Sole Proprietor vs General Partnership vs Sdn Bhd Company in Malaysia
Types of Business Entities
The following are the common forms of business organization in Malaysia:
By an individual operating as Sole Proprietor
By two or more (but not more than 20) persons in Partnership, or
By a locally incorporated Companyor by a Foreign Company registered under the provisions of the Company Act 2016
| Company | General Partnership | Sole Proprietorship | |
|---|---|---|---|
| Entity Name Appearances | Company name ended with the word “Sdn Bhd” or “Bhd” | Choice of Trade Name subjected to ROB approval | Choice of Trade Name subjected to ROB approval |
| Capital Contribution | Share capital | Partners contribution | Own contribution |
| Owner(s) of the business | Company(members / shareholders own ‘shares’ in the company that give them certain rights in relation to the Company) | Partners | Sole Proprietor |
| Legal Status | Separate legal entity | Not a separate legal entity | Not a separate legal entity |
| Party that is liable for debts of the business | Company | Partners | Sole Proprietor |
| Responsibility for management of business | Board of Directors | Partners | Sole Proprietor |
| Personal liability | No personal liability of individual director or shareholder Liabilities borne by the directors or shareholders are to the extent of unpaid shares only | Unlimited liability(jointly and severally liable with the partnership) which can extend to personal assets of the partners | Unlimited liability which can extend to personal assets of the sole proprietor |
| No. Of Shareholders/Partners | Minimum 1 and maximum 50 in private company | 2 to 20 partners(Except for partnerships for professional practice with no maximum limit) | Sole proprietor only |
| Company Secretary / Compliance officer | Qualified Company Secretary | N/A | N/A |
| Statutory Audit Requirement | Required to be Audit | No Audit required | No Audit required |
| Annual Compliance | Must file annual return and financial statements every calendar year. | ||
| Annual Submission to SSM | Annual Return with Audited/ Unaudited Financial Statement | ||
| Annual Fee to SSM | RM150-00 | Trade Name – RM60 per year Personal Name – RM30 per year | Trade Name – RM60 per year Personal Name – RM30 per year |
| Income Tax Status / Income Tax Rate | Tax on Company / On the first 500K – 19%(SME) After – 24% | Tax on Partners / Sole Proprietor – From 0% to 28% | Tax on Partners / Sole Proprietor – From 0% to 28% |
| Rules & Regulations | Company Act 2016 (CA) | Registration of Businesses Act 1956 (RBA) | Registration of Businesses Act 1956 (RBA) |
| Advantages & Disadvantages | – More paperwork & more expensive – Limited Liability – Complexity in Administration (statutory audit, AGM, board resolution and etc) – Higher Compliance Cost – one local resident director are required to setup a Company – Suitable for business affordable to maintain business with higher operation cost – public will have access to financial affairs of the company | – Less paperwork & additional formalities (registration is easy, fast and fewer documents are needed) – Unlimited Liability – Simple Administration (Not compulsory for statutory audit) – Lower Compliance Cost – Suitable for newly start-up business with low entry cost – Not required to disclose financial statements to the public | – Less paperwork & additional formalities (registration is easy, fast and fewer documents are needed) – Unlimited Liability – Simple Administration(Not compulsory for statutory audit) – Lower Compliance Cost – Suitable for newly start-up business with low entry cost – Not required to disclose financial statements to the public |
In conclusion, a private company (Sdn Bhd) is preferred over business entities with the enforcement of the new Companies Act 2016 which allows for incorporation by sole director and shareholder and at the same time offers limited liability feature.
In term of compliance costs which will be slightly higher for a private company (Sdn Bhd), it will be easier to obtain loan under a company compared to any other business entities.
