5 Reasons Why You Should Incorporate Your Business
By default, many small business owners in Malaysia first start their businesses as Sole Proprietorships or Enterprises. However, when the business starts to grow and expand, the business structure of a Sole Proprietorship/Enterprise may have significant implications as to how your business, wealth and risks, forms and grows
Here are some of the reasons why small business owners like yourself should take the step to incorporate a private limited company (Sdn. Bhd) in Malaysia.
Incorporating your business as a Sdn. Bhd. means setting up a distinct legal business entity separate from yourself, and by doing so limiting your personal liability. Aside from tax reasons, the most common motivation for setting up a Sdn Bhd company is that the shareholder is not legally liable for the actions of the company, within limits, of course.
1. You Can Separate Personal From Business
As a sole proprietorship, there is no separation between the business and you. In other words, you are the business and the business is you. For example, the business owner is responsible for signing any contracts and taking out any loans or credit on a personal level.
Aside from that, if the business faces any issues such as legal action by a client or if your creditor chooses to take action against you, you are responsible on a personal level, putting your assets and savings at risk.
The benefit of incorporating a private limited company is that the Sdn. Bhd. is a separate entity. The entity itself can take loans, enter into contracts and agreements, sue and get sued, or commit crime. This protects the owner and the shareholders from any sort of personal liability, making this one of the reasons why many business owners choose to incorporate or establish a Sdn. Bhd. instead.
2. Prevent Misunderstandings Among Founders / Partners
Most businesses have more than one founder or partner, as most of them open a business with their friends or relatives.
However, it is easy for arguments or misunderstandings to occur when discussing profit sharing between partners. By incorporating a private limited company, you may issue shares to the shareholders in order to avoid some sort of misunderstanding that may occur as to how the equity should be divided.
3. Gets You Funding and Establish Your Business Credit
Even if you are not looking for venture capitalist (VC) or angel funding, you can benefit from the incorporation of a formal business structure.
When you set up a sole proprietorship business, you need to sign contracts in your name, meaning you have to rely on your credit and assets if you need to take out a loan or apply for a line of credit.
As a private limited company, it is easier to accept investments from third party investors as they tend to work with corporations. When you form a private limited company, you’re allowing your business to start its own credit profile.
4. Gives Your Business More Credibility
When you add a Sdn Bhd title to your business cards, website or other brand image materials, you are giving your company name a boost in credibility.
Especially in the eyes of some customers and larger companies who are looking for a company to set up a business with them.
Sales will also expand when the business is incorporated into a private limited company. When you partner with larger corporations on projects or even participate in tenders, it gives your business more credibility as these companies tend to hire Sdn Bhd companies rather than Sole Proprietorships to work with.
5. Get Potential Tax Benefits
Many corporate tax rates are lower for Sdn Bhd companies as opposed to self-employment (SE) taxes. This is because Sdn Bhd companies are qualified for some additional tax benefits and deductions that may not be available for those filing taxes as individuals.
Incorporating your business as a Sdn Bhd may be a big decision, but the advantages and benefits will help you better in the long run. If you are thinking of incorporating your own business, talk to us today about setting up your Sdn. Bhd. company. We are a group of professional Company Secretaries who offer end-to-end business services and are more than happy to get in touch with you to answer your questions with no obligation at all! Call us today at 012-2297733 or email us at email@example.com