SOLE PROPRIETORSHIP VS PLC
Maybe now is the time to upgrade your company ? Or incorporate one now if you don’t have!
By AZIZAM AZIZAN
One of the first decisions most ambitious Malaysian business owners and entrepreneurs must make before starting a new venture is whether to form a sole proprietorship/partnership or a private limited company (sdn bhd). We hope that by highlighting the primary differences between these business entities, we can shed some light on their suitability for various businesses.
WHAT IS A SOLE PROPRIETORSHIP?
Small companies may benefit from a sole proprietorship, which is a company established by one person.
Advantages
i) Setting up a sole proprietorship is simple and fast. There will be less paperwork and legal requirements.
ii) As opposed to a Private Limited Company, the costs of registration and compliance for a Sole Proprietorship are comparatively low.
Disadvantages
i) No separate legal entity
ii) Your personal properties are at risk
iii) You are a one-man show
iv) You are subject to personal taxation
WHAT IS A PRIVATE LIMITED COMPANY?
A Private Limited Company (Sdn. Bhd.) is a form of privately owned business entity in which the liability of the owners is limited to the value of their shares. In Malaysia, it is the most popular choice for startups and entrepreneurs. It must have at least one shareholder and one resident director (maximum 50 shareholders). It creates a different legal entity from its owners. This means that the debts, risks, and liabilities are assumed in the name of the corporation rather than the individual.
ADVANTAGES AND DISADVANTAGES OF PRIVATE LIMITED COMPANY
Advantages
1. Limited liability: One of the most significant benefits of becoming a Private Limited Company is that the shareholders’ liability is limited to the amount they have paid or agreed to contribute. For example, if a shareholder invests RM100,000 in a company in exchange for a 10% shareholding and the company eventually goes bankrupt, the shareholder is unlikely to recover his or her investment in the worst-case scenario. If you have issued a personal assurance, you are not legally responsible for the company’s liability as a shareholder or even a director.
2. Separate Legal Entity: The corporation has its own legal entity. It is ‘immortal,’ meaning it can be passed down through the generations or sold.
3. Lower tax rate: The standard corporate tax rate is 24%. For small and medium enterprise (SME) with paid up capital not more then RM2.5 million, the first RM500,000 Chargeable Income will be taxed at 17% and subsequently will be taxed at 24%.
Disadvantages
1. Higher cost: Private Limited Company has more compliance responsibilities as compared to Sole Proprietorship. You will need to appoint Company Secretary and file annual returns and financial statements to the Companies Commission of Malaysia (SSM).