- Sole proprietorship is a type of business organisation
registered in Malaysia under the Registration of Business
Act, 1956, which is under the jurisdiction of Suruhanjaya
Syarikat Malaysia (SSM) or Companies Commission of
Malaysia (CCM) under the Domestic Trade and Consumers
Affairs Ministry.
In Malaysia, a sole proprietorship business is owned by
one person who is called a sole proprietor and only a
Malaysian citizen or permanent resident who has attained
the age of 18 years and above is eligible to register for
a sole proprietorship.
- Since the sole proprietor is not a legal entity, the
owner is entitled to all profits generated from the
business. However, the owner’s liability is unlimited, not
just when the business is having financial difficulty, but
also when the business fails and he faces bankruptcy. In
this case, the creditors may sue him for debts incurred
and also obtain a court order to claim against his
personal assets, including his house.
- Normally, a person’s ability to run a sole
proprietorship business is limited to his area of
expertise, which means he relies mainly on himself. He has
the freedom to use his entrepreneurial skills to the
maximum, make his own decisions and run the business as he
wishes. However, to be a successful entrepreneur, he will
need to get relevant advice from experts in fields he is
unfamiliar with. This expertise is sometimes unavailable
when one operates as a sole proprietor.
- Furthermore, there are disadvantages pertaining to the
availability of accounting information as there is no
obligation for sole proprietorship businesses to submit
audited accounting reports to CCM every year. Therefore,
most owners of sole proprietorships tend to neglect the
preparation of proper accounting records. Some owners also
exaggerate or underestimate the company’s financial
position for their own purposes. So, it becomes a tedious
process to access the sole proprietor’s true financial
stability when, for example, the owner wishes to apply for
a bank loan.
- It becomes difficult to expand the business because of
the above problems.
- The owner of a sole proprietorship usually has to work
very hard to sustain his business. If the business is
having financial difficulties, he may not be able to get
public funds. His capital is limited to the availability
of his funds and the profit generated from the business,
This would be the reason why many sole proprietorship
businesses never take off in a big way.
- In many cases, even when a sole proprietorship
business is successful, all profits generated are taxed on
a personal basis and tax exemptions are limited to
personal and family matters. Therefore, as profits
increase, so will the taxes. Due to these reasons some
owners choose to convert the business from a sole
proprietorship to a limited company, incorporated under
the Companies Act 1965. Limited companies benefit from tax
incentives like capital and manufacturing allowances, to
reduce the amount of tax payable to the Inland Revenue
Board.
- Children or successors will inherit the family
business only by way of transfer of ownership. The owner
nominates his children via a will or a notarised power of
attorney prior to death. In the absence of a written will,
the issue will be decided by the courts.
- Very often in sole-proprietorship operations, there is
no business succession plan and the business no longer
operates with the retirement or demise of the sole
proprietor.
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