In this blog post, we will talk about the major advantages of incorporating a Private Limited Company Sdn Bhd.
If you have plans to start a business in Malaysia, there is a wide range of options available for you. Yet, only three of them are referred to as the most prominent business vehicles. These include
- Sole proprietorship
- Private Limited Company (Sdn. Bhd.)
Here we will talk on setting up the private limited company or Sdn.Bhd. By the way, we have already posted a detailed and step-by-step guide on how to register Sdn Bhd Company in Malaysia.
That said, let’s take a look at what is a Sdn.Bhd first.
Private Limited Company (Sdn.Bhd.)
Also known as “Sendirian Berhad”, the private limited company is among the most viable business vehicles in Malaysia. This is so, as both the local residents and foreigners are allowed to set up a Sdn.Bhd.
Usually, Sdn.Bhd. is a small or medium-sized company or enterprise. Besides, the registration process is simple and straightforward.
Why you should Consider Setting up a Private Limited Company Sdn.Bhd.?
Although there are numerous reasons for incorporating a Sdn.Bhd., yet the most common one relates to the simplicity of the setting up procedure. In addition, investors or businessmen also prefer this type of company as it is possible to set up this company solely.
Furthermore, there are numerous benefits of incorporating or starting a (Sdn. Bhd.). Listed below are the most common advantages of setting up a Sdn.Bhd.
Sdn.Bhd. is a Separate Entity
A Sdn.Bhd. is considered as a separate entity. It can act as a “legal person”, allowing this business entity to purchase properties and assets under its name. Besides, a Sdn.Bhd. is also capable of entering a contract with a person or another entity.
Similarly, this business entity can also sue other companies. The personal property or wealth of a stakeholder is safe in case the company goes bankrupt.
Hassle-free Procedure for Transferring the Ownership
The shareholders of a private limited company are free to buy or sell the shares or transfer the shares to other investors. Even if all the shares of a company have been transferred, it won’t cause any change in the routine operation of such a company.
Funding is Easy to Access
A private limited company (Sdn.Bhd.) can open a bank account opening under its name. In addition, such a company can also apply for a loan through a bank under its name.
Apart from this, a Sdn.Bhd. can also encourage other investors to purchase its share and fund the business. The investors will get the dividend pay-out, which is a way of profit sharing.
Corporate Tax Benefits
A private limited company can obtain a wide range of benefits when it comes to corporate tax malaysia. Some major tax incentives include:
- SME Digitalization Grant Scheme and Automation Grant
- Pioneer status
- Investment tax allowance
This type of company will be taxed only on the profit at a rate of 17% when the profit is MYR 600,000). If the profit further increases, the tax will be collected at a rate of 24%.
Easy to Manage Annual Compliance
According to the rules provided in the Company Act 2016, the requirements regarding annual compliance have been eased a lot. For instance:
- The introduction of a single director or member in a private limited company
- Exemption of holding the annual meeting
- No need to submit an audited financial statement (If the company falls under the criteria)
Each Sdn.Bhd. will continue to operate under the Company Act 2016. Meaning thereby, there is no need to create an Article of Association (AoA) or Memorandum of Association (MoA). However, if the shareholders insist on creating one of the above documents, the company can act accordingly.
However, starting a partnership or sole proprietorship appears to be easy as compared to a Sdn.Bhd. Yet these business vehicles may have some sort of drawbacks. Some of these disadvantages are discussed below:
Creditors can sue the owners: In case of bankruptcy, the creditors can also sue the owner of a business and claim their debt.
Not treated as an independent legal entity: Both the owner and partner (if any) of a business are liable to pay for the debts payable by his/her business. If unpaid, the business may go bankrupt. This means the assets of the owner aren’t safe.
Funding options are limited: The business owners can take a loan under their own name. Hence, they are not allowed to apply for a business loan. As a result, the loan will serve as an added liability towards the business owner. In addition, investors don’t feel comfortable when it comes to investing in a sole proprietary or partnership.
Ability to Convert a Private Limited Company into a Public Limited Company (Berhad)
This is another fact, which persuades the businessmen to choose a private limited Company (Sdn.Bhd.). Upon expansion of an existing business, it is possible to convert a Sdn.Bhd. into a Public Limited Company (Berhad).
Furthermore, most of the rules and regulations linked with a Sdn.Bhd. are also applicable to the public limited company (Berhad). However, there are a few differences too. These include:
- A public limited company requires to meet strict compliance rules i.e. filing of the audited report and holding an annual general meeting
- Such a company can sell its shares to raise fund
- The administration is a bit complex, which results in slowing down the decision-making process
Apart from these differences, a business can also enjoy a variety of advantages when it switches to a public limited Company (Berhad). These benefits include:
a) Easy to attract investment
A public limited company can easily attract institutional investment. This suggests that these companies don’t need to be a part of hectic negotiations.
b) Enhanced valuation
A public limited company can easily reach an elevated stature. This improves the valuation of a company and opens new business opportunities. Besides, such a company can gain the trust of investors without much of an effort.
c) Sell to make a profit
A public limited company allows the owners to expand the business. This in turn enhances the share price of such an entity. Hence, it is possible to sell company’s share at a higher rate and make a profit while selling the company.
What it takes to setup a Private Limited Company (Sdn.Bhd.)
In order to create or incorporate a private limited company Sdn.Bhd., it is essential to meet the following requirements.
- There must be one director of the company (at least) who is a resident of Malaysia
- A person with a minimum of 18 years of age is eligible to become a company director
- You can set up a private limited company if having the required capital
After meeting the above-mentioned requirements, you can set up a Private Limited Company (Sdn. Bhd). For this purpose, you have to choose one of the two options provided below:
- Register a company online by appointing a certified company secretary
- Go to a SSM counter and register your company
The estimation of a standard timeline for incorporating a Sdn.Bhd. company is as under.
- Name reservation might take 1 to 3 working days
- The process of company incorporation might take 3 to 7 working days
Before submitting the application for ‘Name Reservation’, it is essential to provide the NRIC or Passport of a director. Following are some other requirements to meet when you need to reserve a name for your company.
- Must disclose the nature of business
- Should have signed the incorporation documents
- The proposed name of the company should have a clear definition or meaning
- Must pay the ‘Name Reservation’ fee that is MYR 50
After approval of the proposed name, such a company must complete the incorporation process within a period of 30 days/
Incorporating the Company
After completing the steps mentioned above, it’s time to file the company incorporation application. For this purpose, the client is required to select the business activity code. It is also imperative to describe the general nature of the business.
- The business owner must also explain the business activities that are necessary to run such a business
- The director or one of the directors should provide a local residential address that is verifiable. This is essential when all the business owners are foreigners.
Here is all you need to know about the major advantages of incorporating private limited company Sdn Bhd.