Business Entities
A company and a sole proprietorship (also known as a business entity or firm) are two distinct types of business structures, primarily differing in legal framework, liability, name protection, and capital requirements.
A company is established under the Company Act and has legal entity status. Its name is protected nationwide, and shareholders have limited liability, meaning they are only liable for the company’s debts up to the amount of their capital contribution.
In contrast, a sole proprietorship or business firm is established under the Business Registration Act and does not have legal entity status. Its name protection is limited to the city or county of registration, and the owner bears unlimited personal liability for the firm’s debts.
(Non-Closely Held) Company Limited by Shares
Refers to a standard company limited by shares that is either publicly or privately held, but not governed by the special provisions applicable to closely held companies. Share transfers are relatively unrestricted, and publicly listed companies are subject to supervision by securities regulatory authorities.
This structure is suitable for larger-scale businesses that require public fundraising or plan to go public.
A company limited by shares must have at least two promoters. Shareholders are liable for the company’s debts only up to the amount of their subscribed shares.
Comparison: Limited Company vs. Closely Held and Non-Closely Held Company Limited by Shares
Closely Held Company Limited by Shares
Defined under Articles 356-1 to 356-14 of the Company Act, this is a type of company limited by shares that does not publicly issue shares and is not listed for trading. It typically has a smaller number of shareholders (no more than 50, including both individuals and legal entities), and share transfers are restricted.
This structure is well-suited for small to medium-sized enterprises (SMEs) or family-owned businesses, offering greater flexibility in management and control over ownership.
Share transfers are restricted and generally require the approval of the board of directors or shareholders’ meeting, unless otherwise specified in the Articles of Incorporation.
Comparison: Limited Company vs. Closely Held and Non-Closely Held Company Limited by Shares
Limited Company
Established under Articles 98 to 154 of the Company Act, a Limited Company is formed by one or more shareholders who contribute capital to the business.
Each shareholder is liable only up to the amount of their capital contribution and the company does not issue shares to the public.
This structure is suitable for small businesses or companies operated by a small number of partners.
Comparison: Limited Company vs. Closely Held and Non-Closely Held Company Limited by Shares
Sole Proprietorship / Partnership Business
Established under the Business Registration Act, this type of business is operated by an individual or a group of partners. It is a non-corporate entity with either unlimited personal liability (sole proprietorship) or joint and several liability (partnership).
This structure is suitable for small and simple businesses, such as food stalls, retail shops, and similar operations.
- Legal Status: Non-corporate entity; does not have independent legal personality.
- Liability: Unlimited liability (sole proprietorship) or joint and several unlimited liability (partnership).
- Number of Founders: 1 person (sole proprietorship) or 2 or more people (partnership).
- Capital Requirements: No minimum capital required.
- Taxation:
- Sole proprietorships are taxed under individual income tax.
- Partnerships allocate profits to partners, who each pay income tax on their share of business earnings.