When starting a business, you must decide what type of business entity to establish taking into consideration the tax and legal aspects of your business.
There are four (4) types of business entities in the legal systems of Malaysia. These are:
- company (private or public)
- sole proprietorship
- limited liability partnership (LLP)
The business of a sole proprietorship is owned by one person only and is the simplest form of business organization. However, it need not be a one-person business and can have large numbers of employees.
A partnership exists when at least two (2) or more persons pool their capital and work together. The partners share the risk. As with sole proprietorship, the partners are owners of its property and are personally liable for its debts.
Sole proprietorship and partnership are both registered business entities but 'unincorporated' and do not embody a legal entity. They are not protected from unlimited liability.
When a company is formed, it has become 'incorporated' under the Companies Act, 1965. The company formed is treated as a separate entity, independent of its members.
There are two (2) common types of companies limited by shares - Public limited companies and Private limited companies.
Private limited companies cannot sell shares to the general public. The name of private limited company ends with the word "Sendirian Berhad" or abbreviation "Sdn. Bhd.".
Public limited companies raise capital by selling shares and are run by a board of directors elected by shareholders. They show their status by using the abbreviation "Bhd." or the word "Berhad" after their name.
Limited liability partnership (LLP) is a hybrid business entity having certain characteristics of both a company and a conventional partnership. An LLP is 'unincorporated' but all its partners enjoy limited liabilities.
The name of a limited liability partnership ends with "Perkongsian Liability Terhad" or "PLT".
Governing Laws and Authorities
The business registration of:
- sole proprietorship or partnership is regulated by:
- Sabah, East Malaysia: The local authorities in the respective cities or districts under the Trades Licensing Ordinance, 1948 [Cap. 144] (Malay: Ordinan Pelesenan Perdagangan, 1948 [Bab 144])
- Sarawak, East Malaysia: The local authorities in the respective cities or districts under the Businesses, Professions and Trades Licensing Ordinance [Cap. 33] (Malay: Ordinan Perniagaan, Profesion dan Pelesenan Perdagangan [Bab 33])
- West Malaysia and Federal Territories: The Companies Commission of Malaysia (Malay: Suruhanjaya Syarikat Malaysia) under the Registration of Businesses Act 1956 [Act 197] (Malay: Akta Pendaftaran Perniagaan 1956 [Akta 197])
- company is regulated by:
- East and West Malaysia and Federal Territories: The Companies Commission of Malaysia (Malay: Suruhanjaya Syarikat Malaysia) under the Companies Act 1965 [Act 125] (Malay: Akta Syarikat 1965 [Akta 125])
- limited liability partnership is regulated by:
- East and West Malaysia and Federal Territories: The Companies Commission of Malaysia (Malay: Suruhanjaya Syarikat Malaysia) under the Limited Liability Partnerships Act 2012 [Act 743] (Malay: Akta Perkongsian Liabiliti Terhad 2012 [Akta 743])
Legal doctrine(s) governing:
- sole proprietorship are personal laws (such as contract law, property law, law of torts) since it is not a legal entity and there is no legal distinction between the owner and the business therefore the owner is legally liable for all obligations of the business.
- partnership is the Partnership Act 1961 [Act 135] (Malay: Akta Perkongsian 1961 [Akta 135]).
- company is the Companies Act 1965 [Act 125] (Malay: Akta Syarikat 1965 [Akta 125]).
- limited liability partnership is the Limited Liability Partnerships Act 2012 [Act 743] (Malay: Akta Perkongsian Liabiliti Terhad 2012 [Akta 743]).
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