Choose A Right Legal Structures for Your Business
Sdn Bhd, Sole-Proprietor or Partnership? Which is better?
Choosing the right form of business entity can be decisive to the success and life of your business. You can consider various options according to the types & scale of business.
Sole-Proprietor: this is the most traditional form of business. It offers nearly NO protection to the owner of the business but is the easiest & cheapest to set up.
Partnership: this is another common form of business ownership. It is rather easy to set up but lack of legal protection.
Company (Sdn Bhd ): A separate legal entity jointly owned by multiple investors. It has unique advantages in raising capital and paying taxes.
Sdn Bhd
Best for Entrepreneur
Corporate Perceptions:Committed & Ambitious [ref] A survey found that major corporations & well established companies in Malaysia prefer to trade with Sdn Bhd Company due to the higher commitments & responsibilities in operating Sdn Bhd Company.[/ref]Liability:Limited liability.
Your personal wealth is protected.Startup Cost:RM1,060[ref] Special offer by NBC => register sdn bhd at RM1,060 only. Market price is ranging from RM2,500 to RM3,500.[/ref]Yearly Maintenance:RM5,500++ [ref]Every Sdn Bhd Company needs to engage Company Secretary, Auditors, Tax Agent & Accounting Clerk to meet the yearly submission requirements (SSM & LHDN).[/ref]Income Tax Risk Explosure:Low.
Most Sdn Bhd are better managed & regulated.Tax Planning Opportunity:Better tax planning as company is a separate legal entity. Tax saving of at least 20% compared to Personal. [ref]Company tax rate for first RM500,000 profit is 20% while individual will reach 25% tax rate.[/ref]Business Continuity:Forever.
Sdn Bhd will never expire and company will still exist even the key owner has passed away. [ref]Sdn Bhd just needs to hold AGM every year & the shares owned by the passing shareholder can be transferred to his/her designated beneficiary or estate. Investment in Sdn Bhd can act as part of the Estate Planning.[/ref]Ability to Apply Loan:Easier & Higher Creditibility.
Depends on company cash flow, strategy and business prospects. Accounts of Sdn Bhd Company is more reliable & trustworthy. [ref]Due to the fact that Sdn Bhd needs to get its accounts audited by the Auditors annually, the accounts of Sdn Bhd is always carried with higher creditability.[/ref]Corporate PerceptionsLiabilityStartup CostYearly MaintenanceTime to Start BusinessIncome Tax Risk ExplosureTax Planning OpportunityBusiness ContinuityAbility to Apply Loan
Suitable for Small Business
Corporate Perceptions:Small scale businessLiability:Unlimited Liability.
Business owner's personal wealth may be affected & exposed to risks.Startup Cost:RM100++Yearly Maintenance:RM1,500++Time to Start Business:1 hour at SSM counterIncome Tax Risk Explosure:Very High.
Most businesses do not keep proper accounting records.Tax Planning Opportunity:Limited.
Business profit will be taxed at Personal level. Unfavourably terms in personal tax provisions & practices.Business Continuity:Owner died, business closed & registration subject to renewal & expiry.Ability to Apply Loan:Not easy.
Depends on owner’s personal capacity & wealth.Partnership
Good for Small Business
Corporate Perceptions:Small scale businessLiability:Unlimited Liability.
All partners are jointly liable & responsible for all possible losses or business failure.Startup Cost:RM100++Yearly Maintenance:RM1,500++Time to Start Business:1 hour at SSM counterIncome Tax Risk Explosure:Very High.
Most businesses do not keep proper accounting records.Tax Planning Opportunity:Limited
Business profit will be taxed at Partners' Personal level. Unfavourably terms in personal tax provisions & practices.Business Continuity:Partner died, business closed OR the beneficiary do not easily get what left by the passing partner.Ability to Apply Loan:Unlikely.
Different partners may have different personal capacity & wealth. Bankers may not accept such differences.
