If you are one of those who want to run a business on a small scale, you may be choosing between establishing a sole proprietor or a partnership. Before you decide, you need to study their similarities and differences thoroughly, then only you can make the decision and engage a company incorporation service in Johor Bahru to set up the business. Below are some of the important ones that you should know.

In terms of similarities, both sole proprietorship and partnership are not separate legal entities. In addition, they have unlimited liability on their owners. This means that the liability (Also see Understanding Current Liabilities) of the business will extend to the personal assets of the sole proprietors or partners.  Besides, sole proprietorships and partnerships do not need company (Also see Prohibitions on the Use of Undesirable Company Names) secretary or compliance officers like limited liability partnerships (LLP) and companies do. They do not need to have audits too.

The Registration of Businesses Act 1956 governs sole proprietorships and partnerships. Both these business entities do not have to pay tax on their names, but it is the owners’ or partners’ responsibility to pay the taxes. The government will tax on the sole proprietors or partners at a rate of 0% to 26%. Also, they need to pay an amount of annual fee to SSM. If the business is using the personal name of the sole proprietor or one of the partners, it has to pay RM30 to SSM annually. If it is using a trading name, the payment (Also see Understanding Down Payment) to SSM would be RM60 per annum.

The most significant difference between a sole proprietorship and a partnership would probably be the number of owners. In a sole proprietorship, the sole proprietor would be the only owner to the business. On the other hand, a partnership will have two to twenty partners, except if they are running partnerships for professional practice. In the latter case, there is no maximum limit for the number of partners.

The sole proprietor owns the business by himself and all the partners in a partnership would be those who own the business. In a sole proprietorship, the owner needs to contribute the capital by himself, whereas for partnerships, the capital contribution comes from the partners.

In terms of the party that is liable to the business’s debts, a sole proprietor has to take full responsibility of the debts of the sole proprietorship while for partnerships, all the partners are liable for the partnership’s debts. The same goes for the responsibility for managing the business. Sole proprietors need to handle the business on their own while the partners in partnerships can take the responsibility jointly.