LLP vs Sdn Bhd: Liability, Costs, Tax and Compliance

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

Short answer

Choose a Sdn Bhd when you need shares: outside investors, employee equity, a clear ownership register, or customers and banks that expect a company. Choose an LLP when two or more people run the business together, nobody needs shares, and you want lighter formalities than a company. Both give limited liability; they differ in how that liability is written, what must be filed and how profit reaches the owners.

Side-by-side comparison

Sources: LLP Act 2012, Companies Act 2016.pdf), SSM’s general guidelines, LHDN PR 8/2022 and LHDN’s 2026 filing programme.

Liability in detail

Limited liability in an LLP

Section 21 of the LLP Act 2012 states that any obligation of the LLP, whether in contract, tort or otherwise, is solely the obligation of the LLP, and a partner is not personally liable solely by reason of being a partner. The liabilities are borne out of the LLP’s property. SSM’s booklet describes the position as no personal liability of the partner, except for their own wrongful act or omission or an act without authority.

The exceptions: a partner stays liable for their own wrongful act or omission (but not another partner’s); a partner who receives a distribution while the LLP is insolvent, knowing or ought to have known, can be made to repay it if winding up starts within two years (section 22); and where an LLP trades with fewer than two partners beyond the permitted period (six months, extendable to a maximum of one year), the partners who knew become jointly and severally liable (section 7).

Limited liability in a Sdn Bhd

A company limited by shares limits the members’ liability to the unpaid amount on their shares (Companies Act 2016, section 10(2)). A shareholder who has fully paid for their shares has no further liability for company debts. Directors are the people exposed, because they owe duties under section 213, must disclose interests (section 221) and can be liable for offences under the Act. Read directors’ duties and director personal liability before you accept a directorship.

Personal guarantees apply to both

Banks and landlords often ask founders to guarantee a new entity’s borrowings, whatever its structure. A guarantee is a separate contract and survives the separate entity status. Treat it as a negotiated risk, not a given.

Management and governance

An LLP is run by its partners as the agreement says. Unless the agreement says otherwise, the Second Schedule default is that every partner may take part in management, partners share equally in capital and profits, and no partner is entitled to remuneration for acting in the business. That flexibility suits a small team but needs a good agreement on voting, exit and deadlock.

A Sdn Bhd separates owners from managers. The board manages, shareholders pass resolutions, and the Act gives you rules on removal of directors (section 206), delegation (section 216) and written resolutions for private companies (sections 297 to 308), which reduce the need for physical meetings. The AGM requirement in section 340 applies to public companies, so a private company is not forced to hold one under that section. See written resolutions in a Sdn Bhd.

Cost comparison

The government fees are the small part. For a Sdn Bhd the recurring costs are the company secretary, bookkeeping, financial statements and, where required, audit. An LLP skips the audit and the AGM-style housekeeping, but it still needs reliable accounting records for the tax return and for banks. See cost of setting up a Sdn Bhd and company secretary cost. Fee amounts for secretarial, audit and accounting services are provider-specific and not set by SSM or LHDN.

Tax comparison

LHDN’s PR 8/2025, published 22 December 2025, applies the same criteria to companies and LLPs: resident and incorporated or registered in Malaysia, paid-up capital or LLP capital contribution of not more than RM2.5 million at the beginning of the basis period, gross business income not more than RM50 million, and, from YA 2024, no more than 20% of capital owned by foreign companies or non-citizens. From YA 2023 the rates are 15% on the first RM150,000, 17% from RM150,001 to RM600,000 and 24% on the rest. Estimated tax (CP204) and instalments also apply to LLPs under section 107C, as PR 8/2022 notes.

Illustrative example

Assume an eligible business, either an LLP or a Sdn Bhd, has chargeable income of RM420,000 for the year. This is the same figure LHDN uses in its worked example.

• First RM150,000 at 15% is RM22,500.
• Next RM270,000 at 17% is RM45,900.
• Tax payable is RM68,400, before any rebate.

On the corporate side the tax cost is identical; the difference is what happens to the money afterwards. In the LLP the partners are not taxed on their share of profit, but anything paid as remuneration must be in the agreement to be deductible. In the Sdn Bhd the shareholders receive dividends after tax, and any salary to working shareholders is a deductible expense for the company. Confirm the personal tax and any dividend treatment with a tax agent for your year of assessment.

Funding and growth

Because an LLP has no shares, it cannot offer equity in the usual sense. Investors and employees get an interest under the LLP agreement, which some investors and banks find less familiar. A Sdn Bhd can issue shares, create classes, grant options and show a clean register of members. If you may raise equity within a few years, start as a Sdn Bhd; converting later takes new registrations, creditor and tax steps.

Conversion between the two

The LLP Act allows a private company to convert into an LLP if there is no subsisting security interest over its assets and the LLP’s partners are all the shareholders and no one else (section 30). SSM’s general guidelines add that the company must be able to pay its debts, have settled statutory fees, have advertised in a widely circulated newspaper and published a Gazette notice, and have all creditors’ agreement. LHDN advises obtaining a tax clearance letter first. The conversion provisions in the Act run into an LLP, not out of one, so an LLP that wants to become a Sdn Bhd generally incorporates a company and transfers the business; take advice on stamp duty, licences and tax.

Common mistakes

• Choosing an LLP for the savings and then needing investors within a year.
• Writing no remuneration clause into the LLP agreement and losing the deduction.
• Assuming a Sdn Bhd with one shareholder can skip the secretary, registers and annual return.
• Ignoring the foreign-ownership test and expecting the lower SME rate with a foreign shareholder above 20%.
• Mixing personal and company money. See separating personal and business finances.

Foreign-owned angle

A foreign investor usually finds a Sdn Bhd easier to hold: shares can be registered in the investor’s name and a resident director is required. An LLP’s partners can be bodies corporate, but the compliance officer must be a Malaysian citizen or permanent resident. Whichever you pick, the 20% foreign-ownership test in PR 8/2025 can remove the lower SME rate, and sector-specific licences apply separately.

How Axecta helps

We have set up both. Our incorporation team compares your ownership, funding and tax position, registers the entity and then maintains the secretarial, accounting and tax cycle. If an LLP is the better fit we say so, and we write the LLP agreement points that affect tax.

Next steps

1. List owners, funding plans and the contracts you want to win.
2. Score the two options in the structure checklist.
3. Review what an LLP is or how to register a Sdn Bhd.
4. Confirm current SSM fees and LHDN rates for your year.

Frequently asked questions