One of the first decisions entrepreneurs face when starting a business in Malaysia is choosing the right business structure. Two popular options are the Private Limited Company (Sdn Bhd) and the Limited Liability Partnership (LLP).
Both structures offer limited liability protection and are separate legal entities from their owners. However, they differ significantly in terms of ownership, compliance requirements, taxation and growth potential.
What is a Sdn Bhd?
A Sdn Bhd (Sendirian Berhad) is a private limited company incorporated under the Companies Act 2016. It is owned by shareholders and managed by directors. It can own assets, enter into contracts and operate independently from its owners.
What is an LLP?
A Limited Liability Partnership (LLP) is a hybrid structure that combines features of a partnership and a company. It is governed by the Limited Liability Partnerships Act 2012. An LLP is owned and managed by its partners and is commonly used by professional firms, consultants and small businesses seeking a simpler compliance framework.
Compliance Requirements
Sdn Bhd
A Sdn Bhd generally has higher compliance obligations, including:
- Appointment of directors and a company secretary
- Annual return filing
- Lodgement of financial statements with SSM
- Beneficial ownership reporting
- Compliance with the Companies Act 2016
Depending on its size, a company may also be subject to audit requirements unless it qualifies for audit exemption.
LLP
An LLP generally has lower compliance requirements and must:
- Appoint at least one Compliance Officer
- Maintain accounting records
- File an Annual Declaration
- Maintain beneficial ownership information
- Comply with the LLP Act 2012
Taxation
Both Sdn Bhd companies and LLPs are taxed at the entity level. Sdn Bhd profits are taxed at corporate tax rates and dividends distributed to shareholders are generally exempt under Malaysia's Single-Tier Tax System. However, effective from YA 2025, individual shareholders may be subject to the new 2% dividend tax on qualifying dividend income exceeding RM100,000 annually.
LLP profits are taxed at the LLP level. Historically, distributions to partners were not taxed again in the hands of the partners. Following the introduction of the 2% tax on qualifying dividend and profit distributions, partners receiving distributions exceeding RM100,000 annually are now subject to similar tax treatment — narrowing the tax advantage previously associated with LLPs.
Financing and Growth
A Sdn Bhd is generally preferred by banks, investors, venture capital firms, government grant agencies and foreign investors. The ability to issue shares makes it easier to raise capital and accommodate future investors. An LLP may face limitations when raising external capital, bringing in investors, implementing employee share schemes or pursuing larger expansion plans. Many growing businesses eventually convert from an LLP to a Sdn Bhd as they scale.
Which Structure Is Suitable for You?
An LLP may be suitable if you operate a professional practice or consultancy, compliance costs are a key consideration, the ownership structure is simple and external investment is unlikely.
A Sdn Bhd may be suitable if you intend to grow and scale, you expect to seek financing, you plan to bring in investors, you require a stronger corporate image, or you are considering succession planning or a future sale of the business.
Common Misconception: LLP Is Always Cheaper
Many owners choose an LLP because of its lower compliance costs. While this may be true initially, the decision should not be based solely on annual compliance fees. Businesses that anticipate rapid growth may incur additional costs when restructuring or converting into a Sdn Bhd — and following the 2% distribution tax, LLPs no longer enjoy the same perceived tax advantage.
Conclusion
Both Sdn Bhd companies and LLPs provide limited liability protection and are recognised business structures in Malaysia, but they serve different needs. Before deciding, business owners should consider their long-term objectives, financing requirements, ownership arrangements and compliance obligations. Choosing the right structure from the outset can save significant time and cost as the business grows.
