To run a business in Malaysia, you don't always need to establish a Sdn Bhd. In general, there are 8 different types of business entities, each with its own set of requirements and objectives. However, because of the advantages it provides, Sdn Bhd is one of the most commonly registered business entities. These are the top 5 reasons to incorporate a Sdn Bhd as your company's legal entity.
1. To run a business as a foreigner residing in Malaysia
When it comes to establishing a business entity to run a business in Malaysia, foreigners have very few options. Incorporating a Foreign Company is costly due to the high share capital and incorporation fee, so your best bet would be to incorporate a Sdn Bhd, or a private limited company. The requirements for a foreigner to establish a Sdn Bhd are same as a Malaysian, with only one director and shareholder (who can be the same person) required. All you need to do is show proof of residency in Malaysia. However, depending on the regulations of the local authorities, you may be prohibited from operating certain types of businesses.
2. To run a business in regulated industries
Some examples of regulated industries in Malaysia include the manufacturing sector, the construction sector, the medical sector, the oil and gas sector, the finance sector, and the telecommunications sector. Aside from registering your business entity with SSM, you may need to obtain a specific license from the relevant governmental authority in order to legally operate your business. That frequently requires your business to be registered as a Sdn Bhd with a minimum paid-up capital. Thus, before deciding on which business entity to register, it is recommended to check out the MalaysiaBiz portal for suggestions on the business licenses that you need based on the types of industries and locations of your business.
3. To separate your personal liabilities from the business’
Your Sdn Bhd is a legal entity in its own right. Like an independent individual, it can receive income, acquire property, enter into a contract with a third party, and participate in legal proceedings. Even if you own the Sdn Bhd as a shareholder and manage it as a director, the Sdn Bhd is ultimately responsible for compliance and day-to-day operations. Your personal wealth is safeguarded in the event that the business fails or suffers losses. For instance, if your Sdn Bhd is sued by a company or an individual, the company or individual is only entitled to compensation based on the Sdn Bhd's available funds and assets, not the personal assets of directors and shareholders. However, if you are found to be negligent in your business, you may still be held liable.
4. To enjoy corporate tax benefits
If you run your business as a Sole Proprietorship or a Partnership, there is no distinction between personal income tax and business taxes. In other words, if your estimated annual profit is RM 150,000, your taxable business income as a Sole Proprietorship or a Partnership will be taxed at a personal income tax rate of 24% rather than the company tax rate of 17%. So, if you run your business as a Sdn Bhd, the personal income tax rate only applies to the salary you receive from your business, while your company pays the company tax rate on its taxable income each year.
5. To raise funds from investors
Only business loans from banks or P2P lending platforms are available to raise funds for the expansion of a sole proprietorship or partnership business. A Sdn Bhd allows you to raise funds by selling shares in your company to individual and corporate investors or through investments. A Sdn Bhd also has more credibility because it is managed by a board of directors and is backed by shareholders who have contributed to the business's paid-up capital, which gives you an advantage when raising funds from investors.
Knowing your business objectives aids in selecting the best business entity for you. If you choose to incorporate a Sdn Bhd, you can do so yourself through the MyCoID portal or hire a trusted professional company secretary to handle the entire thing from head to toe for you. Appointing a Company Secretary to handle the incorporation will prove to be more cost-effective than incorporating the company on your own.