New businesses in 2023
According to current statistics from Suruhanjaya Syarikat Malaysia (SSM), between January and September 2023, a total of 241,137 new Enterprises were registered compared to just 38,410 local Sdn Bhds.
Doing some quick maths, that means roughly six out of every seven new local businesses are Enterprises, unsurprising given the significantly lower barrier to entry.
With this accesibility comes a limit to long-term growth that new entrepreneurs frankly don’t care about.
Then, as cashflow stabilises, growth can be considered in terms of years instead of months, and it becomes a question of when – not if – their Enterprise should be converted into a Sdn Bhd.
To help, we’ve identified five key milestones indicating it’s time to transition.
5 biggest signs it’s time to transition
Consultants are annoyingly good at protecting ourselves, so here’s an obligatory disclaimer!
Remember, every enterprise is unique and the guidelines below are averages based on our work with thousands of entrepreneurs and businesses in Malaysia – for an answer tailored to your situation, get in touch with us.
Ok, disclaimer over, let’s get to it.
1. Your annual profits exceed RM70,000
Profits from an Enterprise are treated as personal income of the owner and according to LHDN’s personal income tax brackets for 2023, income above RM70,000 is taxed at 19%, and income above RM100,000 at 25%.
Meanwhile, a Sdn Bhd’s profits are given corporate tax treatment, which is currently at 15% for the first RM150,000 and only 17% for anything between that and the first RM600,000.
This means once you exceed RM70,000 in annual profits from your business, you will start to pay less through corporate tax, and the savings scale up tremendously from here.
2. Your personal income tax bracket reaches 19%
This is just another way of looking at the previous section, as once you reach this income tax bracket, you’d be saving more by paying the corporate tax rate, with potential for significantly more savings as your revenue grows.
With long-term growth in mind, the maximum corporate tax rate as of 2023 is 24% for RM600,001 and above. That same figure would get taxed 28% as personal income tax and will continue to climb up to as high as 30%.
3. You have or plan to have more than 5 employees
If your business is expanding and you’re looking to bring more skilled individuals on board, expect professionals to choose a reputable and stable company. Upgrading to a Sdn Bhd can promote this sense of dependability far more effectively than an Enterprise can.
Trust us, hiring dependable people is hard enough, there’s no need to make it even harder on yourself.
4. You anticipate having multiple business partners
A typical Enterprise with multiple partners is usually one major disagreement away from stagnating.
Meanwhile, as ownership of a Sdn Bhd is dictated by shares, the degree of control each party has is plain to see. Even if there are disagreements, there will always be a final decision that allows the company to commit to a direction.
Furthermore, this control is transferable by buying and selling shares. Yes, this opens up opportunities for mischief, but that’s why we’re also strong advocates of having a Shareholders’ Agreement to set out rules anf expectations from the start.
5. You have expansion and fundaraising plans
Unless you’re dealing with close friends and family, most investors prefer to deal with Sdn Bhd companies as they are perceived as more credible and secure. Also, the clear separation between personal and business assets makes Sdn Bhd a less risky proposition for investors.
If these scenarios match your current business, it’s certainly worth considering an upgrade!
10 total signs it’s time to transition!
While we wanted to highlight the five key indicators above, there are actually ten total factors when deciding whether it’s time to upgrade to a Sdn Bhd, which can be found in our free checklist below!
Download it and give it a read.
What if it’s time to transition?
First off, that’s awesome!
Time to read our super duper eight-step guide to converting an Enterprise to a Sdn Bhd.
Just a heads up, you cannot actually ‘convert’ one business structure to another.
Instead, it’s all about incorporating a Sdn Bhd, then ensuring a systematic transfer of Enterprise assets that is fully compliant with the law.
And you know that’s why we’re here, right?
Let MISHU help transition your Enterprise
MISHU’s team is can assist you with incorporating your new Sdn Bhd, as well as various other needs such as appointment of a Company Secretary, opening a corporate bank account, and more. We would love to sit down over a virtual cup of coffee and understand your needs – so let us know if you’d like help!