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8 Feb 2021

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Private Limited Company vs Sole Proprietor

According to the statistics from the Companies Commission of Malaysia (SSM), a total of 43,998 companies and 389,915 businesses were incorporated in 2020. Sole proprietorships and private limited companies (Sdn. Bhd.) are the most common business structures in Malaysia. Undoubtedly, both of them have their distinct shares of benefits and disadvantages. 


Private Limited Company (SDN. BHD.)

According to the revised Companies Act in 2016, only one director and shareholder are required to start up a company instead of two as stated in the previous act. The par value of shares with a minimum of RM0.01 is issued instead of RM1.00. As a result, more company founders can launch their businesses easily with lower capital yet with more shares. 

There are minimal foreign holding restrictions in Malaysia. Foreign investors who hold Malaysian permanent residency (PR) can have the full ownership of a private company.


Benefits of a Private Limited Company

Most of the newly established companies are entitled to tax incentives for their successful start-ups. During the first two years of establishment, they can enjoy either tax exemption at a rate of 70% to 100% or waive tax payment up to RM20,000. 

Fundraising is made simple by issuing various types of shares in addition to financial assurance offerings from auditor to bank facilities and investors. Most importantly, an Sdn. Bhd. company protects its directors and shareholders financially as it is a separate legal entity whose liability does not affect its personal property.


Disadvantages of a Private Limited Company

A higher operating cost is required to set up an Sdn. Bhd. company. Moreover, Sdn. Bhd. company has higher compliance requirements as stipulated in the Companies Act 2016. All your company information is transparent to the public.


Sole Proprietor (Enterprises)

We witnessed the set-up of over 350,000 enterprises in 2020. However, many of them had converted their businesses online since the Covid-19 outbreak. The demand for masks, sanitizer, and home cook food materials contributed to the rise of the incorporation of sole proprietorship during this period. 


Benefits of a Sole Proprietorship

An enterprise requires lower set-up costs if compared to an Sdn. Bhd. company. Other than lower compliance requirements, an enterprise owner pays taxes based on the company’s profits.


Disadvantages of a Sole Proprietorship

A sole proprietor is obliged to bear all the debts personally due to a sole proprietorship is not a separate legal entity from its owner. Some other challenges of being a sole proprietor include a higher income tax rate and fundraising when no shares can be issued. In Malaysia, we do not allow foreign investors to register sole proprietorship or partnership business.


We sincerely hope that this article allows you to learn bits and pieces of private limited companies and enterprises. Should you need any help in company incorporation, do not hesitate to contact us.