Those who are interested in starting a business in Malaysia have several types of business entities available for them to choose from. The top three (3) choices of business vehicles chosen by start-up are sole proprietorship, partnership, or private limited Company (Sdn. Bhd.).
What is a private limited Company (Sdn. Bhd.)?
Private Limited Company otherwise known as “Sendirian Berhad” or “Sdn. Bhd.” can be said as one of the most preferred legal business structures in Malaysia. This business structure can be started by both locals as well as foreigners in Malaysia.
This business structure is typically a small or medium sized enterprises. The registration process is also straightforward with a cost of MYR 1,060.
Comparison between a private limited Company (Sdn. Bhd.) to Sole Proprietorship and Partnership
There are often varying reasons for business owners to decide setting up one of the options. One of the common reasons known is because it can be set up solely by a local or foreigners alike.
The advantages for setting up a private limited Company (Sdn. Bhd.) in Malaysia are aplenty, resulting in many swinging in favour of this entity type over others like sole proprietorship and partnerships.
Separate Legal Entity
- A private limited Company (Sdn. Bhd.) is considered as “legal person” which can purchase assets under its own name, bind a contract as well as sue another entity in court
- Stakeholders’ personal wealth are safe guarded and not personally liable towards debts accumulated by business
- As a “legal person”, a private limited Company (Sdn. Bhd.) can purchase assets such as building, land, vehicles, and many more under its name
- Stakeholders have no rights to claim upon an asset owned by the Company as long as the Company is undergoing concern basis
Ease in transfer of ownership
- The shareholders are at liberty to purchase, sell or transfer their shares to other existing shareholders or potential investors
- There will be no direct impact towards Company’s daily operation if occur changes of shareholders
- The private limited Company (Sdn. Bhd.) has a perpetual succession which means it will only cease to exist once it is legally dissolved
- If any stakeholder departs or ceased, it will not affect the Company existence
Better access to funding
- As a “legal person”, the private limited Company (Sdn. Bhd.) can initiate a corporate bank account opening and opt for the loan packages banker has to offer under its own name
- The Company may also encourage third party investors to fund the business by offering their shares and plan the dividend pay-out
Great corporate tax advantages
- Tax incentives such as pioneer status, investment tax allowance and SME Digitalisation Grant Scheme and Automation Grant are normally offered to private limited Company (Sdn. Bhd.)
- The business will only be taxed based on the profit before tax with first MYR 600,000 at 17% and a further of 24% on subsequent balance
Manageable annual compliance
- The Company Act 2016 has eased most of the annual compliance requirement such as the introduction of single member/director in the Company, abolition of the requirement to hold annual general meeting for private limited Company (Sdn. Bhd.) and the exemption to submit audited financial statement unless it meets the criteria
- The Company will be automatically operating under the Company Act 2016 framework instead of a Memorandum of Association (MoA) or Article of Association (AoA) unless stated otherwise by the shareholders
Starting a sole proprietorship or partnership may come with simple and cheap registration as well as simple annual compliance procedure, however the drawbacks of such business entities include:
Not separate legal entity – Owner is liable towards all the debts accumulated by the business and have the possibility to end up with bankruptcy if business go south
Owners can be sued – If the owner filed for bankruptcy, the creditors could easily sue the owners to claim the debt owed
Limited funding options – Commonly, owners are advised to take up personal loan instead of business loan. This can also lead to added liabilities towards the owner as an individual. Third party investors are also not easy to encourage to invest in the business as they are normally sceptical with such businesses