Sole Proprietorships VS SDN BHD Private Limited Company

Sole Proprietorships VS SDN BHD Private Limited Company

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.

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:

AttributesPrivate Limited Company (SDN BHD)Sole Proprietorship
OwnershipCan have one or multiple owners residing in MalaysiaSole ownership by a Malaysian Citizen/PR
Entity Name AppearancesEnds with “Sdn Bhd” and requires SSM approvalChooses a trade name with ROB approval
Capital ContributionFunded by shareholdersSelf-funded
Legal StatusRecognized as a separate legal entityNo separate legal identity
Liability for DebtsCompany bears liability for its obligationsSole proprietor personally liable
Legal LiabilityLimited, protecting personal assetsUnlimited, risking personal assets
ManagementGoverned by a Board of DirectorsSingle-handedly managed
Personal LiabilityLimited unless engaged personallyUnrestricted personal liability
Number of ShareholdersCan have 1 to a maximum of 50 shareholdersSole proprietorship has no shareholders
Company Secretary RequirementMandatory under CA 2016Not obligatory
Audit RequirementAnnual audits and submissions to SSM requiredNo mandatory audits
Yearly Compliance to SSMSubmission of annual return and financial statementsNo annual compliance obligations
License RenewalNot necessaryMandatory renewal of license annually
Income Tax StatusTaxation  applied at the corporate levelSole proprietor taxed individually
Income Tax Rate (Year Assessment 2020)Initial RM600,000 [17%], then [24%] for the restRanges  from 0% to 30%
Controlling LawGoverned By Companies Act 2016 & related regulationsRegulated by Registration of Businesses Act 1956 & Rules 1957
Comparison between Private Limited Company (SDN BHD) vs Sole Proprietorship

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