When to set up Sdn. Bhd.?

There are 3 types of business entity in Malaysia.
1. Sole Proprietor (1 business owner only)
2. Partnership (2 or more business owners)
3. Corporation a) Sendirian Berhad. b) Berhad ( > 50 shareholders)

Most small business start-up are sole proprietorship or partnership. As your business grows, there shall be a time when your business should be established as a corporation, namelySdn. Bhd. Here are a few reasons to do so:
1. Lower tax rate.
For profit lower than RM500k p.a., the tax rate is only 20% flat. For personal income, the tax rate is already 24% if your taxable income is over RM100k.

2. Banker’s favor
Bankers prefer to loan money to a Sdn. Bhd. compare to other business entity. The company’s accounting statements are more “recognised”.

3. Lower risk
From the legal points of view, the shareholders and the company are separate entities. The company is only held liable for limited liability. Businessmen would prefer to incorporate their business to lower the business risk.

4. Business needs
Some suppliers, customers, or business associates have more confidence on a corporation rather than sole proprietorship or partnership.

There are pros and cons for different business entity. My accountant said that when the business profit is over RM150,000 p.a., it is advisable to set up a Sdn. Bhd.