Choosing the Right Business Structure: Sdn Bhd vs LLP Explained

​​In the dynamic landscape of Malaysian business, selecting the appropriate business structure is a critical decision for entrepreneurs. Sdn Bhd (Private Limited Company) and LLP (Limited Liability Partnership) are two common choices. Understanding the nuances between these structures is essential for entrepreneurs to make informed decisions that align with their business goals and objectives. 

This article delves into the key differences between Sdn Bhd and LLP, providing insights to help entrepreneurs navigate the complexities of choosing the proper business structure for their ventures. Entrepreneurs can confidently move towards sustainable growth and success by exploring each option's unique features and advantages.

What Is Sdn Bhd in Malaysia?

Sdn Bhd, short for Sendirian Berhad, denotes a Private Limited Company in Malaysia. This status distinguishes it as a separate legal entity independent of its shareholders. The registration process for an Sdn Bhd entails compliance with rigorous legal requirements, including document submission and fee payment. For detailed instructions, refer to our Step-by-Step Guide on Registering a Sdn Bhd Company in Malaysia.

MyCoID is the initial step in registering a Sendirian Berhad company in Malaysia. Below is a screenshot of the MyCoID sign-up page.

Additionally, specific eligibility criteria must be met to register an Sdn Bhd company. Both directors and shareholders must fulfil specific requirements, including being at least 18 years old, as stipulated by the Companies Act 2016. A minimum paid-up capital, typically RM1.00, is also required. If necessary, consider options for nominee directors and adjust the number of shareholders to meet these eligibility requirements. For more information, refer to the Suruhanjaya Syarikat Malaysia (SSM) Guide to Company Directors on Principle Duties Imposed Under the Companies Act 2016. 

What Is LLP in Malaysia?

The Limited Liability Partnership (LLP), established under the Limited Liability Partnership Act 2012, offers a unique business structure that merges elements of private companies with those of traditional partnerships. This setup grants partners limited liability protection while allowing flexibility in internal governance through partner agreements. For detailed instructions, refer to our 6 Key Things Businesses Must Know About Company Registration in Malaysia. 

Registering an LLP requires a minimum of two persons (either individuals or corporate bodies). The business must be lawful and profit-oriented and adhere to the terms outlined in the LLP agreement. LLPs are well-suited for professionals, small and medium-sized businesses, joint ventures, and venture capital projects. 

You can access the MyLLP system through the SSM4U Portal for your LLP business application. Below is a screenshot of the SSM4U sign-up page.

The registration process necessitates providing the proposed name of the LLP, the nature of the business, the registered office address, details of the partners, the compliance officer’s information, and, if applicable, a letter of approval from a professional body.

The LLP must appoint a compliance officer who handles the registration process. This officer, who can be one of the partners or a qualified secretary under the Companies Act 1965, must be at least 18 years old, a Malaysian citizen or permanent resident, and ordinarily residing in Malaysia. For more information, refer to General Guidelines For Registration Of Limited Liability Partnership and Related Matters. 

What Are the Registration Fees for Sdn Bhd and LLP?  

The LLP registration fee is RM 500.00, whereas the Sdn Bhd registration fee is RM 1,000.00. These fees do not include additional charges such as agent fees, company name search fees, and others. 

What Are the Tax Rates for Sdn Bhd and LLP?

Whether your business is registered as an Sdn Bhd or LLP, it will still be subject to corporate tax rates ranging from 15% to 24% in Malaysia. Remember to stay updated on the latest corporate tax rates announced by LHDN Malaysia.

Below is a screenshot of the corporate tax rate from the LHDN website. 

What Is the Annual Maintenance Cost for a Sdn Bhd in Malaysia?

Understanding the annual maintenance cost for an Sdn Bhd company in Malaysia is crucial for budget planning and financial management. Below are the estimated fees for maintaining an Sdn Bhd, sourced from MalaysiaCo. The fees may vary over time, so engaging with authorised agents for accurate information is advisable.

What Is the Annual Maintenance Cost for an LLP in Malaysia?

Gaining insight into the annual maintenance cost of a Limited Liability Partnership (LLP) in Malaysia is crucial for strategic financial planning. The following are the estimated maintenance fees for an LLP from Advanced ComSetup. As these fees may fluctuate over time, it's recommended to consult authorised agents for precise and up-to-date information.

6 Key Comparisons of the Advantages and Disadvantages of LLP vs Sdn Bhd

When deciding on the appropriate business structure in Malaysia, entrepreneurs often consider Sdn Bhd (Private Limited Company) and LLP (Limited Liability Partnership). Each business structure offers advantages and disadvantages.

The following table provides a detailed comparison of the advantages and disadvantages of Sdn Bhd and LLP.

Aspect	Sdn Bhd (Private Limited Company)	LLP (Limited Liability Partnership)
Limited Liability Protection	Advantages: Offers limited liability protection to shareholders, safeguarding personal assets from business debts and liabilities.	Advantages: Provides limited liability protection to partners, shielding personal assets from business debts beyond their capital contributions.
	Disadvantages: In some instances, such as personal guarantees or fraudulent activities, shareholders might still be held liable.	Disadvantages: Partners are personally liable for their negligence or misconduct, which can expose personal assets to risks.
Management Flexibility	Advantages: Clear separation between ownership and management roles, allowing professional company management.	Advantages: It allows partners to actively participate in management and decision-making processes, fostering collaborative business operations.
	Disadvantages: Shareholders need more involvement in daily operations and strategic decisions, which directors and officers handle.	Disadvantages: Decision-making may require consensus among partners, potentially leading to slower responses and conflicts.
Taxation Structure	Advantages: Subject to corporate tax rates, which can be advantageous for profitable companies; potential for tax planning strategies.	Advantages: Pass-through taxation allows profits and losses to be reported on partners' tax returns, avoiding double taxation and lowering tax burdens.
	Disadvantages: Corporate profits are taxed at the company level, and shareholders are also taxed on dividends, potentially leading to higher overall tax burdens.	Disadvantages: Partners must navigate complex tax implications individually, and tax advantages may diminish as the business grows.
Ease of Formation	Advantages: Provides a robust legal framework and credibility, often perceived as more established and reliable by investors and stakeholders.	Advantages: It is generally more manageable and less expensive to set up than Sdn Bhd, with simpler registration processes and fewer formalities.
	Disadvantages: Higher setup costs and more complex registration processes due to stringent legal requirements and compliance obligations.	Disadvantages: Though more straightforward, registration still requires adherence to specific legal requirements and payment of registration fees.
Suitability for Professionals	Advantages: Well-suited for businesses seeking to enhance credibility, attract investors, and establish trust among clients and stakeholders.	Advantages: This arrangement is ideal for professional services firms (e.g., law and accounting) where partners retain individual practices while benefiting from limited liability.
	Disadvantages: It may offer a different level of operational flexibility than an LLP for professional services firms.	Disadvantages: May face perception challenges in industries that prefer corporate status, potentially impacting trust and credibility.
Access to Funding	Advantages: Typically has access to a broader range of funding sources, including equity financing, bank loans, venture capital, and public listings (IPOs).	Advantages: While more limited, partners can still raise capital through personal contributions and traditional financing methods.
	Disadvantages: Raising capital can still be challenging, especially for startups and small businesses; compliance with investor requirements can be demanding.	Disadvantages: Limited ability to attract external investors compared to corporate structures, potentially restricting growth and expansion opportunities.
Compliance and Regulatory Requirements	Advantages: A solid regulatory framework can enhance business credibility and stakeholder trust.	Advantages: There are generally fewer stringent compliance requirements, reducing the administrative burden and ongoing maintenance costs.
	Disadvantages: Subject to strict regulatory requirements, including annual filings, audits, corporate governance standards, and higher administrative overheads.	Disadvantages: Partners must ensure compliance with partnership agreements and relevant regulations, which can still entail legal and administrative costs.

Can Sdn Bhd Convert to LLP? 

This is a common question frequently asked by Sdn Bhd companies in Malaysia. The answer may be 'Yes,' provided your company meets all the criteria outlined in the screenshot of the SSM-LLP brochure below. For more information, please consult SSM. 

Conclusion

In conclusion, choosing between Sdn Bhd and LLP structures in Malaysia involves carefully considering various factors such as liability protection, taxation, compliance requirements, and operational flexibility. Each structure offers distinct advantages and disadvantages, making it essential for entrepreneurs to thoroughly assess their business needs and long-term goals before deciding. By understanding the intricacies of Sdn Bhd and LLP, businesses can effectively navigate the complexities of company registration and establish a solid foundation for success in the Malaysian market.