Partnership companies are a popular form of business organisation. These companies are formed when two or more people agree to run a business together. Each partner contributes money, skills, or other resources and shares the profits and losses.
Partnership companies are common in small and medium-sized enterprises (SMEs) because they are easy to set up and manage. Understanding the key features and legal requirements of partnership companies in Malaysia can help you make informed decisions about starting and running your business.
What is a partnership business?
A partnership business in Malaysia is a common and legal structure for companies. It is governed by the Companies Commission of Malaysia or Suruhanjaya Syarikat Malaysia (SSM) and the Registration of Businesses Act 1956. A partnership is owned by two or more people, but not exceeding 20 owners.
When forming a partnership, the name of the business cannot be the same as the name on the owner's ICs (identity card). Partnership business registrations are limited to Malaysian citizens and permanent residents only. Foreigners and corporate legal entities cannot register for this structure of company in Malaysia.
Why are partnerships appealing? They are easy and quick to register, do not require corporate tax payments, have fewer formal business requirements, can be set up easily, and have the lowest annual maintenance costs compared to other business structures like Private Limited Companies (Sdn. Bhd.) or Limited Liability Partnerships (LLP).
This type of business structure is ideal for two or more people who are starting a new business or exploring new markets. As the business grows and becomes stable, the owners can choose to transform it into a Private Limited Company (Sdn. Bhd.) for further growth. If a partnership ends up with only one partner, it will automatically transform into a sole proprietorship.
How is a partnership different from other business models?
A partnership's structure, management style, and allocation of liability are what sets it apart from other business models. Partnerships are made up of two or more people who share ownership and business responsibilities. Sole proprietorships on the other hand are run by a single person. Partners can combine their capital, knowledge, and resources through this cooperative framework to make better business decisions.
Since they do not need to follow the formalities of incorporation, partnerships are easier to set up and maintain than corporations. Partnerships do not need to maintain a board of directors or issue stocks for business purposes.
There is, however, a higher personal risk associated with this simplicity. Under the partnership business model, each partner bears direct responsibility for the debts and liabilities of the company. This means that the debts owed by the partnership may need to be paid for with the personal assets of each partner if it ever comes to such a situation.
Limited liability corporations (LLCs) and partnerships are not the same in terms of their tax requirements and operational flexibility. Partnerships give more flexibility in terms of management structures and profit-sharing arrangements, while LLCs offer limited liability protection and tax leeways.
Example of partnership companies in Malaysia
In Malaysia, many businesses start as partnership companies. For instance, you might find partnerships in various industries like retail, food and beverage, and professional services.
These partnerships can grow and evolve over time, sometimes becoming larger companies or even transforming into different business structures. These are some famous such companies you might be familiar with:
Marrybrown
Marrybrown is a popular fast-food restaurant chain from Malaysia, known for its fried chicken and burgers. It started in 1981 as a partnership between Dato' Lawrence Liew and his business partner Datin Nacy Liew.
This partnership model allowed them to share resources and responsibilities, which helped them grow from a single store into a successful international franchise.
Malaysian Airlines
Formerly known as Malayan Airways, the airline was formed through a partnership between Ocean Steamship Company, Straits Steamship Company and Imperial Airways back in 1937. This early partnership helped establish the airline, which later grew into a major, state-owned carrier.
Golden Screen Cinemas
Golden Screen Cinemas (GSC) is a major cinema chain in Malaysia, offering a variety of films and special screenings across the country. It started in 1987 when Hong Kong's Golden Harvest and Malaysia's PPB Group teamed up to take over the leases from Shaw Brothers. Their initial partnership allowed GSC to expand and eventually become a successful Private Limited Company.
iFlix
iFlix is an online streaming service offering movies, TV shows, and original content. Launched in 2015, it became popular for its affordable and accessible entertainment options.
It started as a partnership between Patrick Grove of Catcha Group and Mark Britt of Nine Entertainment Co, which helped combine resources and grow quickly. This partnership model allowed iFlix to build a strong foundation for its success in the streaming industry.
New Straits Times Press
New Straits Times Press (NSTP) is a major media company in Malaysia that publishes newspapers like New Straits Times and Berita Harian. It started in 1845 as a partnership between two Armenians in Singapore, which helped them share risks and resources to build a successful news business.
Advantages and disadvantages of starting a partnership in Malaysia
Starting a partnership in Malaysia has its own set of benefits and setbacks. Looking into these can help you decide if a partnership is the right business structure for you.
Advantages:
Low-cost setup and termination: Starting a partnership is simple and affordable. You only need at least two Malaysian citizens or permanent residents to get started, and the registration cost is just RM60 for a trade name with renewals also at RM60 per year. There are no complicated requirements or high fees for setting up the business.
No corporate taxes: Partnerships do not pay corporate taxes. Instead, any income generated is reported on each partner's personal tax return.
Shared responsibilities: In a partnership, responsibilities and tasks are shared among the partners. This allows each person to use their unique skills and knowledge to help the business succeed.
Easy to shut down: If you decide that the partnership is no longer profitable, you can easily close up the business at any SSM branch. If you miss the renewal deadline, the business will be closed automatically by SSM if it is not renewed within 30 days.
Disadvantages:
Unlimited liability: One major downside is that all partners have unlimited liability for the business’s debts. This means if the business is in debt, each partner is personally responsible for paying those debts, which can put their personal assets at risk.
Higher personal taxes: Since partnerships do not pay corporate tax, each partner must include their share of the profits on their tax returns. This can result in a higher personal tax bill.
No separation between partners and business: Unlike some other business structures, a partnership does not create a separate legal entity. This means partners can be personally sued for business debts and liabilities.
Limited continuity: A partnership may end if a partner leaves or dies unless there is a plan in place for such situations. This can affect the business’s stability and ongoing operations.
Filing for partnership in Malaysia
As a citizen or PR in Malaysia, you can register your partnership in four easy steps.
Business registration form
First, complete the business registration form. You can get this form from the SSM branch, over the counter. Make sure you have a photocopy of your IC and fill the form up with accurate information.
Company name
Come up with a few names for your company and list them in the form. The SSM officer in charge will check to see if your company name is available to register.
Pay fee
Once everything is good to go, you can pay your business registration fee of RM60 for your trade name. Every year, you would have to renew it for RM60.
Company is established
With all that out of the way, your company is now an established partnership under SSM and can start operations officially.
Douglas Loh and Associates can help you start up your partnership with zero hassle. Our goal is to help you with the mundane business activities while you do work that matters in your business!
FAQs
Are Apple and Starbucks partnership companies?
No, they are not. While Apple first started off as a partnership between Steve Jobs and Steve Wozniak, it is no longer a partnership. In fact, both these companies are corporations.
Can foreigners or PRs start a partnership company in Malaysia?
To set up a partnership in Malaysia, you would either need to be a Malaysian citizen or a permanent residence (PR) holder. A foreigner cannot start a partnership company in Malaysia.
What do you need to start a partnership company in Malaysia?
The first prerequisite to starting a partnership in Malaysia is that your business needs to comply with the Business Registration Act 1956 & Command of Business Registration 1957.
You also have to be a Malaysian citizen or PR aged 18 and older and your business must be operating in Malaysia.
Difference in tax revenue between partnership and corporate companies in Malaysia
In a partnership, the tax imposed is the personal tax on the partners involved in the business whereas in a corporate company in Malaysia is obligated to corporate taxations.
Personal taxes can be anywhere between 2-26% depending on the chargeable income.
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