Forms of business organization: Sole proprietorship

Summary: In this article, we will guide you through what is sole proprietorship and how this may be the business structure for you.

It is important that the business owner seriously considers the different forms of business organization in Malaysia. A business can be organized in one of several ways and the form its owners choose will affect the company’s and owners’ legal liability and income tax treatment.

In this article, we will look into sole proprietorship.

Sole Proprietorship

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 The sole proprietorship is the simplest business form.

You will run and manage this business alone as there can only be one individual business owner. If a business has employees, it cannot be formed as a sole proprietorship.

One of the advantages of a sole proprietorship: it is easy and inexpensive to set up. It requires less paperwork and formalities. You would only need to register your name to secure the licenses and the sole proprietorship is ready for business. 

Secondly, you will have complete control on your business and make your own decisions since you are the only owner.

Thirdly, tax time is less complicated. Sole proprietorship is not required by the Malaysian government to be audited. The business owner does not have to pay corporate taxes. And all profits go directly to the business owner’s personal tax return. Additionally, it is not required for you to disclose financial statements to the public.

However, your business liability is also your personal liability. This means that you as the owner are personally responsible for the company’s debts as you are the only owner. This is also called unlimited liability in which the creditors may go after your personal assets if your company cannot pay them.

Thus, if your business risk is high, sole proprietorships might not be your ideal business structure as they put your personal assets at risk. For instance, if you have trouble with personal debt, you should consider a legal structure with limited liability that protects your personal assets.

If your business risk is low, a good business insurance policy is sufficient enough to protect you as a sole proprietor.

Sole proprietorship is also suitable for new startups with low entry cost. Many businesses begin as sole proprietorships and develop to more complex business forms for example, private limited company (SDN BHD), as the business grows.

The business is also easy to dissolve. Sole proprietorship can be closed down by merely filing a form to the Registrar.

To be eligible to apply for sole proprietorship, owner must be a Malaysian Citizen or Permanent Resident of Malaysia. He or she must be 18 years and above. The business must be carried out in Peninsular Malaysia or Federal Territory of Labuan.

Registration can be done at any Suruhanjaya Syarikat Malaysia (SSM) counter or through online via Ezbiz Online services at ezbiz.ssm.com.my.

You can choose to register the business under your personal name (as stated in your identity card) for RM30 annually. Or you can have a formal business or trade name for RM60 annually. However, you will need to complete a business name approval form (Form PNA.42) for your business/trade name

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