What is a Sole Proprietorship and Partnership?

The sole proprietorship type of business entity is one of the simplest and cheapest forms of business entities to form.

A Malaysia company that is registered as a sole proprietorship is only required to pay an annual fee to the Companies Commission of Malaysia to keep the business renewed every year. Sole proprietorship companies do not need to submit audits or do annual filings for the business. Partnership works in a similar way to the sole proprietorship concept.

The only thing that differentiates the two entities is the partnership arrangement involves more than one owner, hence the name                        partnership.

Pros and Cons for Sole Proprietorship and Partnership

The pros for enterprise companies are suitable for small businesses and that it is easy to set up because the company does not need to appoint company secretary and auditors. Therefore, there are no requirements to do audited accounts. Apart from that, owners will be entitled to all net profit made by the company.

The consequences of sole proprietorship is that there are no separate legal entities. Owner and business will be personally liable for all contracts and transactions. Since there is no separate legal entity, it will dissolve upon death (not advisable for family business). Partnerships will bear the consequences of liability that is jointly and severally which can extend to personal assets of the partners. In addition to it, net income earned from business is deemed to be your personal income. Thus, the net income from the business will be subject to your personal income tax rate. Besides that, ownership is also not transferable including sole proprietorship. The only way to transfer ownership is to sell the business.

What is Limited Liability Partnership?

The LLP business entity is a mix of a private limited company and a partnership company. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner’s misconduct or negligence.

What are the pros for Limited Liability Partnership (LLP)?

LLP can be a legal person that is capable of acquiring, disposing of a property or sue or be sued. Other advantages of LLP are perpetual succession. Any charges in relation to partners will not affect its existence, rights or liabilities of LLP.

Whereas the consequences of LLP are that it is less popular in Malaysia.

Private Limited Company (Sdn. Bhd.)

This type of company is a separate legal entity from its owners, which means this company is considered as a legal person that can buy or sell property, can present itself into legal contracts and sue or be sued in courts of law.

Pros and Cons of Private Limited Company.

Private Limited Company are suitable for mid-range to large business. Besides that, the company will still remain in existence until it is dissolved if the shareholders/directors decided to step down since it is a separate legal entity. The ownership is transferable as well and it is possible to sell or transfer ownership to anyone.

The consequences are that these types of companies are expensive. The initial start-up and recurring cost can be a bit hefty as it involves the cost of engaging company secretary and auditors. Other than that, profits that are acquired are the company’s money. Which means any profits generated from the business belong to the company and not the shareholders. The shareholders are only entitled to the dividend declared out of the net profit or capital repayment and not the capital of the company.

Public Limited Company (Bhd.)

Public Limited Companies are required to have a minimum of 2 shareholders and have more than 50 members and maximum number of members are unlimited. This type of business entity usually involves the company being listed and is governed by the Securities Commission of Malaysia.

What are the pros and cons for Public Limited Company (Bhd.)?

The pros of Public Limited Company are they are required to make their financial information publicly available for the public to access and the public can freely subscribe to the shares of public companies.

The consequences are the companies have to publicly disclose their financials yet a higher financial reporting standard is usually expected from them.

Conclusion

There are many different types of business structures to choose from when deciding to start a business. For the business owner, choosing the right structure is a key step in shielding them from liability exposure. On top of that, to become successful in sustainable business practices often require entrepreneurship and innovation. In that case, the importance of entrepreneurship and innovation also applies to companies that change how they produce products and services.