Malaysia is very much like every other free economy in the world. You can have some of the best business ideas in the world but you still need to know what company to form. If you run a business here, you will need to register your company and it is very much the same like any other parts of the world.
You will notice the acronym Sdn Bhd which stands for Sendirian Berhad. This simply means private limited and if you notice a company without the Sdn (only has Bhd), then it refers to as a public company. A Sdn Bhd simply means that your business is incorporated limited by shares.
How important is Sdn Bhd?
If you have decided to register your business as a Sdn Bhd, then you would have weighed the pros and cons of using this instead of a sole proprietorship business. For more information about sole ownership businesses, you can read about them here.
One thing for sure, if you have a Sdn Bhd, you will need to have your accounts audited once every year which means you will need to adhere to the laws. But besides that, what else can you expect to enjoy if you have a Sdn Bhd?
Your personal wealth is protected
When you register your company as a Sdn Bhd, you are saying that you are separating your company’s assets with your personal ones. This means that should anything happen to the company, your personal wealth remains untouched. In other words, the risk is lower against your own wealth.
Existence of business is preserved
Unlike sole proprietorship, a Sdn Bhd means the business will continue to exist when the owner is not around, either deceased or resigned. In a sole proprietorship business, if the owner is no longer around, the business disappears.
Ownership can be transferred
In a Sdn Bhd company, the ownership of the company in terms of shares can be transferred from one to another. In other words, the shareholder is allowed to sell or transfer the shares to someone else and the changes can be made accordingly.
When your company or business is a Sdn Bhd, the corporate tax rate is somewhat lower than that which is paid by individuals. This simply means that there are more ways to enjoy tax reliefs than a sole proprietorship. What happens here is that sole ownership companies very much pay individual income tax rates. If your company is making money, it means that your tax becomes a lot more.
Using a Sdn Bhd means you have more bargaining power when it comes to issuing bonds or share certificates. This is usually gained through investors and it is a lot easier for you to get loans from banks. After all, the risk is lower where banks are more receptive about giving out loans.
It might not be something major but a Sdn Bhd means that you get to enjoy more expenses that allow you to enjoy tax relief. This includes expenses incurred for entertainment, office assets and donations for charity and culture. Sole proprietorships do not necessary offer you such benefits.
What about the downside?
One of the major downsides of having a Sdn Bhd is that you need to comply to certain requirements. This includes filing an annual audited accounts and the use of a company secretary. Whether you are making a profit or a loss, you still need to pay the charges for tax filing, company secretary and annual audit. At some stages, this could be quite costly and it becomes a drag for the owner whether you are alone or partners.
Having said that, it is something that is necessary which ensures that all your income and expenses are accounted for and nothing is ‘hidden’ from the authorities.