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25 Jan 2021

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A Sole Proprietor Can Enjoy Benefits All Alone?

A sole proprietorship is an enterprise that is wholly owned and operated by one person; takes full responsibility over all company debts while enjoys total shares of benefits. Having only one business owner, sole proprietorship is not a separate legal entity from the owner.

It is the most cost-effective type of corporate organisation and is commonplace in Malaysia’s small and medium enterprises (SME) scene. What are the good and bad of starting a sole proprietorship?

 

Full Says, Full Benefits

It is easy to start a sole proprietorship as it requires only simple registration and incorporation processes. Omit tedious work with the likes of documents signing and board meetings. Company incorporation is completed swiftly with the assistance of a digital secretary that offers great convenience. In addition, a sole proprietor is blessed with minimum legal restrictions on company incorporation, management, and decision-making. 

Sole proprietors can enjoy all the profit earnings by themselves. Profits are not distributed in proportion to the number of shares, and there is no year-end bonus distribution. Moreover, sole proprietors do not have to pay corporate income tax, but the individual income tax based on the company’s profits earnings.

As a sole proprietor, you will have complete authority over the assets, management, and profitability of the company. You own the full deciding power in company operational processes. Therefore, a sole proprietorship acts as the best platform to nurture your entrepreneurial spirit without too many restrictions and influences. You are free to establish your personal brand and style as well as create a distinct set of working ethics before passing them on.

 

One Man Bears All Risks

Advantages aside, a sole proprietor must bear all the economic risks and responsibilities. In the face of bankruptcy, the borrower has the right to detain the property of a sole proprietorship. Additionally, it is difficult for sole proprietors to raise large amounts of funds and expand businesses on a bigger scale due to their limited personal assets. Some other challenges include boosting revenue by issuing shares or other investments and gaining huge personal loans. 

A sole proprietorship has poor continuity of life whereby its duration relies on the sole proprietor’s lifespan. In other words, sole proprietors have integrated with their companies. Companies will be directly affected as sole proprietors are sick or dead. 

Owning a sole proprietorship is like being a dictator that can monopolise everything. Hence, a sole proprietor has to work in silos, holding up both the good and bad of business. One still cannot deny a sole proprietorship has eased things for you. Keen to find out how to run your company more smoothly? Leave us a message.