3.3 Differences Between Sole Proprietorship, Partnership and Company

 This act of Parliament applies to all companies though types of companies are exempted from specific provisions.

Definition

 Under Section 2 Companies Act 2016:

‘A company incorporated under this Act or under any corresponding previous written law’

 Therefore, a company for the purpose of the Companies Act 2016 means a company incorporated in Malaysia.

Effect of Incorporation

 The effect of incorporation of a company is that the company is vested with a corporate personality. It means that in the eyes of law, a company is treated as a legal person.  A company is a legal person by itself separate and distinct from its shareholder and directors.  The incorporation of a company brings the following effects:

The company as a separate legal entity Liability of member is limited

A company has contractual capacity A company has perpetual succession A company may sue and be sued

A company may hold property

3.3 THE DIFFERENCES BETWEEN SOLE-PROPRIETORSHIP, PARTNERSHIP & COMPANY

Sole-Proprietorship Partnership Company

Structure The owner and its business is the same entity 2 or more persons carrying on business with a view of profit A company is a person separate from its members

Formation No need to be formed in writing Can be formed orally or in writing Must be formed in writing, through a Memorandum and Articles of Association.

Sole-Proprietorship Partnership

Management The owner manages the business himself or can hire employees to manage the firm for him

Registration Needs to register his business with the CCM under the Registration of Businesses Act 1956 Partners are agents of the firm for carrying on its business and generally entitled to manage the firm. Needs to register their business with CCM under the Registration of Businesses Act 1956

Number of Members

Only one person. Maximum is twenty. No limit of members for professional firms.

Constitution No agreement is necessary since there is only 1 person by himself A partnership must have an agreement, either orally or in writing

Liability Liability for the business’s debts is unlimited

Dissolution A sole proprietorship may be dissolved informally by the owner himself A partnership may be dissolved informally by agreement of partners A company is dissolved by winding up and liquidation, which are formal procedures

Liability for the firm debts is unlimited (unless it is a limited liability partnership)

Company

Members of a company as such are neither its managers nor its agents.

Need to be registered with the CCM and as a company under the Companies Act 2016 There is no maximum number of members excepts for a private company which the maximum is 50 A company must be constituted in writing, i.e. by Articles of Association and Memorandum of Association Members are not liable for the company’s debts