12th October 2026 - 7 min read
The Companies Commission of Malaysia (SSM) registered 353,330 new sole proprietorships and partnerships in 2025, against 60,712 new companies such as Sdn Bhds. That works out to about one new company for every six sole proprietorships or partnerships.
So what’s the difference between a sole proprietorship and a Sdn Bhd? In law, a sole proprietor and the business are the same person, so the business’s debts are your personal debts. A supplier or a customer with a claim can come after your savings, car, and house. A Sdn Bhd is legally separate from its owners, so its debts generally stay with the company unless you’ve signed a personal guarantee, which is a promise to repay the debt yourself. Banks often ask directors of a small Sdn Bhd for a personal guarantee, so the protection matters most for debts owed to suppliers and customers.
A sole proprietorship or partnership is still the more common starting point because registration costs RM30 or RM60 a year and involves less paperwork than a Sdn Bhd. For a home-based seller testing a new idea, that may be all they need.
Which one fits depends on how much you could afford to lose, how much profit you expect, and whether you’re going into business with someone else.
A sole proprietorship costs RM30 a year to register and renew under your own name, or RM60 under a trade name. You can register online through SSM’s EzBiz portal, and applications are approved within one working day.
A Sdn Bhd costs RM1,000 to incorporate, plus RM50 if you reserve the name first. It needs a director who lives in Malaysia and at least one shareholder, who can be you. You’ll also need a registered office and a licensed company secretary, who must be appointed within 30 days of incorporation.
The table compares both structures, and the running costs differ more than the registration fees.
| Cost | Sole proprietorship | Sdn Bhd |
| SSM fees | RM30 (own name) or RM60 (trade name) a year, including the first year | RM1,000 to incorporate, plus RM50 to reserve the name for 30 days, then RM150 a year for the annual return |
| Company secretary | Not needed | RM1,200 to RM2,500 a year |
| Bookkeeping | RM150 to RM300 a month if outsourced | RM300 to RM800 a month, depending on transactions |
| Audit | Not required | RM2,500 to RM8,000 or more a year unless exempt |
| Tax return help | RM300 to RM1,500 for Form B (optional) | RM300 to RM1,500 for Form C |
These ranges come from CK Partners, an accounting firm. Prices vary widely, so get two or three quotes before you decide.
A small Sdn Bhd can skip the audit if it passes any two of three tests. For financial years starting in 2026, the tests are revenue of RM2 million or less, total assets of RM2 million or less, and 20 employees or fewer. The thresholds rise to RM3 million, RM3 million, and 30 employees for years starting from 2027, under SSM’s Practice Directive 10/2024. The limits apply to the current financial year and the two years before it, and the full criteria are in SSM’s audit exemption notice.
An exempt Sdn Bhd still lodges unaudited financial statements with SSM. A bank, a grant body, or a big customer may still ask for audited accounts.
As a sole proprietor, you renew your SSM registration every year and file Form B (the tax return for business owners) with LHDN by 30 June, or 15 July if you file online. Our YA 2025 income tax guide covers Form B and the individual rates in detail.
A Sdn Bhd has more dates to track. It files an annual return with SSM within 30 days of its incorporation anniversary and lodges its financial statements, then files its tax return (Form C) within seven months of its financial year end. LHDN usually allows an extra month for e-filing, so check the current deadline before you rely on it.
Other duties apply whichever structure you choose. Hiring staff means registering for EPF, SOCSO, and EIS. Since no employer pays EPF for you as a sole proprietor, you can contribute through i-Saraan, and the government adds up to RM500 a year.
You can also join PERKESO’s Self-Employment Social Security Scheme for protection against work-related injury if you’re self-employed in food, online business, or professional services. SST depends on your sales and the type of business you run, and most businesses that fall under it must register once their taxable sales pass RM500,000 in 12 months. In most cases, e-invoicing is compulsory only once your annual sales reach RM3 million, though you can join voluntarily below that.
When you run a sole proprietorship, your business profit is added to your personal income and taxed at individual rates from 0% to 30%.
A qualifying SME Sdn Bhd is taxed separately, paying 15% on its first RM150,000 of chargeable income, 17% on the next RM450,000, and 24% above RM600,000. Chargeable income is income after allowed deductions. To qualify, among other conditions, the Sdn Bhd needs paid-up capital of RM2.5 million or less and gross business income of RM50 million or less.
On the basic tax rates, a Sdn Bhd starts to pay less tax at around RM160,000 of profit. The table uses resident individual tax rates for Year of Assessment (YA) 2025, which covers income earned in 2025 and filed in 2026, and the brackets are unchanged for YA 2026.
| Business profit | Sole proprietor tax | Sdn Bhd corporate tax | Difference |
| RM50,000 | RM1,500 | RM7,500 | Sdn Bhd pays RM6,000 more |
| RM100,000 | RM9,400 | RM15,000 | Sdn Bhd pays RM5,600 more |
| RM150,000 | RM21,900 | RM22,500 | Sdn Bhd pays RM600 more |
| RM200,000 | RM34,400 | RM31,000 | Sdn Bhd saves RM3,400 |
| RM300,000 | RM59,400 | RM48,000 | Sdn Bhd saves RM11,400 |
| RM500,000 | RM110,400 | RM82,000 | Sdn Bhd saves RM28,400 |
These amounts are before personal reliefs and assume the Sdn Bhd keeps all its profit instead of paying it to you. Your tax as a sole proprietor will be lower than the table shows once reliefs come off, and the Sdn Bhd’s total changes once you pay yourself a salary or dividends. Since YA 2025, a resident individual also pays 2% tax on dividend income above RM100,000 a year.
A Sdn Bhd also costs more to run. The extra is about RM3,150 a year at the low end of the cost table when the audit is exempt (the secretary, extra bookkeeping, and the RM150 annual return). At the high end it’s about RM16,650, which includes a RM8,000 audit. The tax saving is RM3,400 at RM200,000 and RM11,400 at RM300,000, so a Sdn Bhd with low running costs comes out ahead from about RM200,000, while one with high running costs does so from about RM365,000.
A sole proprietorship has one owner, and when two or more people run the business together it becomes a partnership with the same personal liability. A Sdn Bhd can issue shares, which gives investors a clear share of ownership.
Two people starting out with no outside investor have a third option in the Limited Liability Partnership (LLP), which costs RM500 to register with SSM. An LLP needs at least two partners and a compliance officer, and gives the partners limited liability.
Starting as a sole proprietor doesn’t mean you have to stay one, but you can’t convert it into a Sdn Bhd with a simple change to your existing SSM registration. You’d incorporate a new Sdn Bhd and open a corporate bank account. Then you move your contracts and assets across, reapply for licences in the Sdn Bhd’s name, and close the old SSM registration.
Some licences can’t be transferred to the new Sdn Bhd, and moving assets can also have tax consequences, so ask a tax agent before you start.
A sole proprietorship is a sensible place to start if you have no staff, no suppliers giving you credit, and no customers who could make a claim against you. It also suits a profit under about RM200,000 a year, and it keeps administration and running costs down while you find out whether the idea works.
Move to a Sdn Bhd when your profit reaches about RM200,000 a year, depending on its running costs, or you bring in an investor or partner who needs limited liability.
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Iman writes about personal finance with curiosity. She is interested in the stories behind money, the hesitation around big decisions, and the small habits that shape financial futures. Off the clock, she is either dissecting a film or climbing her way up the leaderboard in her favourite games.
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