Or is there such a thing? As a company secretary, quite often I get asked by business owners what is the type of business entity that suit them best . Is Sdn Bhd (private limited company), or Sole Proprietorship better? Particularly since the introduction of LLP - Limited Liability Partnership, many are saying that it is the best business structure for business owners in Malaysia.
However, if you ask me, my answer is no. Reason being, there is no best business structure as the business structure adopted will depend on the nature of business and the direction of the business. However, in comparison to Sole Proprietorship, I do think LLP is a better structure due to its protection against the owner's personal assets. If I'm currently operating a Sole Proprietorship, I will apply to convert it to LLP immediately. Although slightly more expensive to maintain, I do think it is a price worth paying for the protection of one's personal assets.
To me, LLP is an improved version of a Sole Proprietorship but can never be compared to the advantages of a Sdn Bhd. For example, customers' confidence that comes with a Sdn Bhd, ease of funding etc. Furthermore, LLP is going through an infancy stage now and is facing many teething problems such as difficulty in opening bank accounts as most banks are still not ready administratively to process the application. It will take a few years for the public to get used to the concept of LLP and maybe then we can better assess the topic of whether LLP is the best business structure.
Each business entity suit specific needs. For example, if you are setting up a small trading business that is low risk, then a Sole Proprietorship is better because it is easier to maintain and only requires 1 person to register the business. However, if you foresee risk in your nature of business, for fear of personal liability, then perhaps LLP is the more suitable vehicle for the added advantage of limited liability protection to its owners. Setting-up a LLP however requires 2 partners. Like I have mentioned above, between Sole Proprietorship and LLP, I will opt for LLP as I'm of the opinion that no one should operate a business and expose their personal wealth to liability.
If however you are looking at setting up a business where it is important for you to portray business confidence, then Sdn Bhd will be a better option as it projects seriousness of the business owners for staying in the business for long term. It is also easier to obtain bank funding if you are a Sdn Bhd. You'll never guess how many times a Sdn Bhd wins a business deal over a Sole Proprietorship just because they are a Sdn Bhd.
So if you ask me whether there is a best business structure? My answer is no as it all depends on what you are doing with the business and the type of business that you are in.
One point that I have not elaborated above but is equally important to consider, as the post will otherwise be too lengthy, is the tax rates for each of the business entity. Do take note that a Sole Proprietorship is taxed as an individual income whereas LLP and Sdn Bhd are taxed as a body corporate. If your total individual income exceeds certain level, you will have more tax savings by converting into a Sdn Bhd. In addition, for Sole Proprietorship, only expenses directly involved in generating the business income is deductible.
So do you know what business structure suits your business? If you are unsure, do contact us for further discussion and we will be more than glad to assist you.
To me, LLP is an improved version of a Sole Proprietorship but can never be compared to the advantages of a Sdn Bhd. For example, customers' confidence that comes with a Sdn Bhd, ease of funding etc. Furthermore, LLP is going through an infancy stage now and is facing many teething problems such as difficulty in opening bank accounts as most banks are still not ready administratively to process the application. It will take a few years for the public to get used to the concept of LLP and maybe then we can better assess the topic of whether LLP is the best business structure.
Each business entity suit specific needs. For example, if you are setting up a small trading business that is low risk, then a Sole Proprietorship is better because it is easier to maintain and only requires 1 person to register the business. However, if you foresee risk in your nature of business, for fear of personal liability, then perhaps LLP is the more suitable vehicle for the added advantage of limited liability protection to its owners. Setting-up a LLP however requires 2 partners. Like I have mentioned above, between Sole Proprietorship and LLP, I will opt for LLP as I'm of the opinion that no one should operate a business and expose their personal wealth to liability.
If however you are looking at setting up a business where it is important for you to portray business confidence, then Sdn Bhd will be a better option as it projects seriousness of the business owners for staying in the business for long term. It is also easier to obtain bank funding if you are a Sdn Bhd. You'll never guess how many times a Sdn Bhd wins a business deal over a Sole Proprietorship just because they are a Sdn Bhd.
So if you ask me whether there is a best business structure? My answer is no as it all depends on what you are doing with the business and the type of business that you are in.
One point that I have not elaborated above but is equally important to consider, as the post will otherwise be too lengthy, is the tax rates for each of the business entity. Do take note that a Sole Proprietorship is taxed as an individual income whereas LLP and Sdn Bhd are taxed as a body corporate. If your total individual income exceeds certain level, you will have more tax savings by converting into a Sdn Bhd. In addition, for Sole Proprietorship, only expenses directly involved in generating the business income is deductible.
So do you know what business structure suits your business? If you are unsure, do contact us for further discussion and we will be more than glad to assist you.