Varieties of Business Forms

The following represent the prevalent modes of business organization in Malaysia:

 

  1. Sole Proprietorship: Operated by an individual.
  2. Partnership: Established by two or more individuals, not exceeding 20.
  3. Limited Liability Partnership (LLP): Formed by two or more individuals.
  4. Company: Incorporated locally or by a foreign entity under the Company Act 1965.

 

Entity Names and Characteristics:

– Company: Typically bears names ending with “Sdn Bhd” or “Bhd.”

– LLP (Limited Liability Partnership): Features names concluding with “PLT” (Perkongsian Liabiliti Terhad).

– General Partnership: Allows for a trade name choice subject to approval by the Registrar of Businesses (ROB).

– Sole Proprietorship: Also involves a trade name choice subject to ROB approval.

 

Capital Contributions:

  • Company: Share capital.
  • LLP: Partners contribute to capital.
  • General Partnership: Partners contribute to capital.
  • Sole Proprietorship: Owner’s personal contribution.

 

Legal Status:

  • Company: Separate legal entity.
  • LLP: Separate legal entity.
  • General Partnership: Not a separate legal entity.
  • Sole Proprietorship: Not a separate legal entity.

 

Debt Liability:

  • Company: The company is liable for debts.
  • LLP: LLP is liable for debts.
  • General Partnership: Partners are liable for debts.
  • Sole Proprietorship: Sole proprietor is personally liable for debts.

 

Management Responsibility:

  • Company: Governed by a Board of Directors.
  • LLP: Managed by partners.
  • General Partnership: Managed by partners.
  • Sole Proprietorship: Sole proprietor manages.

 

Personal Liability:

  • Company: Directors or shareholders have no personal liability except for unpaid shares.
  • LLP: Partners have no personal liability except for wrongful acts or omissions or unauthorized actions, with liability extending to unpaid share capital.
  • General Partnership: Unlimited liability, jointly and severally liable with the partnership, which can extend to personal assets of the partners.
  • Sole Proprietorship: Unlimited liability, extending to personal assets of the sole proprietor.

 

Number of Shareholders/Partners:

  • Company: Minimum 1 and maximum 50 in a private company.
  • LLP: Minimum 2, with no maximum limit.
  • General Partnership: 2 to 20 partners (except for professional practice partnerships with no maximum limit).
  • Sole Proprietorship: Sole proprietor only.

 

Company Secretary/Compliance Officer:

  • Company: Requires a qualified Company Secretary.
  • LLP: Requires a Compliance Officer or a partner of the LLP.
  • General Partnership: Not applicable.
  • Sole Proprietorship: Not applicable.

 

Statutory Audit Requirement:

  • Company: Mandatory audit requirement.
  • LLP: No compulsory audit unless specified in the partnership agreement.
  • General Partnership: No audit required.
  • Sole Proprietorship: No audit required.

 

Annual Compliance:

  • Company: Must file annual return and financial statements each calendar year.
  • LLP: Must lodge an annual declaration and solvency statement with the Companies Commission of Malaysia (CCM).
  • General Partnership: –
  • Sole Proprietorship: –

 

Annual Submission to SSM (Suruhanjaya Syarikat Malaysia):

  • Company: Annual return with audited/unaudited financial statements.
  • LLP: Annual declaration.
  • General Partnership: –
  • Sole Proprietorship: –

 

Annual Fee to SSM:

  • Company: RM200.
  • LLP: RM200.
  • General Partnership: Trade Name – RM60 per year, Personal Name – RM30 per year.
  • Sole Proprietorship: Trade Name – RM60 per year, Personal Name – RM30 per year.

 

Income Tax Status/Income Tax Rate:

  • Company: Corporate Tax Rate
  • LLP: Corporate Tax Rate
  • General Partnership: Personal Tax Rate
  • Sole Proprietorship: Personal Tax Rate

 

Rules & Regulations:

  • Company: Governed by the Company Act 1965 (CA).
  • LLP: Governed by the Limited Liability Partnership Act 2012 (LLP) and Limited Liability Partnership Regulations 2012.
  • General Partnership: Regulated by the Registration of Businesses Act 1956 (RBA).
  • Sole Proprietorship: Regulated by the Registration of Businesses Act 1956 (RBA).

 

Advantages & Disadvantages:

  • Company: Offers limited liability but involves more paperwork, higher compliance costs, and complexity in administration.
  • LLP: Offers limited liability with less paperwork and lower compliance costs, suitable for start-up businesses.
  • General Partnership: Simple administration but unlimited liability.
  • Sole Proprietorship: Simple administration but unlimited liability, suitable for low-entry-cost start-ups.

 

In conclusion, a private company (Sdn Bhd) is preferred due to the new Companies Act 2016, allowing incorporation by a sole director and shareholder, along with limited liability.

 

For LLP, it requires a minimum of 2 partners and a compliance officer, with personal liability for all LLP acts. Refer to “Key Issues And Ambiguities Faced By Limited Liability Partnership (LLP)” for other disadvantages.

 

Regarding compliance costs, despite being slightly higher for a private company, it’s easier to obtain a loan compared to other business entities.