3 Proven Benefits of Sdn Bhd over Sole-Proprietorship Companies - Incorp

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3 Proven Benefits of Sdn Bhd over Sole-Proprietorship Companies

November 17, 2021 incorp 0 Comments

Sdn Bhd (or Private Limited) remains one of the three most popular company model of choice when it comes to starting up a business in Malaysia, along with LLP (Limited Liability Partnership), Berhad (Public Limited Company). But why is it though?

 

In this post, we’ll be analyzing on the aspects of a Sdn Bhd company and what makes it the ideal and common choice amongst businesses? Especially when compared with a company holding Sole Proprietor status? Stick with us to find out…  

 

i. Long-Term Company Objective:

As a business owner or one who intends of starting one, have you ever thought of a 5-year plan for your company? This is due to the fact that each corporate model requires a certain number of prerequisites to be fulfilled prior to being registered as either a Sdn Bhd (Sendirian Berhad) or Sole Proprietor based company. For example, Sdn Bhd companies has the maximum cap of 50 shareholders as compared to Sole Proprietor companies, insinuating that if you’re looking to expend your company in the long-run, Sdn Bhd would be a better alternative. 

 

This makes understanding the purpose and future of your company gravely important as it would allow you to not conserve precious resources, but also manage your company’s overall infrastructure more efficiently.  

 

Take for example, if you’re wanting to merely open and operate a small general store rather than having possible future plans in expanding and establishing a large corporate entity or conglomerate, then it is preferable to opt for the Sole Proprietorship option. However… 

 

Sendirian Berhad” (Sdn Bhd) or Private Limited, a common term appointed in Malaysia to companies incorporated by Suruhanjaya Syarikat Malaysia (SSM) or  Companies Commission of Malaysia (CCM) has a large number of benefits that’s favorable to potential business owners in the long-run. 

 

Take for instance, aside from the fact that many companies in Malaysia are registered as Sdn Bhd, the status provides them the perk, which in accordance with Companies Act 2016, establishes the business owner to be viewed upon as a separate legal entity from the company itself, thereby enabling them to be liable only for the amount they have placed into the business while under the company’s protection and coverage. 

 

This is in contrast with Sole Proprietorship, whereby both the company and business owner share the same identity, being viewed upon as one single entity, which may result in the owner paying directly from her/his personal assets should s/he face severe losses or liabilities in the process. Imagine large amount of monetary assets being siphoned out from your very own personal bank account, all for the sake of paying off those massive debts, which would cause heavy implication on not just your livelihood BUT to your loved one’s as well.  

 

ii. Taxation & Rebates:

In terms of taxes, incorporating as an Sdn Bhd (Sendirian Berhad) company consists of numerous benefits that overshadows the essence of Sole Proprietorship. For one, on doing so, Sdn Bhd companies need to only pay an initial 17% of taxes for the first RM600,000 in terms of taxable income, with 24% tax charges being imposed subsequently. 

 

What this means is that the said Sdn Bhd company will be able to save up on a large sum of monetary assets during their first year of operation. Furthermore, due to their status, any expenditure through the company will be limited based on the amount utilized for the company which minimizes the liability of the business owner.  

 

This is in stark contrast with Sole Proprietorship registered companies where not only does business owners under this category have to pay the full amount of liability experienced by the company, but also required to pay 7% more in taxes as compared to Sdn. Bhd. registered companies, equating it to a total of 24%.  

 

In addition, as of 2021, the government has recently offered a 20% rebate for all newly established SMEs (Small and Medium Enterprises) that are registered under Companies Act 2016 as a means of attracting business development here in Malaysia. Hence, if your company is classified as an SME, commenced business operations between 1st July 2021 until 31st December 2021, your company will be then liable for this rebate offer. 

 

For example, between a Sdn Bhd and Sole Proprietor company if tax were to be paid, along with the addition of the 20% rebate for incorporated companies: –  

 

i. Sdn Bhd Company

Earned
= RM600,000
 

RM600,000 x 17%
(
Tax savings applied based on generated revenue

=RM102,000 (Tax to be paid)
 

RM102,000 x 20% 

(Tax Rebate) = 

RM20,400 (Rebated Amount) 

RM600,000 – RM102,000 + RM20,400 

RM518,400 

 

ii. Sole Proprietor Company

Earned
= RM600,000
 

RM600,000 x 24% (Standard Tax Rate) = RM144,000 

RM600,000 – RM144,000 

RM 456,000 


iii. Total Difference in Balance Between Sdn Bhd & Sole Proprietor Companies: –

RM518,000 – RM456,000 = RM62,000 

 

Based on the above equations, settling for an Sdn Bhd company would prove to be more beneficial in the long run as compared to the sole proprietor variety. 

 

Furthermore, if your company is a recent start-up, registering as an Sdn Bhd company would enable you to conserve some monies, indicating a difference of RM62,000 between the after-taxation amount of Sdn Bhd and sole proprietor companies. 

 

Nevertheless, Sdn Bhd companies will still be required to pay both audit and company secretary costs as stated by Companies Act 2016. Hence, the RM62,000 profit would be a beneficial funnel to accommodate those expenditures, thereby avoiding unnecessary stress over initial financial issues.  

 

 

iii. Succession Planning

Aside from that, other consolidating benefits upon registering as a Sdn Bhd company includes the factor of succession planning. This aspect provides Sdn Bhd registered companies the opportunity, should befall on the owner/current Director, be it sickness, death, handicap, or more, shareholders would be permitted to undergo a succession plan where they would then elect a new successor.  

 

This is however in contrast with Sole Proprietor companies. With business owners being the sole holder of the establishment and not being able to elect a successor would cause their company to either close or be gravely affected should any form of ailments or death befall her/him along the way. 

 

For a more in-depth explanation over each of these corporate models, kindly click “Sole Proprietorship VS Sdn Bhd to find out more. 

 

Alternatively, if neither options sound appealing to you, you may also opt for the third approach of Limited Liability Partnership (or LLP for short). A hybrid between Sole Proprietorship and Sdn Bhd, the LLP model provides business owners the advantage of segregation whereby both them and their respective companies would be viewed upon as separated and differing entities. 

 

Alongside that, unlike Sole Proprietor companies when facing a loss, the repayment for the liability will be covered through the shared means of partners’ capital, meaning each partner would fork out a certain amount into the payment. But best of all, it has lower income tax rates (on the condition that it has RM2.5 million or less worth of capital contribution) and ease of ownership transfer where a new owner can be elected amongst the partners should the current one be befallen with either illness or death.  

 

However, like all other company models, LLP has its own fair share of disadvantages such as not being able to sell its company shares as an alternate means of raising funds, as well as not being able to easily acquire fundings due to most bankers being skeptical of such business models. 

 

Which is why we would like to express our empathy towards understanding your pain of draining precious resources such as time and monetary assets when it comes to registering your company with the right optimal model… 

 

Therefore, why not partner with us here at Incorp? Whether it’s a Sdn Bhd (Sendirian Berhad) or Sole Proprietor registered company that you’re looking into, our industrial veterans who’re equipped with years of experience in corporate secretarial matters will be able to not only provide applicable professional advice in helping you decide on the company model of your choice but also aid in the process of a smooth and successful incorporation of your company.   

 

Interested? Please kindly email us your queries via our email or WhatsApp located below and we’ll revert to you as soon as possible: –  

 

Email: secretarial@elegant.com.my 

WhatsApp: 017-2727118

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