The Advantages & Disadvantages of a Partnership
What’s the most common and simplest business entity in Malaysia?
Partnership! You can easily go into business with another person without the perceived formality of a limited company 👍🏻 Not just that, a partnership is also great for financing, expertise, and shared responsibility 👎🏻 BUT, don’t forget about the disadvantages like partner liability and conflicts of interest as well.
Definition of a Partnership
A partnership is a business entity owned by two (2) persons but not exceed to twenty (20) persons at one time. An identity card name is not allowed to be used as a business name such an entity. Only a local Malaysian or Permanent Resident (PR) is allowed to register a Partnership to run their business.
Some of the unique features a partnership includes:
Fast and easy registration
No corporate tax payments
Less formal business requirements
Easy wind-up process
Lowest annual compliance cost
Advantages of Starting a Partnership
Sharing of responsibility Partners need to share the responsibilities to run the business - allowing each partner to fully utilise their individual capabilities and specialities, combining these skills to ensure the business run smoothly and generate income.
Lowest annual cost Compared to other types of business entities in Malaysia, a Partnership is only required to file annual renewal fee costing MYR 60 for trade name per annum. It is relatively a simple and straight forward submission to SSM.
No corporate tax payments A Partnership is not considered a legal entity, so all chargeable income generated by the Company will be charged on all partners personal income tax.
Easy wind-up process If the business is deemed no longer profitable for the partners, they are allowed to visit any SSM branch to wind up the Company. If the Partnership did not file its annual renewal fee on time, SSM can automatically close the business.
Minimum entry requirements The entry requirement for Partnerships is very simple - at least 2 Malaysian citizens or permanent residents (PR) with legitimate Malaysia local residential address.
Disadvantages of Starting a Partnership
A partnership is not a separate legal entity. The partners are jointly and severally liable towards the debts and liabilities accumulated by the business. If any of the partners has filed for bankruptcy, creditors have the right to sue the partners involved to claim the debt owned which will directly impact each partners personal wealth.
If there is an internal dispute between the partners, they are not allowed to expel any partners unless a power to do so has been conferred by a written agreement between the partners during the establishment of the business. This can lead to bad relationship amongst partners and bad decision making for the business.
The partnership is not liable towards corporate income tax. However, each partner is liable to disclose the profits they received from the business in their personal income tax filing. This will lead to a higher tax payable for their personal income tax.
Want to find out if a business partnership is right for you? We can advise and guide you through the process 📲 Get in touch with us via WhatsApp at https://wa.me/60143248237.