Private Limited Company (Sdn. Bhd) is a legal entity guaranteed by the share. Shareholders' liabilities are limited by the amount of shares they hold. As a legal entity, the company can be a borrower or defaulter, hold assets or invest assets, and sue in the court. Technically, investors can limit their business liability by incorporating a private limited company. If you want to open up a business in Malaysia, you should limit business liability as a smart decision-maker. 

Local ownership private limited company is a company in which all shareholders or members are Malaysian citizens. A company with all local shareholders can enjoy better facilities than joint ventures between a local or foreigner or a full foreigner ownership company. 

Private Limited Company has several advantages for which it is a popular form of business type in Malaysia. The advantages are provided as follows:

• Separate legal entity

A company that is established as Private Limited Company (Sdn. Bhd.) has a separate legal entity, meaning that the law recognises the company itself as a "legal person". The Companies Act 2016 prescribes that the entity has its legal rights and obligations, separate to those running and/or owning the entity; enabling it to sue or be sued in its own name, holds its own property and is liable of the debts it incurred. This concept allows limited liability to shareholders because any company's loss or debts is not the shareholders' loss or debts.

• Owning property 

Private Limited Company can buy, hold, and sell properties in its own name. The properties can be in the form of machineries, buildings, factories, land etc. be it commercial or residential. Since the company itself exists as a legal person, no shareholders can claim the properties as their own.

• Easy transfer of ownership

Since the shares are easily transferable through sale or gift of shares, the company's ownership can be handed over to another person, whether a new or an existing shareholder.  The process involves filling and signing forms as required by Form 32A as stipulated in Section 105 of the Companies Act 2016. Shares are transferable any time as long the number of shares available is sufficient.

• Perpetual succession

Existing as a separate entity, Private Limited Company has an uninterrupted existence. It continues to operate despite the death, bankruptcy, insanity, change in membership or an exit from any owner or member's business, or any transfer of shares. Its existence continues and uninterrupted until the shareholders legally dissolve it.

• Borrowing capacity

Private Limited Company owners have a bigger borrowing capacity because investors and financial institutions like banks prefer to provide venture capital and funding to the company as compared to partnership firms or proprietorships.

• Lower-income tax rate

According to the 2019 Inland Revenue Board of Malaysia (LHDNM) report, the highest possible income tax rate is 24%, while individual income tax rate can cost up to 28%. Income tax saving can be achieved through a wise distribution of income.

Though Private limited Company in Malaysia has a number of advantages, it has some limitations or disadvantages which are provided as follows: 

1. Private limited companies are costly compared to many forms of business entity such as sole trader or partnership. One needs a company secretary to submit the majority of legal documents to SSM.
2. Number of mandatory documents such as annual return, financial reports and audit reports have to be submitted to SSM.
3. Need additional work effort to comply with the company Act.
4. Limited number of shareholders can be part of Company in Malaysia. The maximum number of shareholders are allowed in Malaysia is 50.
5. One needs the support of majority shareholders to take a decision. For example, the decision of selling shares to the public requires a resolution passed by majority shareholders. 

• Private Limited Company of Malaysia is regulated by the Companies Act 2016.
• It has a limited number of shareholders where the minimum number of shareholders allowed for Private Limited Company is one while the maximum is 50 shareholders. 
• The company name should end with Sendirian Berhad or its abbreviation, 'Sdn. Bhd.'.
• It has limited liability.
• Both local and foreign owners are allowed to establish this type of company.

• Private Limited Company of Malaysia is regulated by the Companies Act 2016.
• It has a limited number of shareholders where the minimum number of shareholders allowed for Private Limited Company is one while the maximum is 50 shareholders. 
• The company name should end with Sendirian Berhad or its abbreviation, 'Sdn. Bhd.'.
• It has limited liability.
• Both local and foreign owners are allowed to establish this type of company.

Even though private limited companies and sole traders are like two peas in a pod, there are some significant differences between these two types of companies. Sole trader or sole proprietorship business owners are fully liable to liability and losses of the company, while private limited company, as a separate legal entity, saves the owners or shareholders from using their own money in case any losses occurred. The risk of bankruptcy is higher among sole trader owners since there is more personal monetary risk involved.

Private Limited Company (Ltd) and limited liability partnership (LLP) are very similar to corporate vehicles. However, there are some of the salient differences between these two that you should take into consideration when setting up your business

• Organizational flexibility

Flexibility in the organizational structure is something that both an LLP and an Ltd enjoy. However, since a limited company is governed by the Companies Act 2016, LLP members are argued to possess greater organizational flexibility that allows them to have their own discretion in sharing profits, removing capital, decision-making and appointment of members. Therefore, it is fair to conclude that even though both corporate vehicles are free to decide on their organizational structure, an LLP enjoys a more significant share.

• Confidentiality 

LLP members also enjoy a greater extent of confidentiality since an LLP Members' Agreement is not publicly available at Companies House, unlike a limited company's Articles of Association. This agreement usually includes pertinent issues including profit and loss sharing, shares in capital, responsibilities in management, admission, expulsion and retirement of members and conflict resolution. However, it is vital to highlight that a certain level of confidentiality limited company members is possible if a Shareholder's Agreement is sealed supplementing the Articles that are not compulsory to be published at Companies House or known as the Companies Commission Malaysia (SSM).

• Tax treatment

Regarding tax, an LLP's business is similar to a partnership, living up to the fact that it is a hybrid of a limited company and a partnership, which is tax transparent. The LLP members are taxable based on their profits and gains from the LLP. Since it is a separate entity for a limited company, it should pay corporation tax based on the company's gains, leaving the directors taxed on their paychecks and shareholders needing to pay income tax on dividends.

• Investment and sale

Investors are more interested in limited companies because they can be detached from the administration and management responsibilities, whereas for LLP, investors are required to become a member. Selling and buying shares or stocks of an LLP are restricted and different from the limited company shares. Therefore, it is easier to manage and deal with shares of a limited company than LLP in terms of investment and sale.

• Share capital

An LLP generally has no share capital, unlike a limited company which has capital maintenance requirements.

• Incorporation and setup

In terms of incorporations and setup, both LLPs and limited companies shall be incorporated at the Companies Commission of Malaysia (SSM). A limited company will include a board of directors and shareholders while an LLP is made up of just members. The company is governed by its Articles of Association and any related Shareholders' Agreement while an LLP has the Members' Agreement. Please visit our guides on 'Setting up your own Limited Liability Partnership' and 'Setting up your own Company' for more information.

• Separate legal personality

An LLP and a company are both separate legal entities granting them the freedom to enter contracts, own their own properties, and sue and be sued at their own expense. The way a director binds a limited company is similar to how LLP members agree to enter a contract.

• Limited liability

Even though an LLP is a hybrid of a limited company and a partnership, it takes limited Company characteristics since it has limited liability. Limited company members are only responsible for the unpaid amount of the shares they hold. In contrast, limited liability partnership members' liability is limited to the amount of capital contributed as agreed in the Members' Agreement. For both establishments, the members are only personally liable for the debts and liabilities in special circumstances such as fraud cases.

• Filing requirements

Accounts and a confirmation statement should be filed by both LLPs and limited companies every year with Malaysia's Companies Commission (SSM). Both corporate vehicles are also required to create and maintain a register of people with significant control with Malaysia's Companies Commission. Owners also need to remember that Malaysia's Companies Commission must be notified of any changes to the LLP or the Company.

• Fixed or floating charges

Fixed or floating charges over both LLPs and limited companies' assets can also be granted for security.

1. Preliminary Works

• Fill up the online incorporation form.
• We confirm the availability of proposed names to clients in 24 hours.
• Name to be reserved, required information and payment slip for professional fees are emailed to us.
• After payment is received, the desired name will be reserved for you.

2. Application for Name Reservation

• Name Reservation is submitted to the Companies Commission of Malaysia (SSM). Usually, the approval will take 1 to 3 working days
• If the name reservation is rejected, the client can propose new names.

          3.Preparation for Incorporation Documents

• Next, to understand the business of bank account opening requirements and procedures, clients can visit any bank of preference.
• By then, clients should already possess and polish the information needed for us in preparing documents.

4.  Signing of Incorporation Documents

• Next, for the signing of incorporation documents, all directors/shareholders should visit our office.
• In cases where any of the directors or shareholders cannot present themselves to our office for the signing matters, they are required to personally go to the Commissioner's Office for Oaths or Notary Public. It is to complete the Attestation on the Notice of Declaration before the Appointment of Director. After that, all the original signed copies of the documents should be sent to us for incorporation purposes. 

5. Submission to Companies Commission of Malaysia (SSM) for incorporation

• Our company submits the relevant forms from the clients to the Companies Commission of Malaysia (SSM) for incorporation. 
• If the submission is queried by Companies Commission of Malaysia (SSM), clients should answer them and resubmit for approval again.

6. Post Incorporation

• After opening the bank account, clients are allowed to increase the paid-up capital to more than RM1,000.
• Clients need to remember to obtain a license or permit first before commencing a business.
• Clients should observe corporate compliance requirements (register for GST, Income Tax, EPF, SOCSO etc.).

7. Company Incorporated Successfully

• Companies Commission of Malaysia (SSM) issues a notice of Registration.
• Need to submit the notification of Appointment of First Secretary within 30 days of the setup/incorporation and a standard company Constitution.
• All incorporation related documents involved will be sent to clients as a record. 
• It is either available for pickup or courier.
• It will include certified copies of all the documents with the company's official rubber stamp.
• Bank account opening can proceed.

To set up a company in Malaysia, you need to have at least one director and one shareholder for a private limited company, while the maximum number of shareholders is 50.

Paid-up capital is the issued capital injected into a company by the shareholders as the company's fund, usually in exchange for shares in the company. Once the paperwork for such injection of the fund is done, the company can utilise the fund to buy assets, pay debts and salary, renovations, buying stocks and other expenses.

In Malaysia, ideally, the minimum paid-up capital to register a Sendirian Berhad is RM1. This paid-up capital has to be declared during company registration, and it can be changed later. Hence, owners are advised to cap the paid-up capital at RM10,000 and increase it when you have the fund after the company is incorporated. It is considered illegal to declare a paid-up capital amount that you do not have yet.

It is also known as authorised share capital or the nominal capital. It can be defined as the registered capital of a company in Malaysia. This is the maximum amount of the share capital for which the Private Limited Company can issue shares to shareholders. Every company needs to register its authorised capital upon its incorporation with Malaysia's Companies Commission (SSM). This amount is prescribed in the Memorandum of Association of the Company under the heading of "Capital Clause".

Before the incorporation of the company, this matter has already been decided. As required by the law, the Authorised capital can be increased at any time in future by following necessary steps. However, following the New Companies Act 2016, which is effective from 31 January 2017, a company is no longer required to state its authorised capital.

Paid-up capital

This is the amount of capital injected into the company from the shareholders. Paid-up capital can be less than or equal to authorised share capital but never more than, at any point of time. This is because the company is not allowed to issue shares more than the said authorised share capital. Every company will only be allowed to issue paid-up capital up to the maximum amount of authorised capital that registered with SSM. The smallest amount of paid-up capital is RM1. Since the amendments of the Companies Act 2016, a company is required to notify its paid-up capital and the related changes through the return of allotments. 

1. If the agreed company's authorised capital is RM100,000, then the paid-up increment is only up to RM100,000.  
2. However, if the company plans to increase it up to RM250,000, then the company's authorised capital should be increased as well, from RM100,000 to RM500,000.
3. It is important to remember that the company is prohibited from increasing paid-up capital beyond its initially agreed authorized capital as stated in its Memorandum of Association.

• Local Ownership Company

Local ownership of private limited companies is fully controlled and invested by Malaysians. A local ownership Private Limited Company must have the minimum paid-up-capital RM 250,000 to be eligible to hire employees.  

• Joint Venture with Malaysian Partner

In a joint venture private limited company, a minimum of 50% control over the venture is maintained by foreign directors while the other half is managed and owned by Malaysian investors and trading partners. A joint venture ownership Private Limited Company must have the minimum paid-up-capital RM 350,000 to be eligible to hire employees.  

• Foreign-Owned Company

These companies are entirely owned and controlled by non-Malaysian nationals. A foreign ownership Private Limited Company must have the minimum paid-up-capital RM 500,000 to be eligible to hire employees.

• Local Ownership Company

Local ownership of private limited companies is fully controlled and invested by Malaysians. A local ownership Private Limited Company must have the minimum paid-up-capital RM 250,000 to be eligible to hire employees.  

• Joint Venture with Malaysian Partner

In a joint venture private limited company, a minimum of 50% control over the venture is maintained by foreign directors while the other half is managed and owned by Malaysian investors and trading partners. A joint venture ownership Private Limited Company must have the minimum paid-up-capital RM 350,000 to be eligible to hire employees.  

• Foreign-Owned Company

These companies are entirely owned and controlled by non-Malaysian nationals. A foreign ownership Private Limited Company must have the minimum paid-up-capital RM 500,000 to be eligible to hire employees.

SSM imposes late penalty fee if mandatory documents are not submitted on the required time. Generally, the late payment fee differs based on how late the submission is made. The late payment for a private limited company is as follows:

1. Late payment fee is RM 50 if   submission is late between 7 days to 3 months
2. Late payment fee is RM 100 if submission is late between 3 to 6 months
3. Late payment fee is RM 150 if submission is late between 6 to 12 months
4. Late payment fee is RM 200 if submission is late more than 12 months.

Yes, SSM imposes a penalty along with the late submission fee if the mandatory documents are not submitted on time.  The penalty for each of the mandatory submission is as follows: 

• Annual return

A company must submit the annual return within the specified time. It is a punishable offence not to comply with this requirement. There is a heavy penalty fee which is not more than RM 5000.00 at the initial stage. If the offence continues, a further penalty is imposed not more than RM 1000 per day. 

• Audited financial statements

A company that is not exempted from auditing must submit the SSM audit report within the specified time. It is a punishable offence not to comply with this requirement. There is a heavy penalty fee which is not more than RM 5000.00. Alternatively, imprisonment not more than a year or both financial penalty and imprisonment. 

• Director’s Report

A company must prepare and submit the director’s report to SSM within the specified time. It is a punishable offence not to comply with this requirement. There is a heavy penalty fee for directors with not more than RM 500,000. Alternatively, imprisonment not more than a year or both financial penalty and imprisonment. Along with the directors, company and each officer will be fined with not more than RM 20,000

• Annual General Meeting

Failure to hold an Annual General Meeting is an offence punishable by a fine of RM5,000.

SSM exempts audit requirements for three types of private limited company: dormant companies, zero-revenue companies and threshold-qualified companies. Details are provided below: 

(a) Dormant companies      

• A company is considered dormant when it does not carry out any business operation and does not have any accounting transactions
• The company is eligible to apply for audit exemption when it is dormant since its incorporation time.

(b) Zero-Revenue Companies

       🡪 A zero-revenue company is eligible for audit exemption when it does not have revenue in the current financial year.

       🡪 When it does not have any revenue since immediate last two years. 

• Total assets cannot be more than RM 300,000

(c)Threshold-Qualified Companies

• A threshold-qualified company is eligible for audit exemption when its revenue is less than RM 100,000 for the current year and immediate last two financial years.
• Current and last two years’ total asset have to be less than RM 300,000
• Total number of employees has to be less than or equals five during the current financial year and the immediate last two years. 

The current company secretary is the person who can manage the whole process of application of audit exemption and submission of unaudited financial statements to the SSM.

The current company secretary is the person who can manage the whole process of application of audit exemption and submission of unaudited financial statements to the SSM.

Even if a company is exempted from auditing, it must prepare the financial accounts and submit the unaudited report to SSM. Please follow the following guidelines in this regards: 

1. Need to submit the unaudited financial report to the registrar along with the registered certificate complying with sections 258 and 259 
2. Financial statements have to be prepared following accounting standards in accordance to subsection 244 (1). 
3. Need to submit the unaudited financial statements along with the director’s report, director’s statement and statutory declaration according to sections 251 and 252. 
4. Moreover, you need to provide a certificate describing matters following Appendix I (Audit Exemption Certificate) within 30 days from the circulated date of the financial statements under section 258. 
5. The certificate has to be signed by directors confirming that the company is eligible for exemption under section 267

(2). The name of the responsible person should be stated, not necessarily he has to be the company’s director.

The table below prescribes some of the specific fees as mentioned by the Companies Commission of Malaysia (SSM):