Sole proprietor or Sdn Bhd? How a little-known rule played out for tuition centres

 

Stefan Soh, 49, has run Pusat Tuisyen Sinergi as a sole proprietorship for 18 years. He said he was unaware of the 30 percent bumiputera equity requirement when he first registered his centre.

It came up only about five years ago, when he began looking at upgrading his business to a private limited company (Sdn Bhd).

“Only when we wanted to upgrade to a Sdn Bhd were we told there was a 30 percent (bumiputera equity) condition,” he said.

The condition applied to Sdn Bhd companies running private educational institutions (PEIs), including tuition centres, under the Education Ministry.

It was stated in the Private Educational Institutions Policy Statement published in 2006. The ministry's guidelines on the establishment, registration, and operation of tuition centres, issued earlier, set the same requirement for centres structured as Sdn Bhd.

On Sept 21, the ministry announced that the minimum 30 percent bumiputera equity would no longer be required of Sdn Bhd companies operating PEIs under the ministry.

That raises a question. How did tuition centres that were not run as Sdn Bhd build and sustain their businesses all this time, and for 20 years without any issue?

Who knew, and when

Soh was not the only one who learned of the condition when looking to turn his business into a private limited company.

Twins Education, which has operated for nearly 12 years and now has five branches, was originally registered as a partnership. Its principal, Andy Kw Gan, 39, said he does not recall being told the 30 percent bumiputera equity condition when the centre was first registered.

Around 2021, however, Twins set up a Sdn Bhd and applied to transfer its existing tuition centre licence to the new company. It was then told of the condition and was asked to provide information or documents on equity ownership during the transfer.

Gan said the same information was not requested at later licence renewals, which he understood to be because the ownership details were already in the authorities' records.

Lim You Tian, 44, who runs Tutor Tutor Cemerlang (TTC), knew of the condition. All TTC branches operate as partnerships, he said, and the 30 percent condition was among the reasons it did not convert to a Sdn Bhd.

“Because in a Sdn Bhd you need 30 percent bumiputera equity. But we're teachers, we want to teach. So it's really difficult to find other people anyway.

“What's important is to teach, not profit,” he said.

What a Sdn Bhd is, and what the alternatives mean

A Sdn Bhd is a legal entity separate from its owners, unlike a sole proprietorship or partnership.

In a sole proprietorship or partnership, the owner or partners carry unlimited liability that can involve their personal assets. In a company, a shareholder's liability is essentially limited to any unpaid amount on their shares.

This means tuition centre operators do not necessarily need to set up a Sdn Bhd to keep operating. They can choose other structures, such as a sole proprietorship or partnership, but those come with their own risks and limits.

A clear pattern

A Malaysiakini straw poll of five tuition centre operators, whose centres have been running for between 12 and about 20 years, showed a clear pattern. Most built and sustained their operations under structures other than a Sdn Bhd.

Of the five operators interviewed, four run or have run their centres as sole proprietorships or partnerships. Only one has moved to a Sdn Bhd.

Malaysiakini's findings suggest the 30 percent bumiputera equity condition did not necessarily stop tuition centres from operating. Instead, it prompted some operators to stay with sole proprietorships or partnerships, which were not subject to the requirement.

That choice, however, had its own trade-offs. These structures do not offer the same separation of liability as a company, while a move to a Sdn Bhd can raise questions about ownership, partners and capital.

The pattern also suggests the condition's effect did not necessarily show up in centres that closed or licences that were rejected. Gan said he knew of no tuition centre operator whose licence or renewal had been rejected specifically because of the condition.

Instead, the effect could come earlier and more subtly, in how a centre was structured, how far it wanted to grow and how much risk its owner was prepared to take.

In that context, these centres’ survival for more than a decade shows how some operators adapted their structure and scale to the existing regulatory framework.

‘Taking the risk’ of staying a partnership

For You Tian, staying a partnership for nearly 20 years meant carrying risks he was aware of. He said the partnership structure leaves owners personally liable if there is a legal claim.

“If a student falls, or a student gets hurt, and then the parents sue, go to court, sue for RM1 million, RM2 million, we (personally) go bankrupt as well,” he said.

Bringing in investors just to meet the ownership structure could also bring other pressures on how a tuition centre's money is spent and managed, he said. TTC would rather channel spending towards teachers and learning materials than face shareholders who, he said, might place more emphasis on returns on investment.

‘Like a forced marriage’

For Soh, the problem was not unwillingness to adopt a company structure. It was the difficulty of finding a bumiputera partner with capital and a shared business direction.

“It's not that we don't want to go ahead, but to find a bumiputera who has the same aspirations and capital as well, you can't find one in a short time.

“Other commercial tuition centres can grow very fast, but we grow very slowly,” he said.

He stressed that this was not a racial issue and said his centre has Malay staff and students.

Rather, he said, choosing an incompatible partner could cause bigger problems for a business.

“If the partner isn't compatible, there are even more problems. Forcing yourself to find a partner like that, it'd be like being forced into marriage,” he said.

‘If a partner cheats, a friend turns to foe’

For Janet Lim, 44, who runs ATC Daycare & Tuition Centre, a sole proprietorship suits a small-scale operation run with her husband. ATC has operated for 16 years and has been a sole proprietorship from the start.

Janet, who is also a self-development author, said she never planned to turn the centre into a large operation.

“Now it's only husband and wife who manage the tuition centre. I teach, and my husband is the principal.

“Simple, simple life,” she said.

She said, however, that the need to find partners could be a consideration when a tuition centre wants to expand.

“It's difficult to find partners too. Because you often hear in business, if a partner cheats, a friend can become an enemy.

“So, if you do a sole proprietorship, it's safer. Just husband and wife, or just one person, no need to involve many people. That's why we've lasted 16 years,” she said.

The bestselling author said she opposed the 30 percent condition.

‘Obsolete, unclear and unfair’

Not every centre felt the condition's effects. Eshin Low, 46, director of Ethos The IGCSE Education Centre, said his centre had faced no effect from the condition when applying for or renewing its licence in recent years.

Ethos, registered as a partnership, began operating in 2006 and has been in education for nearly 20 years. Low said it started small with his wife, Ly Shan Tan, 45, before growing with a larger workforce.

Although the condition did not directly affect Ethos' licensing, Low said the centre supported the decision to scrap it.

“We support the abolition of this obsolete, unclear, and unfair implementation,” he said.

Gan called the ministry's move positive and timely.

“From our experience as tuition centre operators, the 30 percent bumiputera equity condition was previously one more administrative requirement that was not directly related to the quality of education or how a tuition centre operates,” he said.

He said attention should be given to matters that directly affect students, such as teaching quality, teachers' qualifications and conduct, student safety, premises suitability and compliance with regulations.

After the rule

The operators’ experiences show that no single formula was followed in surviving under the old policy.

Yet a similar pattern emerges: tuition centres can run for years as sole proprietorships or partnerships, but for some operators that choice also shaped their liability, rate of growth, and whom they were prepared to bring in as partners.

Now that the condition has been dropped, the effect is not uniform either. Soh said that although he supports scrapping the condition, he is for now inclined to keep his sole proprietorship. Janet said she still plans to keep hers.

TTC, on the other hand, sees a chance to finally move to a Sdn Bhd, something it has avoided until now.

“If the condition is really, truly removed, we'll switch to a Sdn Bhd as soon as possible,” You Tian said.

He added, however, that TTC wants to wait until the policy position is truly clear before making the change. - Mkini