Before establishing a new company, business owners must consider the types of business entities in Malaysia seriously. This is because they can organise a business in one of the ways and the type of business entity that they have selected will bring an impact on the owner’s and the company’s legal liability and the treatment of income tax. Thus, if you are one of those who want to start a new business, yet you do not know the right business form for you, we strongly advise you to engage a company registration service in Johor Bahru.
Among various forms of business entities, a sole proprietorship would be the simplest one. Choosing sole proprietorship would bring you several benefits, and one of those is setting up one is easy, and it would not cost you much. Sole proprietorship needs fewer formalities and paperwork. This means that the registration is quick and easy, and the documents required for the registration is fewer compared to other forms of business.
New startups with low entry cost will most probably choose to establish a sole proprietorship. It is common to see some of the businesses that started as a sole proprietorship to develop themselves into more complicated forms of business entities as they continue growing.
Besides, the taxation for a sole proprietorship is less complicated. The business owners (Also see How Can Accountants Help Small Business Owners?) do not have to pay corporate taxes, and the profits generated by the business will go to his personal tax return directly. Apart from that, the Malaysian government does not require sole proprietorship to be audited. If you run a sole proprietorship, you do not need to disclose the financial statements of your business to the public too.
Nevertheless, being a sole proprietor means that the liability of your business will become your personal liability too. This is also known as an unlimited liability since you own the business solely. In such a situation, if your business has failed or has gone into bankruptcy, your creditors can sue you for all the debts you owe them. If your business is unable to pay all the debts, they can go after your personal assets.
Hence, it would be best if you considered the business risk (Also see Ways to Alleviate Business Tax Risks) before you choose to form a sole proprietorship. If the risk is high, this type of business entity may not be the most suitable one as this puts your own assets at risk. Choosing a legal structure with limited liability is a better choice if you face problems in your personal debt as such a legal structure can protect your personal assets (Also see An Overview of Quick Assets). On the contrary, if the risk is low, then having a reliable business insurance policy should be enough to protect you.
If you want to apply to become a sole proprietor, you must be a citizen or permanent resident of Malaysia, and you must be 18 years old and above. To register your business, you can do it at any SSM counters or make the application online. You may choose to register your business under your name as stated in the identity card, or you may have a formal trade name for the business. The former will cost you RM30 every year, while you will have to pay RM60 annually for the latter.