There is different type of business entities available in Malaysia. A business entity is an organization formed voluntarily to carry out activities of trading goods or services to consumers for profitable gain or charitable purpose. Each organization is determined by its business plan which include the outcome of its operation and main activity.
Most of the business entities are privately owned and administered by few individuals. In Malaysia, one of the most preferred type of business entity is the private limited company.
Private Limited Company (Sdn. Bhd.)
Malaysia has become one of the prime destinations in Asia for company registration amongst foreigners. It offers many advantages as an investment destination, favourable tax regime as well as strong government support.
With the revision of the Company Act 1965 to Company Act 2016, foreign investors are now allowed to solely own a Company (becoming a director and shareholder) without the need to appoint a local nominee director. This is allowed in the major vast of industries available in the country except for strategic sectors for national interest. The best structure to start a business is by incorporating a private limited Company (Sdn. Bhd.).
A private limited Company or otherwise known as “Sendirian Berhad” or “Sdn. Bhd.” is typically a small or medium sized enterprises with a straightforward registration process which cost only MYR 1,060.
This type of business structure is considered as a “legal person”. The Company can own assets, bind a contract as well as sue other entities in courts under its own name. The best part is it allows an entrepreneur to keep their finances and assets separately from the business. They are only liable towards the Company’s debts up to the amount they have invested for the business. Hence, this business structure is beneficial for a Company to have investment without risking stakeholder personal wealth.
Why incorporate a Private Limited Company (Sdn. Bhd.)?
There are a lot of advantages incorporating a private limited Company (Sdn. Bhd.) can have and some of the most famous ones are:
Separate Legal Entity
- This business structure is considered as “legal person” which can purchase assets under its own name, bind a contract as well as sue another entity in courts
- 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 under going 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 bank account opening and opt for the loan packages banker has to offer under its own name
- The Company may also encourage third party investor 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
The disadvantages of incorporating a Private Limited Company (Sdn. Bhd.)?
Even though there is a list of advantages incorporating a private limited Company (Sdn. Bhd.) can bring, however, the disadvantages still make entrepreneur think twice before proceeding:
Initially, setting up a private limited Company (Sdn. Bhd.) as a sole owner (director and shareholder) might come in handy. However, as time goes by and the business grows, more people might be involved with the decision making.
Even though the Company is exempted from annual general meetings, any decisions made by the appointed board of directors must still be written in circular resolutions which in turn will need the shareholder’s votes to conclude the matter. This can be a problem if there is conflict amongst the stakeholders.
Unable to appoint more than 50 shareholders at one time
Having investors within a Company is crucial to ensure the operation planning can be done in the long run. Funds injected by shareholders not only contributes to the daily operation, but also in adding the assets owned by the Company that in the end generate revenue for the year.
If the Company wishes to expand its business activities which might need more fund or investors, maintaining as a private limited Company (Sdn. Bhd.) might not be beneficial at this stage. As a private limited Company (Sdn. Bhd.), it is only allowed to appoint maximum of 50 shareholders at one time.
Unable to raise funds from the public
Another drawback by incorporating a private limited Company (Sdn. Bhd.) is that the Company is not able to sell its shares to the public as an alternative way to raise its fund. Their options remain by signing for loans from the bank, funds from their existing investors or selling off their existing assets.
Restricted share transfer options
It is well known that a private limited Company (Sdn. Bhd.) is formed by a close group of individuals such as business partners or family members. This also means, any decision to appoint an outsider to become one of the shareholders might be restricted.
Any newly issued shares issued shares must always be offered to the existing shareholders first before any outsiders can invest in them. The appointed board of directors will also have a say in this. They can decide whether the decision to transfer the shares to a new investor is beneficial to the Company or not.
Requirements to establish a Private Limited Company (Sdn. Bhd.)
Advantages and disadvantages are the norm in whatever decision we decided on. As long as the advantages weight more and brings prosper to the betterment of our live, we should take the risk and venture into it.
In order for an entrepreneur to incorporate a private limited Company, they are required to:
Have at least one director with legitimate residential address in Malaysia
Appoint director who are at least 18 years old
Inject a minimum paid up capital of MYR 1
Some of the crucial items they are advised to also take note off are:
Business plan – What is the business activities that the Company will be carrying, where will the operation takes place, how many employees the Company plans to hire, who is the target market and potential suppliers and most importantly, why must the business run in Malaysia
Registration and annual compliance recurring cost – The registration fee via an appointed Company Secretary can be around MYR 2,500 and the annual compliance recurring cost can be in between MYR 4,500 to MYR 6,000 (this includes Company Secretarial service, accounting, tax filing etc.)
Business licenses – Which industry will the business be involved with. A specific industry such as manufacturing will need to apply manufacturing license before they can proceed to operate. Even a consultation business which will be renting an office will also need a general license from the town city hall which is renewable each year
Will the Company hire foreign expatriates – If the Company has plans to employ foreign expatriates, the paid-up capital requirement may vary from MYR 250,000 for 100% local owned to MYR 500,000 for 100% foreign owned.
Key position within the Company – There are positions to be filled by third party such as Company Secretary, auditor, and tax agent. Regardless the Company is owned locally or by foreigner, it can venture into all type of business activities. Difference is only on paid-up capital requirements
Tax structure within the country – While most country practice double taxation, Malaysia tax system is territorial. Both residents and non-residents alike are taxed based on their Malaysian-sourced income while foreign-sourced income are not taxable even though the Company is local.
Procedure of incorporating a Private Limited Company (Sdn. Bhd.)
If you were to engage with Paul Hype Page & Co., all incorporation applications will be submitted electronically to Companies Commission of Malaysia – Suruhanjaya Syarikat Malaysia (SSM) by our certified Company Secretary.
The standard timeline needed are an estimation of:
Name reservation – 1 to 3 working days
Company incorporation – 3 to 7 working days
Client must complete the Know Your Client (KYC) in our patented platform
Our team will check and confirm if the name proposed is available within 24 hours
Directors NRIC / Passports are needed for our team to proceed with the name reservation application
Proposed name must have a definition
- ABC Ice Cream Sdn. Bhd. – A – Apple, B – Banana, C – Cherry Ice Cream Sdn. Bhd.
- Oishii Sushi Sdn. Bhd. – Oishii means delicious in Japanese
- Ramu Pharma Sdn. Bhd. – Ramu is the name of the director in the Company (a consent letter will be required for this type of proposed name)
- Paul Hype Page Sdn. Bhd. – Paul Hype Page is similar name to sister Company in Singapore (a consent letter will be required for this type of proposed name)
- Petronas Sdn. Bhd. – Petronas is a trademark name (a consent letter from owner is needed for this type of proposed name)
Nature of business in general
Cost to submit name reservation is MYR 50
Signing of Incorporation Documents
Once proposed name is approved, a Company has 30 days to complete the incorporation procedure
Our team will prepare the documents and generate them via our platform for stakeholders of Company to read and sign off
All signing will be done online, hence there is no need for our clients (local or foreign) to be physically present
Once signatures are completed, our team will proceed with the risk assessment task
This step is part of the risk and compliance assurance to ensure all stakeholders within the Company have clean background
Incorporating the Company
Once our team confirms stakeholders are clear, we may proceed with the final step, which is submission of incorporation application
Client must choose business activity code (maximum 3 at one time) and explain in general the business description of the business activities
One of the appointed directors must have a local residential address if all stakeholders are foreigners
If the Company already has a business address, kindly let our team know for us to include it during the initial stage
A minimum of MYR 1 as initial paid-up capital (Our suggestion is to at least put in MYR 1,000 as the initial paid-up capital)
Cost to submit incorporation application is MYR 1,010
Once the Company is successfully incorporated, the Company Secretary should furnish you the documents below:
Section 14 – Superform [Application for registration of a Company]
Section 15 – Notice of Registration [Certificate issued by SSM to confirm the Company is successfully incorporated]
Section 17 – Certificate of Incorporation
Section 46 – Particular of registered address
Section 58 – Particular of directors
Section 58 & 236 (2) – Appointment of first Company Secretary
Section 78 – Particular of shareholders and shares