Sole Proprietorship Partnership Corporation

Structure  A business owned and  A business owned by two or more people legally  A legal entity with authority to act and have
usually managed by agree to become co-owners of a business. liability apart from its owners.
one person.  A partnership is carried out by two or more people  The most complex form of business
but not exceeding 20 people. However, in  It is a legal entity separate from its constituent
professional business, such as legal firms, members and
architects and accounting firms, the numbers could  It is formed by several people who are able to own
be up to 50 people. property, draw contracts and employ people.
Characteristics (a) Can be small or large
(b) Sue and be sued
(c) Buy, hold and sell property
(d) Make and sell products
(e) Commit crimes and be tried and punished for them
Have limited liability for individuals who from them
Types Limited partner General partner Private limited Public limited
A partnership with All owners share in 1. Private limited 1. Public limited
one or more general operating the business is where the company is where
partners and one or and in assuming liability company cannot it raises capital by
more limited partners. for the business’s debts. sell shares to the selling shares and
1. Limited partners 1. In partnership, at general public. is run by a board of
are not liable for the least one partner must be directors elected by
partnership debts. a general partner which shareholders.
(a) Their personal is responsible for the 2. Private 2. The company
properties will not be debts of the enterprise companies are must have the word
affected to cover the and has unlimited denoted by the “Berhad”, often
partnership’s unpaid liabilities. words “Sendirian abbreviated to Bhd.
liabilities. Berhad” - (Sdn.
(b) Their liability for Bhd.)
the debts of (a) Limited company by share
partnership is limited - For this type of corporation, the members’ personal
to the capital they liabilities are limited to the par value of their shares.
have put in. - A corporation limited by shares can be shown in the
diagram above.
 (c) They can lose the (b) Limited company by guarantee
capital but they are (c) Unlimited company / corporation
not required to pay
partnership debts.
(limited liability)

2. Limited partners 2. A general partner

are not allowed to would take an active
take part in the role in managing
management of the business.
partnership or to have
the power to make the
decision.

Advantages A. Ease of starting and A. More financial resources A. Limited liability

ending the business
- To start sole
proprietorship, what one
has to do is just to buy and
lease the needed equipment,
put up some
announcements and get
permit or license from local
government.
B. Being your own boss
- Working for others simply
does not have the same
excitement as working for
oneself. The mistakes and
victories made are of one’s
own.
- When two or more people pool their money and
credit, it is easier to pay the rent, utilities, and other
bills incurred by the business.
B. Shared management and pooled skills and
knowledge
- It is simply much easier to manage the day-to-day
activities of business with carefully chosen partners.
- Partners give each other free time from the business
and provide different skills and perspectives.
C. Longer survival
- One study that examined 2000 businesses started since
1960 found that partnerships were four times as likely
to succeed as sole proprietorship.
- Limited liability which means that the owners of a
business are responsible for its losses only up the
amount they invest in it, is the major advantage of
corporations.
B. Ability to raise more money for investment
- To raise money, a corporation can sell shares of its
stock to anyone who is interested. This means that
millions of people can own part of major companies
such as Maybank, IBM and Dell and smaller companies
as well.
C. Size
- The size of some corporations (big) enable them to
raise large amounts of money to work with, build
modern factories of software development facilities with
the latest development and hire experts or specialists in
all areas of operation.
C. Pride or ownership
- People who own and
manage their own
businesses are rightfully
proud of their work. They
deserve all credit for taking
risks and providing needed
goods and services.
D. No special taxes (Single Taxation)
- As with sole proprietorship, all profits of partnerships
are taxed as the personal income of the owners who pay
normal income tax on income earned.
D. Perpetual life
- Because of corporations are separate from those who
own them, the death of one or more owners does not
terminate the corporation.
E. Ease of ownership change
- It is easy to change the owners of a corporation as all
that is necessary is to sell the stock to someone else.

D. Leaving a legacy F. Separation of ownership from management

- Owners can leave an - Corporations are able to raise money from many
ongoing business for future different owners or stockholders without getting
generations. them involved in management.
- How owners affect management?
E. Retention of company Owners or stockholders elect Board of Directors.
profit Board of Directors hire officers. Officers set corporate
- Owners not only keep the objectives and select managers. Managers supervise
profits earned but also employees. Employees......
benefit from the increasing
value as the business grows.

F. No special taxes - tax

benefits (Single taxation)
- All the profits of a sole
proprietorship are taxed
(one time based on your
personal income) as the
personal income of the
owner and the owner pays
the normal income tax on
money earned.
Disadvantages A. Unlimited liability -
the risk of personal loss
- Unlimited liability refers
to any debts or damages
incurred by the business are
owners’ debts and they
must pay them even if it
means selling their home,
car or whatever else they
own.
B. Limited financial
resources
- Funds available to the
business are limited to what
the one owner can gather.
There are serious limits to
how much one person can
raise.
C. Management
difficulties
- Sole proprietors often find
it difficult to attract
qualified employees to help
run the business because
often they cannot compete
with the salary and
benefits offered by larger
companies.
A. Unlimited liability
- Each general partner is liable for the debts of the firm,
no matter who was responsible for causing them. Like
sole proprietors, general partners can lose their homes,
cars, and everything else they own if the business losses
a lawsuit or goes bankrupt.
B. Division of profits
- Sharing risk means sharing profits and that can cause
conflicts. There is no set system for dividing profits in a
partnership and they are not always divided evenly.
C. Difficult to terminate
- Once one has committed to a partnership, it is not easy
to get out of it because of questions about who gets
what and what happens next are often difficult to
resolve when the partnership ends.
D. Disagreements among partners
- Disagreement over money, final authority over
employees, working hours, hiring and firing decisions
are some examples of potential conflict in a partnership.
A. Initial cost
- Incorporation may cost thousands of dollars and
require expensive lawyers and accountants to go
through the procedure.
B. Extensive paperwork
- The paperwork needed to start a corporation must keep
detailed financial records, the minutes of meeting and
more.
C. Double taxation
- Corporate income is taxed twice.
- First, the corporation pays tax on its income before it
can distribute any dividends to stockholders. Then, the
stockholders pay income tax on the dividend they
receive.
D. Two tax returns
- An individual who incorporates must file both a
corporate tax return and an individual tax return.
- A corporate return can be quite complex and may
require assistance of a certified public accountant.
E. Size
- Size may be a disadvantage when corporations become
too inflexible and tied down in red tape to respond
quickly to market changes causing their profitability to
suffer.
F. Difficulty if termination
- Once a corporation has started, it is relatively hard to
end.
D. Overwhelming time G. Possible conflict with stockholders and board of
commitment directors
- Sole proprietors may out - Conflict may brew if the stockholders elect a board of
in 12 hours a day at least directors who disagree with management.
six days a week almost
twice the hours worked by
by a non-supervisory
employee in a large
company.
- This overwhelming time
commitment may affects
the sole proprietor’s
family life.

E. Few fringe benefits

- Sole proprietors may lose
the fringe benefits that
often come with working
for others such as, paid
health insurance, paid
liability insurance, pension
plan and sick leave.

F. Limited growth
- Expansion is often slow
since sole proprietors relies
most on his/her own
creativity, business
know-how and funding.
G. Limited life span
- If the sole proprietor dies,
is incapacitated or retires
the business no longer
exists unless it is taken over
by the sole proprietor’s
heirs.