Sole Proprietor vs Partnership vs Limited Companies SDN BHD

What Is Business?

Business can be defined as the organizations that conduct a commercial activity where people are selling their goods and services to their customers in the return of gaining profit or money. In business world, customers can be an individual customer or other business. In order to run a business smoothly, people usually use their own pocket money as a capital for starting up their business. After that, if the company growth larger, their company can be registered as public listed company (in Malaysia, it will be listed on Bursa Malaysia) and they can issue their company share to public so that they can have more funds in order to run their business.

Why Do Businesses Exist?

The purpose for existence of the business could be selling goods or services. The purpose of people to start up a business must be it can make a profit whatever they can provide. Therefore, they need to know what they want to provide (e.g.: goods or services) and how they can run the business it in order to attract and retain customers. Therefore, all businesses must set some goals and objectives that help them to identify what they wish to achieve. The objectives can be earning an amount of profits or increase their market share year to year.

2 Types of Business Sectors

Business can be divided by 2 types: Private and Public sectors. In this research, we will only discuss about different types of businesses under private sectors.
For private sector, the businesses are privately owned and run. They aim to earn money for their owners and shareholders. There are 4 common types of business in private sector which are Sole Proprietor, Partnership, Limited Companies, Corporation.

1. Sole Proprietor

A sole proprietor is an individual who may or may not hire other people as their worker, but who owns and runs the business. Normally, the owner is the boss and worker. In the business context, it is the simplest form of business ownership. However, the business owner is responsible to unlimited liability (the business owner is personally responsible to use his/her own assets to clear all the debts to creditors or bank if the business goes bankrupt). The business will shut down automatically when the owner is passed away.

Advantages and Disadvantages of Sole Proprietorship
Advantages and Disadvantages of Sole Proprietorship

2. Partnership

A partnership is a business that runs by two to twenty members. There are two types of partnership; they are ordinary partnership and limited partnership. Ordinary partnership has unlimited liability. For limited partnership the partnerships only need to pay their debts to the bank or creditors according to their shares that they had invested. Normally the people who invest most into the business will earn most interests but need to bear most losses. Before the business start, they must prepare the Partnership Agreement. They must list out the company name and address, name and address of partner, capital contribution of each partners, distribution of profit and losses for each partner etc. Besides, they need to show how much income and taxes individually inside this agreement. The business must shut down if one of the partner is quit or passed away unless there are mutual agreement in the partnership contract.

Advantages and Disadvantages of Partnerships
Advantages and Disadvantages of Partnerships

 

3. Limited Companies

The limited companies are required to bound by Companies Act 2016 and governed by Registrar of Companies. Before starting a company, the business owners need a memorandum of Association, Certificate of Incorporation to the public limited company and some other related documents to apply. Limited Companies are also divided into two types, the private limited and the public limited.

In Malaysia, private limited are normally those companies with ‘Sdn Bhd’. For private limited, they only must register with ROB (Registrar of Business) and ROC (Registrar of Companies). Private limited normally have only 2 to 50 people and their shares can only issue to limited numbers of people such as to their friends or families. They are not allowed to sell or trade in their own shares to general public and creditors. The company can continue working even one of the parties pass away or quit. In this type of business organizations, shareholders are eligible to vote for selecting their board of directors. For private limited companies they have limited liabilities for the shareholders and creditors (if the company is bankrupt, they can only take limited amount for the company’s assets and not the shareholders own assets.) The private limited companies need to send the copy of audited accounts to the ROC to show their accounts.

Sdn Bhd stands for Sendirian Berhad, which is a type of private limited company in Malaysia. This type of company is the most common business entity in Malaysia, and it is typically used for small to medium-sized enterprises.

Sdn Bhd companies are required to have at least two shareholders and one director who is a resident in Malaysia. The company's shareholders are only liable for the amount of capital that they have invested in the business, and their personal assets are not at risk in case of the company's debts or liabilities.

Sdn Bhd companies have a separate legal entity from their owners, which means that the company can own property, enter into contracts, and sue or be sued in its own name. This provides limited liability protection for the owners, which makes it a popular choice for entrepreneurs in Malaysia.

In addition, Sdn Bhd companies are subject to certain compliance requirements, including the need to file annual financial statements and tax returns. The Malaysian Companies Commission of Malaysia (SSM) is responsible for the registration and regulation of Sdn Bhd companies in the country.

 

Another type of limited companies is the public limited. Most of the public limited are the banks or some big public organizations like Genting Bhd or Maxis Bhd. In Malaysia, the public limited companies’ short forms are ‘Bhd’. Public limited companies normally don’t have a limit for members, and they can issue their shares to the public. Before starting business, they must register with the ROB (Registrar of Business), ROC (Registrar of Companies) and Securities Council, and this Securities Council need to register at Kuala Lumpur Stock Exchange (KLSE). Furthermore, they must publish their documents in the newspaper to the public. They minimum share capital are RM1 million. It is easier for them to raise the capitals to expand their organization because most of their members are public and they don’t have a limit for members. Besides, they enjoy limited liabilities when facing bankruptcy.

Advantages of Private Co., and public Co.
Advantages of Private Co., and public Co.

 

Disadvantages of Private Co., and public Co.
Disadvantages of Private Co., and public Co.

4. Co-operative

Co-operative is a business formed by people who want to work together to improve their lifestyle or to earn their own benefits. They are a little like limited-liability partnerships. The main benefit is that there should be no conflict between the main stakeholders – they are the same people. Peoples who interested in this type of organizations need to pay member fees to join as a member of this organization. The fees are functioned as the capital for this business organization, so that the organization can operate more efficiently and it’s easier to fight for benefits if the capital is large. This business normally organized to provide the services or benefits to those who needs. If one of the members face a problem or have conflicts with others, their organizations will stand up and help them to fight against for their rights.

Cooperatives Advantages Disadvantages
Cooperatives Advantages Disadvantages