Many small business owners in Malaysia first start their businesses as a sole proprietorship or enterprise. It’s the legal default when it comes to selling products such as cosmetic items or clothing pieces, or even offering services such as photography service or other forms of services.
However, as you start to grow and expand your business, continuing your business as a sole proprietorship or enterprise can come with risks and not many benefits. In some ways, your business structure can have some significant implications on how your business forms and grows.
After a while, you might start to wonder if you should form an official business structure for your small company. Should you go for it or should you wait first until it starts to pick up where it should or when you are ready to expand it further?
Here are some reasons why small business owners like yourself should take the step to incorporate or form a private limited company (Sdn. Bhd) in Malaysia.
1. You Can Separate Personal From Business
As a sole proprietorship business owner, you can’t separate between business and the owner is the business when it comes to this type of company.
The owner is responsible for signing any contracts and taking out any loans or credit on a personal level. This means that there is no distinction between business and personal for those who are self-employed and in a sole proprietorship.
All business debts and risks are the owner’s (in this case the business’s) responsibility.
On another note, should you face any issue such as getting sued by a customer or if your creditor decides to seek action on you, you are personally liable for these issues. Your assets and savings can be at risk if this unfortunate scenario were to happen to you.
An advantage in incorporating a private limited company means that the company is a separate corporate body. This protects the owner and stockholders against any form of personal liabilities.
It is this reason why many people want to incorporate or form a private limited company as the creditors and or court judgments cannot seize the owner’s assets to satisfy the company’s liabilities.
2. Prevent Misunderstandings Among Founders / Partners
Most businesses have more than one founder or partner, as most will open a business with their friends or family.
However, arguments can arise when the mention of how equity should be split is brought up. Even if you are close with your founder, be it your best friend or sibling, this can happen and it will leave the relationship between the founders sour.
By incorporating a private limited company, you can issue stock to the founders to prevent any form of misunderstandings that might arise on how equity should be split.
Do note that even if you do not issue stock when you form your private limited company, you can still have the paperwork ready to outline how the ownership of the company is split.
3. Gets You Funding and Establish Your Business Credit
Even if you’re not looking for a venture capitalist (VC) or angel funding, you can benefit from incorporating a formal business structure.
When you establish a sole proprietorship business, you need to sign contracts in your name, meaning having to rely on your credit and assets if you need to take out a loan or ask for a line of credit.
As a private limited company, it is easier to accept investments from a third party investor as they prefer 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 in your business cards, website, or other forms of brand image, 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 create a business with.
Sales can also grow when you incorporate your business into a private limited company. When you partner with larger corporations for a project, it gives your business more credibility as these companies prefer to hire a private limited company rather than a sole proprietorship company to work with them.
5. Get Potential Tax Benefits
Most corporate tax rates are lower for private limited companies as opposed to self-employment (SE) taxes. This is because private limited companies are qualified for some additional tax benefits and deductions that might not be available for those filing taxes as individuals.
However, do check with your tax advisor about this if you want to know more. MISHU also provides tax consultation, feel free to contact us.
Ready To Incorporate Your Company With MISHU?
Incorporating your company to private limited can be a big step but the advantages and benefits will help you better in the long run. Even if you are a small business looking for a way to protect your asset and savings from your company, incorporating it to a private limited company can help you – even if you are not looking to make your business too big.
Once you decide to create a formal business structure as a private limited company, you will need to keep up with ongoing filing obligations. That is why MISHU is here to assist you with your company incorporation needs in Malaysia.
With our Company Incorporation service, you can incorporate a company in Malaysia at just RM888!
The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.