that partners are not taxed on their share of LLP income, only on remuneration and benefits they receive. PR 8/2025, published 22 December 2025, confirms companies and LLPs are taxed generally at 24% but may use lower preferential rates if they meet the criteria: resident and incorporated or registered in Malaysia, paid-up capital (or LLP capital contribution) of not more than RM2.5 million at the start of the basis period, gross business income of not more than RM50 million, and, from YA 2024, no more than 20% of capital owned by foreign companies or non-citizen individuals. From YA 2023 the special rates are 15% on the first RM150,000, 17% on RM150,001 to RM600,000 and 24% above that (PR 8/2025). See Malaysia corporate tax rate for a Sdn Bhd.

An individual’s Form B rates are progressive and are not set out here; check LHDN’s current schedule for your year of assessment.

Illustrative scenario

This is a made-up example, not advice. Two friends, one with design skills and one with sales skills, want to start a branding studio. They expect modest early profit and no outside investors, but they will sign contracts with corporate clients.

• As a partnership, each friend is jointly and severally liable for all debts, including a client claim.
• As an LLP, the obligations belong to the LLP; each remains liable for their own wrongful acts. They must appoint a compliance officer (one of them can be), sign an LLP agreement, and file an annual declaration.
• As a Sdn Bhd, they hold shares, appoint themselves directors, appoint a company secretary and file annual returns and accounts. If a client later asks for a share scheme or an investor wants equity, the company is ready.

If they never expect to raise equity, the LLP is attractive. If they expect investors, a Sdn Bhd saves a later conversion.

Common mistakes when choosing

• Choosing on the registration fee alone. An SSM fee is a small share of lifetime cost; accounting, secretary and tax filings decide the real cost.
• Staying a sole proprietor after taking on large contracts or staff. Personal assets sit behind every contract.
• Forming an LLP with a one-person plan. An LLP needs two partners; if one leaves, section 7 of the Act allows trading with fewer than two partners for six months (extendable by the Registrar to one year at most), then personal liability and offences apply.
• Using a Sdn Bhd and ignoring the deadlines. Missed annual returns and tax filings carry penalties. See missed filing deadline consequences.
• Mixing personal and business money in any structure. See separating personal and business finances.

What this means for foreign-owned businesses

A foreign individual or company can be a member of a Sdn Bhd, subject to sector rules and licensing that need checking per activity. An LLP’s partners may be bodies corporate, and the LLP needs a compliance officer who is a Malaysian citizen or permanent resident and ordinarily resident in Malaysia. A Sdn Bhd needs one resident director. For tax, PR 8/2025’s 20% foreign-ownership test from YA 2024 can remove the lower SME rate. Sole proprietorship is an option for individuals eligible under SSM’s rules; confirm eligibility with SSM.

How Axecta helps

Axecta incorporates companies and registers LLPs and sole proprietorships, then continues with company secretarial, accounting and tax filings so the chosen structure stays compliant. We usually begin by mapping owners, risk, funding and tax position against the tables above, and tell you plainly when a lighter structure is enough. Start from our incorporation service.

Next steps

1. Write down owners, expected contracts, staff and funding plans for the next three years.
2. Use the structure checklist to score the options.
3. If a company fits, read how to register a Sdn Bhd and the cost of setting up.
4. If an LLP fits, read how to register an LLP.
5. Confirm current SSM fees and forms before you pay.

Frequently asked questions