What You Need to Know About Setting Up a Partnership in Malaysia: A Guide for Enterprise Entrepreneurs

Entering into a partnership can be one of the most impactful decisions for entrepreneurs in Malaysia. This business structure is particularly favored by small business owners due to its collaborative nature and shared responsibilities. In this guide, you'll discover all you need to establish a partnership in Malaysia, complete with practical insights tailored for enterprise entrepreneurs.

Understanding Partnership

In Malaysia, a partnership, also known as an enterprise. A partnership is a business structure where two or more individuals come together to run a business, sharing responsibilities, profits, and liabilities.

Requirements for Establishing a Partnership

Who is eligible to setup a Partnership

1. All partner must be a Malaysian Citizen or Permanent Resident of Malaysia.

2. All Partner must be at aged 18 years and above.

3. Only owner or partner is allowed to submit an application.

   
   

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Benefits of Partnership

Running a partnership comes with several advantages:

1. Easy and Quick to Register

   Establishing a partnership in Malaysia is quick and straightforward. You just need to complete a registration form and pay a nominal fee, usually around RM 60. The entire process can be completed in just a few days.
   

2. Share Responsibility Partners can share the responsibility of the running of the business. This will allow them to make the most of their abilities. Rather than splitting the management and taking an equal share of each business task, they might well split the work according to their skills.
   

3. Fewer Compliance Requirements  

   Unlike private limited companies, partnership enjoy a much lighter compliance load, making them easier to manage. For example, there is no need t o appoint a licensed secretary, auditor, or tax agent. This simplicity in regulatory obligations makes it an economical choice for micro-entrepreneurs and small business owners looking to minimize costs and streamline their business operations.

   
   

4. Lower Annual Maintenance Cost

   Compared to Private Limited Company (Sdn Bhd), a partnership has the lowest annual maintenance cost due to fewer compliance requirement.

   
   

Steps to Register a Partnership in Malaysia

To Register a partnership, follow these steps:

1. Choose a Business Name

Business may be registered using personal name or using a trade name.

• Personal Name - must be stated in the identity card is not required to apply for business name

• Trade Name - the name of the proposed business and must obtain prior approval from the Registrar of Business.

2. Complete Business Registration Form (Form A)

You can choose to visit nearest SSM branch or submit online through ezBiz Portal

• Business name

• Commencement date of business

• Principal place of business

• The address of the branch of business (if any)

• Information of owner and partners

• Type of business carried out
  

• Photocopy of your Identification Card (IC)

• Business Name Approval Form (Form PNA.42)

SSM GUIDELINE

Registration Fee

Fees for business registration are as follows:

• Partnership using Trade Name - RM60 per year

• A sole proprietorship uses its own name as stated on the identity card - RM30 per year

• Every Branch (if any) - RM5 per year

• Business Information - RM10

Note: Registration can be made within one (1) year and up to five (5) years

Challenges Faced by Partnership

While there are many benefits, partnership do encounter challenges:

1. Unlimited Liability

   As a partnership, partners are personally responsible for all business debts and obligations. This means if the business incurs debt or gets sued, the partners’ personal assets could be at risk.

   
   

2. Joint and Several Liability Each partner can be held fully liable for the actions of the other partners, which can increase individual risk even if they were not directly involved in the action that caused the liability.

   
   

3. Limited Perceived Credibility

   Partnership might struggle to establish credibility, particularly when seeking bank loans or forming supplier partnerships. Lenders and suppliers may perceive partnerships as higher-risk ventures compared to larger corporations or limited liability companies (LLCs), impacting business opportunities and growth.
   

4. Disputes Over Profit Distribution Profits must be shared among partners based on the agreed-upon ratio, which can lead to dissatisfaction if contributions are perceived as unequal. Disagreements over profit distribution can strain the partnership.
   

5. Higher Tax Rates In a partnership, the business income is reported on each partner’s personal tax return. This can lead to higher overall tax liability, especially when certain income thresholds are reached

   
   

6. Challenges in Succession Planning Partnerships tend to be closely linked to the partners' identities and personal engagement in the business, which complicates the process of transferring the business to others.

Final Thoughts

Establishing a partnership in Malaysia can be a beneficial endeavor for numerous entrepreneurs. This business model, characterized by its collaborative approach, shared duties, and the possibility of pooled resources, appeals to individuals aiming to merge their strengths and expertise.

However, it is crucial to weigh both the benefits and potential challenges before making the decision. Proactively managing risks—through clear partnership agreements, regular communication, and strong mutual trust—is essential for success.

This guide provides aspiring entrepreneurs with the essential knowledge needed for establishing a partnership in Malaysia. With a solid understanding of this business model, you can set the stage for a successful and sustainable entrepreneurial journey.