Discover the comprehensive guide below, unveiling key insights about Sdn Bhd in Malaysia. A Sendirian Berhad (Sdn Bhd) is a distinguished company type in Malaysia, offering private limited status to both Malaysians and foreigners. Delve into the intricacies and explore the possibilities with this informative resource.
SSM is the regulatory body overseeing all corporations operating in Malaysia, including Sdn Bhd. Therefore, companies must register with the Malaysian Companies Commission (SSM) in order to legally operate within the country.
Key Features of an Sdn Bhd in Malaysia
Limitation of liability
- In Sdn Bhd, limited liability protects the personal assets of the shareholders.
- SDN BHD shareholders’ liability is up to their investment capital.
- Each partner’s liability is limited to his share of the investment and its personal wealth are safeguarded.
Perpetual continuity and separate legal entity status
- Legal identity distinguishes an Sdn Bhd Company from its shareholdersOwners.
- While the company operates as its own legal entity, this allows it to continue without any issues even in cases where founders, directors, or stockholders are not there.
- So long as the corporation has not been officially dissolved, it will continue in operation and business activities proceed without disruption by the default of founders or other stockholders, deaths or retirement on part of directors.
- As such, by being able to participate in asset transfer activities, contract arrangements, and legal cases, an Sdn Bhd company presence the power of acquisition of assets and disposal through purchase or sale, entering into contracts with other entities as well as initiations court cases against the government agencies or individuals.
- In Malaysia, shareholders of an Sdn Bhd possess the right to sell or transfer their shares to anyone as long as the buyer is financially capable of acquiring those shares.
Easier to raise funds
- It is easier to raise capital for an Sdn Bhd company either through equity or loan.
- Share model of Sdn Bhd makes it easy for investors to invest in the company as far as the valuation is agreed.
- Being a popular corporate structure, it is cheaper to borrow from banks with lower interest rates compared to other business structures in the case of Sdn Bhd. Thus, for a bank Sdn Bhd loans are perceived as less risky compared to the other types of business.
Profit distribution flexibility
- Shareholder of Sdn Bhd enjoys the advantage of being able to distribute the profit of the company as they deem fit.
- Payments in the form of salary, director’s fees, bonuses, dividends and any other benefits can be decided by the company owner. They also determine the amount of money that should be re-invested into the company.
What sets SDN BHD apart from Berhad and a partnership?
Their difference can be seen in the suffixes of their respective names – ‘Berhad’ (BHD) refers venturing into a Malaysian public limited company PLC, on the other hand, ‘Sendirian Berhad’ (SDN BHD), is used for an Malaysia Company that is private limited. A note to be taken is that; the number of shareholders in an SDN BHD firm, usually ranges from 1 to 50 while a BHD corporation can have many shareholders.
A public limited company should have publicly disclosed its financial statement; Bhd is more complicated than SDN BHD regarding financial reporting.
Another strength of BHD firms includes better sources of capital, which refer to the fact they are in a position to raise fund from being equity or debt financed publicly. Both types of company incorporation are subject to the same procedure while companies formation as SDN BHD have stricter requirements delineated in their Articles for the Association.
These include a number of restrictions on its operations useful as; the maximum number of shareholders should not be above 50, limitation to pledge shares or indemnities publicly and also prohibition to accept deposits from public. We should point out that such limits are not mandatory; other BHD companies choose dual listing and sell their shares in stock exchanges. To conclude, BHD organizations are eligible to remain unquoted if they will.
Pros and Cons of an Sdn Bhd: Weighing the Benefits and Drawbacks
Advantages of an Sdn Bhd
100% Foreign Ownership
Foreigners can be shareholders and own 100% of the Sdn Bhd. Alternatively they can act as directors if there is a local director on the board. Nonetheless, it should also be noted that this doesn’t apply to all businesses since some industries require a minimum of Malaysian participation.
We can create a single shareholder/single-person company (“SPC”). If the company gets an exception from the Foreign Investment Law, then a SPC subsidiary can be established.
Lower Tax Rate
A corporate tax rate of 17% is applicable to the initial RM600,000 if it is a resident company who has less than RM 2.5 million paid-up capital or gross income from operations are lower than RM 50 million. On the contrary, those corporations that do not meet these requirements will be taxable to a general tax rate of 24%.
Dividends Are Tax Exempted
In comparison to other variety of corporate structures, companies in Sdn Bhd enjoy a better tax benefit including pioneer status and investment tax allowance. Having a profit-based tax nature, an Sdn Bhd does not have to pay additional taxes on the distributed dividends: Additionally, residents in Malaysia that receive dividend income are also not taxed on the dividends as individual taxes.
Holding Company Structure
Real estate and other assets can be held by a corporation as holding company. This creates a company setup for property investors to help in asset management. If asset protection was the goal of a parent corporation, it could organize itself as a holding company and establish subsidiaries for each business line. Another subsidiary may be responsible for the brand name and trademarks of the parent corporation, while another one will hold various real estates owned by the parent corporation.
This strategy is aimed at limiting the financial and legal obligations risk of the holding company as well as those of its many subsidiaries. It may also help to minimize the total tax burden of a corporation by placing certain parts of its operation in countries with favorable taxes.
The legal maximum number of shareholders for a Sdn Bhd company is 50, which is sufficient for any modest to medium sized firm. In case there are more than 50 investors, a Berhad would serve as an alternative company structure. A shareholder of a company can be an individual or corporate body.
As a result of reporting standards that it must comply, these Sdn Bhd companies have also become more favorable in the market that solidifying them as sound and dependable corporate structure.
Disadvantages of an Sdn Bhd
The company’s financial records will be accessible to the public.
Sdn Bhd companies must observe the Companies Act of 1965. Even though this compliance is not bad in itself, the required level of effort to adhere to the act is slightly greater than what is needed by a sole proprietorship or partnership.
Conducting annual audits of the company’s financial accounts is a mandatory requirement.
The role of a company secretary in Malaysia is to administer the statutory returns and submissions for a firm, as well as attend board and shareholder meetings and provide minutes.
The firm will be subject to recurring costs including audit, accounting, secretarial, and tax charges that have to be paid annually.
To set up an Sdn Bhd in Malaysia, you have to hire a professional firm like FastLane Group for the Sdn Bhd setup. Contact FastLane Group for a free consultation on Sdn Bhd company incorporation.