Limited Liability for Owners
One of the most obvious benefit of a Sdn Bhd company is the financial security that comes with the business. As a private limited company carries the suffix Sendirian Berhad, the ‘Berhad’ denotes the limited liability of shareholders. This liability protection to its shareholders means that the shareholders are not liable for the company’s debts beyond the amount of the share capital they have endorsed unless if there are any cases of fraud, deceit or malpractice. For instance, if you invested RM200,000 in a company in exchange for 20% shareholding and later, if the company becomes insolvent, your worst-case scenario is that you are just unlikely to recover your invested amount.
Not only limited to shareholder, even as a director you will not be legally liable for company’s liabilities. Hence, this can provide a relieve and a feeling of security as directors or shareholders do not have to worry about the company’s creditors chasing after them personally for any of the company’s liabilities.
Separate Entity – Continuous Existence
A Sdn Bhd company is considered a separate legal entity which is one of the many benefits of operating a Sdn Bhd. This means that the company is treated as a separate ‘person’ in law, and the company possess almost all powers which any normal person has such as the power to purchase, own or sell assets, the power to enter into contracts, the power to open bank accounts and receive money, the power to sue and being sued and so forth.
Due to its very nature, as it is a separate legal entity from its owners, the company will exist beyond the life of its members. The directors, shareholders and employee may come and go, but the Sdn Bhd company will remain in existence until it is dissolved. If any of the company members retire or die, the company will still continue to operate unless the company is wound up or struck off from the register of companies. This in turn will ensure security for employees and other members of the company and regarded as a major advantage which other legal forms of business are not subject to. Hence, a Sdn Bhd company is ideal for long-term succession plans.
Another advantage of owning a Sdn Bhd company is the simplicity to transfer existing shares or issue any additional shares to new investors. Ownership in a Sdn Bhd company is held among several shareholders. A shareholder is allowed to sell or transfer shares, partially or entirely through selling of his shares without changing the ownership structure of the company (which is subjected to director’s approval). This can include your family members, relatives, spouse, other entities or any willing and able party. This is not the case with the other business entities like sole proprietorship or partnership because with them, you will need to sell the entire business and discontinue the operation.
Taxing Benefits – Low Corporate Tax Rates
Probably one of the most important benefit is the taxing benefits as the corporate tax rate is lower than the individual tax rate where the Sdn Bhd company is only subject to the 20% to 25% corporation tax rate. By separating the company’s assets from personal wealth, the total amount of tax that should be paid by a shareholder will be lower.
Sdn Bhd companies are only taxed on their profits usually at a rate of 21% compared to the rates placed on sole proprietorship or partnership companies which can reach up to 40%.
Currently, companies that have a share capital of less than 2.5 million are taxed as stated below:
- First RM500,00 profit: 20%
- Above RM500,00 profit: 25%
Better Access to Capital Funding
It is relatively easier for private limited companies to raise money than it is for other type of business. For instance, one advantage of the Sdn Bhd is that it has the option of issuing new shares to investors. Any business will need an adequate supply of financial resources and immediate replacement in case of depletion. This enables better opportunities for the Sdn Bhd to expand.
In terms of obtaining a bank loan, a Sdn Bhd company is allowed to borrow money at lower rates compared to other type of businesses. For sole proprietorship, the credit rating depends on owner’s personal wealth and capacity whereas for Sdn Bhd depends on company cash flow, strategy and business prospects. Financial institutions tend to borrow loans to companies as it is less risky compared to other type of business entities.
Oftentimes, business gets busy when there is business opportunity. As a potential business owner, you need to look at the bigger picture and determine your benefits from the business before even making a decision to set up your company. Although there are challenges facing business owners to set up a company, getting it right from the first step is fundamental move before taking the plunge in your business venture.
It is critical to understand the advantages and benefits of owning a new Sdn Bhd company in Malaysia compared to other forms of business entities as you will be able to get value for your investment. If you are thinking of setting up a Sdn Bhd company today, you may enjoy all the above benefits.