So you’ve decided to incorporate a company as the vehicle for your business. Naturally, the next question you’d ask is: What type of company should I register?
Many entrepreneurs hear terms like Sdn Bhd, Berhad, limited by shares, or company limited by guarantee without fully understanding what they actually mean. The legal terminology can sound intimidating, especially for first-time business owners.
Under the Malaysian Companies Act 2016, companies are classified based on their structure, liability, and purpose. Understanding these classifications is important because they affect issues such as ownership, liability, fundraising, compliance obligations, and personal financial risk.
This article explains the main types of companies in Malaysia in a practical and easy-to-understand way, with a focus on the most common business structure i.e. the private limited company or Sdn Bhd.
What Is a Company Under Malaysian Law?
In Malaysia, a company refers to a legal entity that is incorporated under the Companies Act 2016 (or the previous Companies Act 1965).
After incorporation, a company is a separate legal entity, existing on its own despite of its owners. In simple terms, the company itself can own assets, enter into contracts in its own name, sue or be sued in its own name and continue to exist even if shareholders change.
The principal of separate legal entity is one of the biggest advantages of incorporation of a company as the company exists independently from the people behind it.
Main Types of Companies in Malaysia
Under Malaysian law, companies are generally divided into three main categories:
- Company limited by shares
- Company limited by guarantee
- Unlimited company
The distinction mainly relates to the liability of members if the company faces debts or winding up. Eash of these types of companies will be discussed below.
1. Company Limited by Shares
This is by far the most common type of private company in Malaysia.
Almost every ordinary Sdn Bhd business falls under this category.
What Does “Limited by Shares” Mean?
In a company limited by shares, shareholders are only liable for the unpaid amount on their shares.
For example:
- If you subscribe for RM50,000 worth of shares and fully pay for them, you generally do not owe anything further.
- If the company later becomes insolvent, creditors usually cannot claim against your personal assets simply because you are a shareholder.
This concept is known as limited liability.
Why Most Businesses Choose This Structure
A company limited by shares is popular because it offers a balance between business flexibility and personal asset protection.
Some key advantages include:
- Protection of personal assets
- Separate legal identity
- Easier ownership transfer through shares
- Better business credibility
- Suitable for SMEs, startups, and family businesses
For many entrepreneurs, limited liability is one of the main reasons for incorporating a Sdn Bhd instead of operating as a sole proprietor or partnership.
Are Shareholders of a Sdn Bhd Always Protected?
Generally, yes but not absolutely.
Courts may sometimes “lift the corporate veil” and allow the shareholders to be personally liable where there is:
- Fraud
- Abuse of the corporate structure
- Dishonest conduct
- Sham transactions
This means directors and shareholders should still manage companies responsibly and comply with legal obligations.
2. Company Limited by Guarantee
A company limited by guarantee operates differently from a normal business-oriented Sdn Bhd.
Instead of shareholders investing through shares, members agree to contribute a fixed amount if the company is wound up.
What Is This Type of Company Used For?
Companies limited by guarantee are usually established for non-profit or community purposes such as:
- Charitable organisations
- Religious bodies
- Educational institutions
- Professional associations
- Recreational clubs
- Community organisations
These entities are generally not created to distribute profits to members. Under Malaysian law, profits or income generated by a company limited by guarantee must generally be used to further its objectives.
If the organisation is wound up, its remaining assets are typically transferred to another organisation with similar objectives.
Constitution Requirements
A company limited by guarantee must have a constitution.
This document sets out matters such as:
- The company’s objectives
- Members’ rights and obligations
- Governance rules
- Contribution obligations upon winding up
Because these organisations often serve public or community interests, the law imposes stricter governance requirements on them.
3. Unlimited Company
An unlimited company is the least common company structure in Malaysia.
In this type of company, members may become personally liable for company debts if the company cannot satisfy its obligations.
The advantage of an unlimited company is that it is often exempt from filing annual audited accounts and financial statements with the Companies Commission of Malaysia and as such enjoys enhanced privacy compared to a Sdn Bhd.
Why Is It Rarely Used?
The obvious downside is the lack of limited liability protection.
If the company becomes insolvent, members may potentially be required to contribute personally towards company debts.
For this reason, unlimited companies are rarely used for ordinary commercial businesses.
Which Private Company Structure Is Best?
For most business owners in Malaysia, a company limited by shares remains the preferred choice because it provides:
- Limited liability protection
- Business flexibility
- Better commercial credibility
- Easier fundraising opportunities
Meanwhile:
- Companies limited by guarantee are more suitable for non-profit or public-interest objectives
- Unlimited companies are generally uncommon and used only in limited circumstances
Final Thoughts
Many people assume all Sdn Bhd companies are the same, but Malaysian company law recognises several different types of private companies with different legal consequences.
Choosing the correct structure is important because it affects liability, governance, profit distribution, and long-term business planning.
Before incorporating a company, it is always advisable to understand how each structure works and whether it aligns with your business or organisational goals under the Companies Act 2016.
