In Malaysia, there are several types of business entities, each with their own attributes that serve different business needs and offer different benefits. Therefore, it is important to understand the differences in order to choose the best-fitted business entity to start a business.
The following is the difference between a sole proprietorship and a private limited company: –
Sole Proprietorship
Sole proprietorship business is owned by one individual using their personal name or a trade name. It is the easiest and a popular type of business to establish. There is no requirement for annual filings with the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia, SSM). The sole proprietor only needs to renew its licence with the SSM.
However, the sole proprietor has unlimited liabilities where he/she can be sued by any parties in regards to his/her business activities. The sole proprietor is also personally liable to the authorities such as the Inland Revenue Board (Lembaga Hasil Dalam Negeri, LHDN) and SSM in their personal capacity.
Private Limited Company
Private Limited Company, is known as Sdn Bhd. It is the most common business entity in Malaysia. A private company is considered as a separate legal entity. It can sue or be sued, buy or sell any property, perform any transactions in its own name, as well as have a perpetual succession.
A private limited company is regulated by the Companies Act 2016 (CA 2016). It has to submit annual filings such as the annual return and the audited financial statements as required under the provisions of the Companies Act 2016.
The liability of its member is limited where the shareholders will not be personally held liable for the debts of the company. Their liability is only limited to the unpaid amount on their shares unless the shareholder provides a personal guarantee in relation to a loan given to the company.
The differences between a sole proprietorship and a private limited company are summarized below:
👉 Summary:
- Sole Proprietorship → Easier & cheaper to start, but high personal risk.
- Sdn. Bhd. → Offers credibility & limited liability, but requires higher compliance.
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