The Malaysian economy has a gradually increasing trend. This shows that Malaysia is a great place to start your business in Malaysia. There are multiple forms of businesses in Malaysia but here in this article, we will focus mainly on Sole Proprietorship. A Sole Proprietorship is a form of business that is controlled by a single individual. This form of business is the most traditional form of business. Furthermore, this form of business is the cheapest and easiest to set up.
What is a Sole Proprietorship Company?
As the name suggests, this form of business is owned and maintained by a single Malaysian resident. Registering and investment are also low. However, if the company is stable enough, the owner can change the sole proprietorship into a limited liability or even a partnership company. This form of business is available for Malay residents only. SSM is a statutory body that monitors and authenticates this form of business in Malaysia. Foreigners can register this business in Malaysia if he/she has residency permission in Malaysia.
Registering for Sole Proprietorship in Malay
For a Malay citizen to register a sole proprietorship in Malay requires several terms and conditions to be fulfilled. These terms and conditions are enforced by the government in Malaysia. The requirements and eligibility are provided below:
- The individual must be a Malay citizen or must have a permanent residency in Malaysia.
- Individual must bring up a name and valid identity card
- Owner must physically go to the Suruhanjaya Syarikat Malaysia (SSM) to complete the business registration process
- SSM will check the proposed name whether its available or not
- After successful verification, you must pay the annual fees of RM60 for trade name, RM5 for branches opened under the company
- Within 1 hour, the company registration certificate will be handed to you after the payment clearance
Steps to Register a Sole Proprietorship in Malaysia
Choosing your business name
The name you choose can be either your name on your identification card or any name you want. You must provide three names in case of one name not being available. Furthermore, you must complete the Business Name Approval Form if your business name is different.
Form A Completion
Next comes the step to fill up the registration form. The form is titled ‘FORM A’. The required information is provided below:
- The business names
- Nature of business
- Date of commencement of business
- Address of the business
- Owners’ information
For submission, you need some documents. These documents are:
- Completed Form PNA42 and Form A
- Document stating all business activities
- All permits necessary
There are certain fees that the sole proprietorship owner must pay. The fees are provided below:
- Registration fee RM60
- Printout of business activities RM10
- Naming fee of RM30 if you are not using the name on your identification card
Required Documents for Sole Proprietorship Registration in Malaysia
For the registration of a sole proprietorship business Formation in Malaysia, an individual must prepare some documents required by the SSM. These documents need to be submitted to the SSM authorities. The documents are provided below:
- Valid Identity card
- Trade name proposal
- Nature of Business
- Completed form of the details of the business and addresses
- Letter of approval from the government if necessary
Taxation of Sole Proprietorship in Malaysia
The profits of this nature of business are enjoyed by the business owner alone. Likewise, the loss is also incurred by the owner. As there is no difference between the person owning the business and the business, no separate tax file is needed. The tax is implied on the individual income which ranges from 2% – 26%. There are other taxes that a sole proprietorship owner must pay. They are self-employment taxes and social security taxes and property taxes. Among these, some expenses are eligible for a tax deduction. These include accounting fees, rental fees, sales advertisements fees, and legal fees.
Benefits of A Sole Proprietorship in Malaysia
There are several advantages to setting up a sole proprietorship in Malaysia. Unlike other business nature, a sole proprietorship has a single owner. Some advantages are mentioned below:
- Single owner have the full control over the company and will enjoy the profits of the company alone
- There is no business tax as the company is not recognized as a legal entity. Only regular income tax must be paid
- This company has lower maintenance cost per year
- If the company needs to shut down, then only less documents and formalities are required
- The requirements are less, the only requirement is that the owner must be Malay citizen with residency in Malaysia and must be present at SSM during registration process
- The business requirements are less. The company is for small to medium so there are no complicated business processes like annual audit or Company secretarial Duties.
Disadvantages of Setting Up a Sole Proprietorship in Malaysia
Apart from the advantages of a sole proprietorship, there are some disadvantages to this nature of business as well. There are certain levels of risks that you must take for setting and maintaining this business nature. Such risks are provided below:
- The most significant risk is that of your company face bankruptcy, you must bear all the loss and debts as you are the sole owner of this company
- As there is only one owner, someone can easily sue for company shutdown or bankruptcy
- Personal property and assets are at risk if there are loss or shutdown of the company
- Every aspect of the company must be handled alone as you are the sole owner of the company
Penalties for Not Registering Your Business in Malaysia
As stated in the Companies Act 2016 in Malaysia, there are several penalties involved if you are caught doing business without business registration. There might be a single penalty or multi penalties to your crime. It depends on the situation and the business. This ensures the safety of Malay citizens in case of illegal business in Malaysia. The penalties are stated below:
- Up to RM50000 fine
- Two years jail time
- Both stated above in severe cases
Looking at the business nature, a sole proprietorship is the easiest to set up and is cost-efficient. There are certain advantages and disadvantages of this company registrations. Among the business natures in Malaysia, this business can be registered with very few formalities and investments. However, these advantages bring in some disadvantages as well. Any loss you get will be liable to you alone. Your personal assets or property might be at risk due to bankruptcy.
Sole Proprietorship, as the name suggests, can have only one owner. However, in the future, you can convert this business type into a private limited company.
A sole proprietorship is only available to Malaysian citizens. If you are a foreigner then you cannot register this business type. However, you can register a private limited company in Malaysia.
You must register your business with SSM. Go to SSM and collect all the papers and forms required for company registration of sole proprietorship. Fill up the forms and submit all necessary documents required for company registration in Malaysia. After successful registration, you can do business in Malaysia legally.
An accountant is not necessary for a sole proprietorship. But if there is a need for an accountant then you can always hire one.
This type of company is owned and maintained by a single person, as the name suggests. This 1 of the 8 business types available for registration in Malaysia where only one owner is required for company registration.
Yes, you must be a Malay citizen or hold a permanent residency in Malaysia to register sole proprietorship in Malaysia.
Yes, you must prepare at least 3 names before going to SSM because your primary name might not be available to register. In this case, your secondary name will be used to register your company.
You will get your certificate after you have made the payment of the fees. The time required is 1 hour. Within 1 hour your certificate will be handed to you.
Yes, you can. There are fees for registering your personal name or any name you want.
The registration form is called Form A. Here you must put the business name, nature of business, date of commencement, address of business, and owner’s information.
The government registration fee is RM60 however, there are other charges like printout fees RM10, a naming fee of RM30 if you are not using your personal name which is on your identity card.
The documents required are provided below:
· Valid identification card
· Proposal of trade name
· Business nature
· Complete details of the business and addresses
· Letter of approval from the government if necessary
As there is only one owner of the company, he/she is responsible for any loss made by the company.
The tax rate ranges from 2% – 26%.
yes, you must pay self-employment taxes, social security taxes, and property taxes along with the income tax in Malaysia for a sole proprietorship company.
Accounting fees, rental fees, sales advertisement fees, and legal fees. These fees are subject to a tax deduction in a sole proprietorship company in Malaysia.
No, you don’t have to pay business tax because a sole proprietorship is not recognized as a legal entity. Only income tax must be paid.
no, the annual audit report is not necessary for a sole proprietorship.
According to the Companies Act 2016 there are several penalties for doing business in Malaysia without registration. The penalties include an RM50000 fine or two years jail time or both together depending on the majority of the case.