3 Proven Benefits of Sdn Bhd over Sole-Proprietor Companies in Malaysia

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3 Proven Benefits of Sdn Bhd over Sole-Proprietor Companies in Malaysia

November 17, 2021 incorp 0 Comments

Reading Time: 6 Minutes –

 

Sdn Bhd (or Private Limited) remains one of the three most popular company models 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 details of a Sdn Bhd company and what makes it the ideal and common choice amongst businesses as  compared to 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 because each corporate model requires 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 have a maximum cap of 50 shareholders compared to Sole Proprietor companies, indicating that if you’re planning 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 not only would it require you to conserve precious resources, but also manage your company’s overall infrastructure more efficiently.  

 

For instance, if you’re wanting to merely operate a small general store rather than having possible future plans in expanding and establishing a much larger corporate entity, then it is preferable to opt for the Sole Proprietorship option. However… 

 

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

 

Take for instance, aside from the fact many Malaysian companies are registered as Sdn Bhd, this status itself provides them a unique benefit. According to Companies Act 2016 after incorporation, this move 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. 

 

 

This contrasts with Sole Proprietorship, where both the company and business owner share the same identity, having being viewed upon as one single entity. This 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 amounts of monetary assets siphoned out from your very own personal bank account, all for the sake of paying off those massive debts…

 

ii. Taxation & Rebates

In terms of taxes, incorporating as a Sdn Bhd (Sendirian Berhad) company consists of numerous benefits that overshadows Sole Proprietor companies. For one, 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 starks in 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, in addition they are also required to pay 7% more in taxes as compared to Sdn. Bhd. registered companies, equating 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) registered under Companies Act 2016 as a means of attracting business development here in Malaysia. Hence, if your company is classified as an SME, commencing business operations between 1st July 2021 until 31st December 2021, your company is therefore liable for this rebate offer. 

 

For example, between a Sdn Bhd and Sole Proprietor company if taxes were to be paid, 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 more beneficial in the long run as compared to the Sole Proprietor counterpart. 

 

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 supporting benefits for registering as a Sdn Bhd company includes the factor of succession planning. This advantage can be executed for Sdn Bhd registered companies should anything unfortunate befall the owner/current Director (either sickness, death, handicap, or more), shareholders would be permitted to undergo a succession plan where they would elect a new successor.  

 

This is 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 up or 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 same advantage of segregation where both them and their respective businesses would be viewed upon as separated and differing entities. 

 

Also, unlike Sole Proprietor companies when facing a loss, the repayment for the liability faced by LLP companies will be covered through the shared means of partners’ capital. This means that each partner would fork out a certain amount for the payment. 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 should either be afflicted by 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 nor easily acquire funding. This is 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 type of 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 company secretaries are equipped with years of experience in corporate secretarial matters are not only able to provide applicable professional advice in helping you decide your ideal company model but also aid in the process of a smooth and successful company incorporation.   

 

Interested? Feel free to connect with us via our email or WhatsApp and we’ll revert to you as soon as possible: –  

Email: secretarial@elegant.com.my 

WhatsApp: 017-2727118

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