Laws regarding sole proprietorships in Malaysia

By definition, a sole proprietorship is a business that is owned and managed by one person. Thus, with regards to legality, the individual and the business are the same entity. It should be noted that although it is defined as being managed by one person, the owner is allowed to hire employees at their discretion.

The business climate in Malaysia is currently at its peak for new businesses. With a GDP value tipping $354.348 billion, the economy of Malaysia is at an all time high. Moreover, the country now has an ease of doing business rank of 15 out of a survey of 180 countries. One of the most common business structures for a new entrepreneur to take in Malaysia is that of the sole proprietorship. Aside from the sole proprietorship, the following four legal structures are also available in Malaysia:

  • The Partnership
  • The Limited Liability Partnership
  • The Public Limited Company
  • The Private Limited Company

All these structures are regulated by the Companies Act of 2016 and differ by how the structures are managed. Prior to 2002, all business formations were regulated by two different bodies. They were the Registrar of Companies and Registry of Business. However, they are now merged and run as the SSM. Company and business formations in Malaysia all follow the Companies Act of 2016.

This Act, which is a revision of the Companies Act 1957, serves as an updated set of laws to suit the modern economic climate of Malaysia. The SSM of Malaysia enforces the Companies Act 2016. As such, sole proprietorships also fall under their jurisdiction.

As mentioned before, the sole proprietorship is the most popular business structure in Malaysia. This is because of the following laws set in place:

  • Full ownership- A sole proprietorship is owned 100% by a single person. As such, the owner receives all profits and makes all executive decisions for the business.
  • No corporate tax imposed- As the sole proprietorship is not a separate legal entity from the owner, it will not get taxed as such. Instead, the profit made will come under the regular income tax the owner pays.
  • Low cost- registration costs are minimal. And out of all the legal structures, this has the lowest annual fee as well.
  • Setting up and shutting down is simple- you may simply shut it down at SSM office or not renew the license.

However, in turn, you must be aware of the following laws as well:

  • All debts are to be borne by the owner
  • The sole proprietorship is only active during the lifetime of the owner

Moreover, by law, a sole proprietorship can only be registered by a Malaysian or a foreign national who has a permanent residency permit in the country.

In order to register for a sole proprietorship, one needs to simply follow a few steps:

You can register for your sole proprietorship either online or in person at an SSM counter.

Steps to register a sole proprietorship in Malaysia

Step 1- Choose your business name

This name can be the same as the name on your identity card or can be a different name. If it is different, you must give three potential names to be vetted. In addition to this, you will also have to complete the Business Name Approval Form (Form PNA.42) if your business name is different.

Step 2- Completion of Form A

The next step is to fill in the business registration form. This is titled ‘Form A’. It requires the following details to be completed:

  • The Business Name
  • The type of business to be registered
  • The date the business began commencement
  • The main address for the business
  • Information regarding the owner (this includes clear copies of the owner’s ID card or PR permit)

Step 3- Submitting the application

In order to submit the application, you will need the following:

  • Completed Form PNA.42 and Form A
  • A document detailing all business activities proposed
  • Any relevant permits

Step 4- Payment of Fees

The registration of a sole proprietorship is liable to the following fees:

  • RM 60 as a registration fee
  • RM 10 for the printout of business activities
  • RM 30 as a naming fee if you are not using the name on your identity card.

Once all relevant fees are paid, you will receive your certificate of registration within the day, or on the following business day.

Do note that the Companies Act 2016 outline severe penalties if an individual is conducting a business without being registered. According to this act, if the owner fails to register the business within 30 days of the date of business commencement, they will face these penalties. This ensures that the Malaysian public is not harmed in case of illicit business activities. The penalties are as follows:

  • A fine of up to RM 50000
  • Jail time of up to two years
  • A combination of both in severe cases.

Company Registration Expert Since 2012