Sole Proprietor vs Sdn. Bhd.: Cost, Liability and Tax Compared

You have a business idea, or a side business that has started to grow, and you need to register it with the Companies Commission of Malaysia (SSM). For most Malaysian founders the choice is between a sole proprietorship (or partnership) under the Registration of Businesses Act 1956 and a private limited company, the Sdn. Bhd., under the Companies Act 2016. This guide compares the two on cost, liability, compliance and tax, with figures as at October 2026, and ends with a decision table.

Two laws, two registers

SSM runs both systems, but they are separate. Sole proprietorships and partnerships are registered under the Registration of Businesses Act 1956 through the EzBiz Online portal. Companies are incorporated under the Companies Act 2016 through the MyCoID portal. The fees, renewal rules and legal consequences differ, so each deserves a look on its own before you compare them.

Sole proprietorship and partnership

A sole proprietorship is the most basic form: you and the business are the same legal person. A partnership is the same idea shared by two or more people. Both are registered online through EzBiz.

• Who can register. The owner must be a Malaysian citizen or permanent resident aged 18 or above.
• Fees. RM30 a year for a business under your own name as it appears on your MyKad, or RM60 a year for a trade name. Each branch costs RM5 a year.
• Renewal. Registration runs for one to five years at a time and must be renewed before it expires. SSM allows renewal up to 12 months after expiry; after that the business cannot be renewed and must be registered afresh. Trading on an expired registration is an offence carrying a fine of up to RM50,000, imprisonment of up to two years, or both.
• Liability. Unlimited. If the business owes RM200,000 to a supplier and cannot pay, the supplier can pursue your personal savings, car and house.
• Tax. Business profit is added to your other income and taxed on the personal scale, which runs from 0% to 30%. You file Form B (Form P for a partnership, with each partner then taxed personally).

Sdn. Bhd. (private company limited by shares)

A Sdn. Bhd. is a separate legal person. It can own property, sign contracts, borrow and be sued in its own name. Its main features under the Companies Act 2016:

• Minimum people. One shareholder and one director, who can be the same person. At least one director must ordinarily reside in Malaysia.
• Cost to incorporate. The statutory fee is RM1,000 for a company limited by shares, paid through MyCoID. If you reserve a name first, each 30-day reservation costs RM50, and the incorporation application must follow within 30 days (extendable to 180). A constitution is optional.
• Company secretary. A secretary licensed by SSM or belonging to a prescribed professional body must be appointed within 30 days of incorporation.
• Annual compliance. Lodge an annual return within 30 days of each anniversary of incorporation (SSM fee RM150). Circulate financial statements to shareholders within six months of the financial year end and lodge them with SSM within 30 days after that (fee RM50 for audited statements, RM20 for unaudited). Failing to lodge the annual return or financial statements is an offence under sections 68 and 259 of the Companies Act 2016.
• Liability. Limited to any amount unpaid on your shares. A supplier owed RM200,000 claims against the company’s assets, not your home, unless you have signed a personal guarantee.

Audit: who is exempt

Since 1 January 2025, SSM’s Practice Directive 10/2024 lets a private company skip the audit if it meets at least two of three tests in the current and the two preceding financial years. The limits rise in three phases.

Dormant companies also qualify. Exemption from audit is not exemption from accounts: you still prepare and lodge unaudited financial statements, and a bank or investor may ask for audited figures anyway.

Tax at a high level

Many founders expect a clear winner here and find a trade-off instead.

Sole proprietor. Profit is taxed on the resident individual scale, which for years of assessment 2023 to 2025 starts at 0% on the first RM5,000, rises through bands of 1%, 3%, 6%, 11%, 19%, 25%, 26% and 28%, and reaches 30% on chargeable income above RM2,000,000. Personal reliefs reduce the chargeable amount.

Sdn. Bhd. A company that qualifies as a micro, small or medium enterprise for tax purposes pays 15% on the first RM150,000 of chargeable income, 17% on the next RM450,000 (up to RM600,000) and 24% above that. To qualify, paid-up ordinary share capital must not exceed RM2.5 million, gross business income must not exceed RM50 million, and from year of assessment 2024 no more than 20% of the paid-up capital may be held directly or indirectly by foreign companies or non-citizens (Deloitte Malaysia Highlights 2026). Other companies pay a flat 24%. Budget 2027, tabled on 9 October 2026, proposes to cut the two lower bands to 14% and 16% from year of assessment 2027 (Budget 2027 tax measures); treat this as a proposal until it is gazetted.

Worked example

Suppose your business makes RM300,000 of taxable profit in a year and you have no other income or reliefs.

• As a sole proprietor, tax on RM300,000 of chargeable income is RM9,400 on the first RM100,000 plus 25% of the next RM200,000 (RM50,000), a total of RM59,400.
• As a qualifying Sdn. Bhd. with the same RM300,000 of chargeable income, tax is 15% of RM150,000 (RM22,500) plus 17% of RM150,000 (RM25,500), a total of RM48,000.

The gap is RM11,400 in the company’s favour, but it is not free money. The company pays a secretary, prepares statutory accounts and may need an audit, which together can cost several thousand ringgit a year. In practice the owner also draws a salary, which the company deducts and the owner is taxed on personally, so the real comparison depends on how profit is split between salary and dividends. Dividends are generally not taxed again in your hands, apart from a 2% tax on an individual shareholder’s annual dividend income above RM100,000. Run the numbers with a licensed tax agent before deciding.

When to convert from sole proprietor to Sdn. Bhd.

The common triggers:

1. Profit sits consistently above RM150,000 to RM200,000 and the tax gap starts to cover the compliance costs.
2. You sign contracts where a failure could cost more than your personal assets can bear.
3. Corporate customers, government tenders, landlords or banks ask for a Sdn. Bhd.
4. You want to bring in a partner or investor by issuing shares, or raise funds through equity crowdfunding, which is open only to companies and limited liability partnerships.
5. You are hiring a team and want the business to outlive you.

Conversion is not a button. You incorporate a new company, move assets, contracts, licences, bank accounts and staff across, inform the Inland Revenue Board, and close the old registration with SSM. Doing this at your financial year end keeps the tax filings clean.

Decision table

Common mistakes

• Letting the SSM registration lapse. Set a reminder a month before expiry.
• Incorporating a Sdn. Bhd. before there is revenue, then paying secretary and filing fees for a company that does nothing.
• Mixing personal and company money. Once incorporated, every ringgit must flow through the company’s own bank account.
• Assuming limited liability still protects you after you have signed a personal guarantee for the company’s loan or lease.
• Treating the audit exemption as permission not to keep proper books. The thresholds are tested over three years.

Key takeaways

• Registering a sole proprietorship costs RM30 or RM60 a year, but your personal assets are exposed. A Sdn. Bhd. costs RM1,000 to incorporate, plus a company secretary and annual filings.
• On RM300,000 of profit, a qualifying Sdn. Bhd. pays RM48,000 in tax against RM59,400 for a sole proprietor, before compliance costs.
• Audit exemption applies if the company meets two of three size tests over three years. Unaudited financial statements must still be lodged.
• Convert once profit sits consistently above RM150,000 to RM200,000, or when customers, landlords or banks ask for a company.
• Trading on a lapsed SSM registration carries a fine of up to RM50,000, so set a renewal reminder a month before expiry.

How Gusto Style can help

Our Silver Startup Advisory package is a fixed-price engagement for founders at exactly this stage. We map your expected revenue, risks, customers and funding plans against both structures, give you a clear recommendation, and prepare a 12-month compliance calendar for the one you choose. Where tax treatment is decisive, we refer you to a licensed tax agent and a company secretary and coordinate the handover.