If you want to start a business in Malaysia, there are a lot of forms of business entities that you can choose from. Out of the choices, you may have decided to establish your business as a partnership. Before you start registering the business and proceed to the next steps, you need to have a more in-depth understanding of partnership. Hopefully, this article will be able to give you some insights. Otherwise, if you need further assistance in deciding the business entity that suits you the best, do not hesitate to contact a corporate secretarial firm in Johor Bahru.
A partnership has two to twenty partners or owners, and it can be set up on a small scale. Thus, it is a popular choice among startups. If you know that there will be more than one person who will own and manage the business, then choosing partnership as the business entity of your business would be a smart move.
In Malaysia, there are two types of partnerships, which are partnership as well as limited liability partnership (LLP). In the first type of partnership, the partners will manage the business together. The owners will have unlimited liability, and they will have to take the responsibilities jointly for the debts and other liabilities of the partnership.
Partnerships are similar to sole proprietorships in some ways. Nevertheless, there are two crucial dissimilarities between sole proprietorships and partnerships. The first significant difference is the number of owners. A sole proprietorship only requires one owner while a partnership (Also see The Similarities and Differences between Sole Proprietorships and Partnerships) needs at least two owners. Secondly, partnerships are under the governance of Partnership Act 1961 of Malaysia. As its name suggests, only partnerships need to make sure that they follow this act, and this act will not affect sole proprietorships.
On the other hand, limited liability partnerships (LLP) consists of features that both partnership and company (Also see Prohibitions on the Use of Undesirable Company Names) own. Somehow, limited liability partnerships are like the hybrids of both. The partners who own the limited liability partnerships have limited liability on the financial losses the company suffers. Most of them who owns a small-scale business will be in favour of this type of business entity. Similar to sole proprietorships, most of the individuals who own a small and medium enterprise will usually choose to form their business as a limited liability partnership. The Malaysia government will tax the business profits of a partnership at the personal tax rate of the owners or partners. Hence, instead of paying taxes on the business income by itself, a partnership makes the partners be those who have to bear the tax burden. This has caused a limitation on the tax planning opportunities for the owners of partnerships. As tax planning can be challenging for partnerships, if you own one and you need help, feel free to engage a taxation service in Johor Bahru.