Sole Proprietor vs LLP vs General Partnership vs Company in Malaysia
Sole Proprietor vs LLP vs General Partnership vs 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 two or more persons in Limited Liability Partnership, or
- By a locally incorporated Company or by a Foreign Company registered under the provisions of the Company Act 2016
| Company | Limited Liability Partnership (LLP) | General Partnership | Sole Proprietorship | |
| Entity Name Appearances | Company name ended with the word “Sdn Bhd” or “Bhd” | Company name ended with the word “PLT” (Perkongsian Liabiliti Terhad) | Choice of Trade Name subjected to ROB approval | Choice of Trade Name subjected to ROB approval |
| Capital Contribution | Share capital | Partners contribution | 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) | LLP (partners have a share in the capital and profits of the LLP) | Partners | Sole Proprietor |
| Legal Status | Separate legal entity | Separate legal entity | Not a separate legal entity | Not a separate legal entity |
| Party that is liable for debts of the business | Company | LLP | Partners | Sole Proprietor |
| Responsibility for management of business | Board of Directors | Partners | 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 | No personal liability of partner, except for own wrongful act or omission or without authority Liabilities borne by the partners are jointly and severally with the LLP to the extent of unpaid share capital only | Unlimited liability(jointly and severally liable with the partnership) which can extend to personal assets of the partners | Unlimited liabilitywhich can extend to personal assets of the sole proprietor |
| No. Of Shareholders/Partners | Minimum 1 and maximum 50 in private company | Minimum 2 and no maximum limit | 2 to 20 partners(Except for partnerships for professional practice with no maximum limit) | Sole proprietor only |
| Company Secretary / Compliance officer | Qualified Company Secretary | Compliance Officer or partner of the LLP | N/A | N/A |
| Statutory Audit Requirement | Required to be Audit | No compulsory unless it is provided in the partnership agreement | No Audit required | No Audit required |
| Annual Compliance | Must file annual return and financial statements every calendar year. | Must lodge an annual declaration and solvency statement with CCM (the 1st within 18 months from the date of registration and thereafter, 90 days from the end of the financial year) | ||
| Annual Submission to SSM | Annual Return with Audited/ Unaudited Financial Statement | Annual Declaration | ||
| Annual Fee to SSM | RM150-00 | RM200-00 | 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 – 17%(SME) After – 24% | Tax on LLP / On the first 500K – 17%(SME) After – 24% | Tax on Partners/ Sole Proprietor From 0% to 28% | Tax on Partners/ Sole Proprietor From 0% to 26% |
| Rules & Regulations | Company Act 2016 (CA), | Limited Liability partnership Act 2012 (LLP), Limited Liability Partnership Regulations 2012 | 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) – Limited Liability, – Simplest Administration (Not compulsory for statutory audit), – Local resident compliance officer is required to setup LLP – Lower Compliance Cost – Suitable for newly start-up business with low entry cost – Not required to disclose financial statements to the public. – Perpetual succession : – The changes status of the partners will not affect the existence of the LLP corporation | – 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.
As for LLP, this entity requires minimum 2 partners for registration and appointment of compliance officer who will be personally liable for all acts of LLP is mandatory.
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.
