The form of ownership describes who owns and bears the risk of a business. In Malaysia there are four main forms, each differing in the number of owners, capital, liability and registration.
Sole proprietorship
A sole proprietorship is owned by just one person. Its capital is small, it is easy to set up and it is registered with the SSM (Companies Commission of Malaysia). The owner enjoys all the profit but bears unlimited liability, meaning personal assets can be used to settle business debts.
Partnership
A partnership is owned by 2 to 20 partners who share capital, profit and responsibility according to a partnership agreement. It is also registered with the SSM, and most partners bear unlimited liability.
Example
Three graduates open a graphic-design firm. Each contributes RM10,000 in capital and they share the profit equally — this is a partnership.
Private limited company (Sdn. Bhd.)
A private limited company is a separate legal entity from its owners. It has 1 to 50 shareholders and enjoys limited liability — shareholders lose only the capital they invested. Its shares cannot be sold to the public.
Public limited company (Bhd.)
A public limited company may offer its shares to the public through Bursa Malaysia. There is no maximum number of shareholders, its capital is large, and it too enjoys limited liability.
Choosing the right form. The choice of ownership form depends on several factors, such as the amount of capital needed, the level of risk one is willing to bear and the ambition to grow. A sole proprietorship and a partnership are easy to set up but carry higher risk because of unlimited liability. A company is more complex and costly to register, but it offers limited-liability protection and the ability to raise large amounts of capital. A company also has continuity — it keeps existing even when shareholders change, unlike a sole proprietorship, which ends when the owner retires or dies.
Key idea
Limited liability protects the owner's personal assets; unlimited liability does not. This is the most important difference between a company and a sole proprietorship or partnership.