Malaysia comprises various business entities with unique characteristics that suit the diverse business requirements and advantages. This is critical in order to choose the most appropriate business entity for a start-up.
Content Outline
Sole Proprietorship
Sole proprietorship is the ownership of the single individual and it is operated in their name or under a trade name. The simplest and most commonly preferred business setup because of ease of establishment. In contrast with a private limited company, there is no filing requirement with the Suruhanjaya Syarikat Malaysia (SSM) on an annual basis. Instead the proprietor only requires renewing the SSM license.
However, an important element in this regard is the sole proprietary unlimited liabilities. This implies that their business activities are liable to any legal proceedings that may be taken against them by a party or the other. In addition, the proprietor takes personal responsibility to such authorities as Lembaga Hasil Dalam Negeri and SSM.
Private Limited Company (Sdn Bhd)
An example of this is Sdn Bhd (Sendirian Berhad), a private limited company, which stands as a separate legal entity. It can sue someone, or be sued, own and dispose of property and do everything that is not specifically limited by law. The corporation also benefits from perpetual succession, which means that its existence does not change when there is a transfer of ownership.
In accordance with annual filing obligations, including the annual return and audited financial statements stipulated under the Companies Act 2016 (CA 2016), a private limited company.
It has one major advantage of limited liability for its members. The shareholders can only owe the company to the extent that they have not fully paid on their shares and in exceptional cases, such as when the shareholder offers personal guarantee for a company loan.
To summarize the disparities between a sole proprietorship and a private limited company:
Attributes | Private Limited Company (SDN BHD) | Sole Proprietorship |
---|---|---|
Ownership | Can have one or multiple owners residing in Malaysia | Sole ownership by a Malaysian Citizen/PR |
Entity Name Appearances | Ends with “Sdn Bhd” and requires SSM approval | Chooses a trade name with ROB approval |
Capital Contribution | Funded by shareholders | Self-funded |
Legal Status | Recognized as a separate legal entity | No separate legal identity |
Liability for Debts | Company bears liability for its obligations | Sole proprietor personally liable |
Legal Liability | Limited, protecting personal assets | Unlimited, risking personal assets |
Management | Governed by a Board of Directors | Single-handedly managed |
Personal Liability | Limited unless engaged personally | Unrestricted personal liability |
Number of Shareholders | Can have 1 to a maximum of 50 shareholders | Sole proprietorship has no shareholders |
Company Secretary Requirement | Mandatory under CA 2016 | Not obligatory |
Audit Requirement | Annual audits and submissions to SSM required | No mandatory audits |
Yearly Compliance to SSM | Submission of annual return and financial statements | No annual compliance obligations |
License Renewal | Not necessary | Mandatory renewal of license annually |
Income Tax Status | Taxation applied at the corporate level | Sole proprietor taxed individually |
Income Tax Rate (Year Assessment 2020) | Initial RM600,000 [17%], then [24%] for the rest | Ranges from 0% to 30% |
Controlling Law | Governed By Companies Act 2016 & related regulations | Regulated by Registration of Businesses Act 1956 & Rules 1957 |
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