Small medium enterprise (SME) contributes substantially to growth of the country. These enterprises require legal entities to operate. The top 4 entities available for business purposes are company (Sdn. Bhd.), limited liability partnership (LLP), partnership or sole proprietorship. The law applicable for each entity is different which is reflected below:
- Company: Governed under Company Act 1965 & 2016
- Limited liability partnership: Governed under Limited Liability Partnership Act 2012
- Partnership: Governed by Partnership Act 1961
- Sole proprietor: Governed under Registration of Business Act 1956
Each entities have its advantages particularly in terms of legal personality, tax liability and profit sharing.
Common scenarios faced by You
Depending on the entities chosen by the business owner, the members of entities faced multiple legal issues. The following are the top scenarios faced:
Every member of entity except sole proprietorship comprises more than 2 persons. The goal in constituting enterprise is to build a profitable business. Very common, members also hold shares of the entities in varied portions. The conflict arises when one member holds a larger share than the other and act in a way not approved by the other which is alleged to be against interests of entity.
Most business owners chose mode of enterprise without considering whether the entity is separate from owner own legal entity. However, when faced with breach of obligations under contract they entered into, the owners faced possibility of court proceeding. Then, the question arises as to whether their personal assets will be implicated.
Solutions for You
The goal of a business to make profit. Thus, every decisions made by the members of the entities are towards realizing the goal. When a member acts in a way contrary to interest of entity, despite owning a larger share, he is said to breach his duties to his fellow members and entities. The oppressed member can apply to the court for various remedies including account of profits and compensation.
As a general rule, LLP and company have separate legal entity with the members. Sole proprietorship and partnership do not enjoy this privilege. What it means is in terms of legal liability, the liability of the entity is the same as the owner of sole proprietor or partner of partnership. When a sole proprietorship or partnership are sued and the entity is wound up due to insufficient assets, the personal assets of the owners may be used to satisfy the debts.