From Artist to Business – Sole Proprietorship vs Partnership
Like it or not, our capitalist society offers more protection and rewards to companies than to individuals. Businesses enjoy legal, financial and fiscal advantages not extended to mere mortals. Sometimes sponsorship, grants and loans are only available to businesses. In spite of tons of historical evidence to the contrary, it’s seen as lower risk than handing money over to a person. Likewise, individuals are not yet eligible for the tax breaks designed to promote the performing arts.
Luckily for you, becoming a business is relatively easy and inexpensive. The easiest route by far is setting up a sole proprietorship or partnership.
Sole and shared advantages
As you can likely deduce, sole proprietorship means the company belongs to one person (you and the business are essentially the same entity) and the partnership means it belongs to at least two (maximum 20) people. The two types of business also have a lot in common. They both:
- Are quick and easy to create and maintain
- Minimal registration fees* and only a small annual fee (paid to Companies Commission of Malaysia) to keep its business renewed from year to year
- Allow owner(s) to deduct a net business loss from personal income taxes
* For sole proprietorship using your name (as stated on your I.C.), this amounts to RM30. For partnerships or sole proprietorships opting for a trade name, it’s RM60. If you are registering business branches, that’s an additional RM5 for each branch. Finally, for your business information printout it’s another RM10.
That’s the good stuff. The bad is that both also:
- Make owner(s) personally liable for any debts, judgements, or other liabilities of the business. In other words, whatever fees, fines, etc. that you can’t cover with your business bank account, will come out of your personal one. (In the case of a partnership, all owners are jointly liable)
- There may be double taxation from a personal income taxes and company taxes
Which to choose
There are a couple of differences, of course. This is where you choose according to your needs.
The Sole Proprietorship:
- Is the simplest to set up
- Your trade name may be your actual name as written on your identity card
- Does not require an audit or annual filing
But again, being on your own means you are personally liable for whatever the company fails to pay.
- Means you need to have a partnership agreement (or set to default), governed by Malaysia’s Partnership Act of 1961
- Means you and all your partners are jointly liable (depending on percentage owned) for whatever debts, etc. the company incurs.
How to get started
Disclaimer: While this article is based on official information (sourced 20 October 2016), the article itself must not be relied upon in any way as legal advice. For the most updated information, refer to Companies Commission of Malaysia website.
[Photo credit : Dennis Skley]