Build Your Capital Funding by Incorporating a Company
1. Increased capital credibility
After you have incorporated your business, it increases your credibility for the potential lenders or investors to provide capital funding to your business.
Lenders and banks are usually more supportive to provide loan financing and facilities to companies (than sole proprietorship or partnership businesses).
The investors are also more likely invest in incorporated companies as they see incorporated business owners are responsible and willing to put in more effort and time to make their company growth. The legal structure of a Sdn. Bhd. is also more suitable for external investors with share ownership and protection of shareholder rights under Companies Act 2016 (as compared to sole proprietorship or partnership businesses as unincorporated entity).
Additionally, by incorporating a company, ones can increase extra capital by selling shares of the company to investors. Furthermore, shareholders need not risk their personal wealth or assets, therefore an outsider will be more likely to invest because they understand that their personal asset will be safe as no guarantee given to any liabilities faced by the company.
2. Raising Capital through Loan Borrowing/Debts
Loans and bonds are the types of debt capital that a company use to raise capital. A company may approach a bank for a loan to raise capital through debt.
Bank loan and facilities
The commercial banks in Malaysia have various type of loan facilities offered to SMEs to finance the businesses:
- Unsecured working capital loan
- Term loan
- Overdraft facility
- Revolving credit
- Hire purchase/Leasing
- Business Mortgage loan
The type of loan financing that is suitable for you depends on the financing objectives, cash flow pattern, tenure, asset collateral and etc
On the other hand, a company can also raise fund via issuing bonds instead of approach a bank for a loan. A company can get the money from the investors who purchase its bond. A bond investor essentially is lending money to the company in return for a secured interest payment. When the bond reaches maturity, bond investors get their original investment back.
3. Raising Capital through Equity Financing
An angel investor is a person with spare money who interested in investing a new company for start-up. A company does not need to pay back to angel investor like a loan because they receive equity in exchange for a convertible debt or ownership equity. These individuals also share their knowledge where they can provide mentorship for the start-up. In addition, angel investors are usually a person who is a successful entrepreneur with a wide network of expert that can introduce to a start-up to build their network.
If you are starting business in Malaysia, you can participate in programs organized by Malaysian Business Angel Network (MBAN) https://www.mban.com.my/. Furthermore, eligible angel investors also can claim angel tax incentive -Angel Tax Incentive is a new initiative approved by the Government to encourage more early stage investments by the private sector. This incentive hopes to reduce the risks usually associated with early stage investments by giving back in the form of tax exemption to the investors.
To be eligible investee companies for angle tax incentive framework, the company needs to be:
- Minimum 51% Malaysian owned
- Sdn Bhd Incorporated in Malaysia
- Core business in qualifying activity
- Cumulative revenue less than RM 5 million & in operation for 3 years or less
- Not in winding-up and/or liquidation
- Continue operating for at least 2 years after the investment is made
Crowdfunding is another way to fund a venture, and it can be done without giving up equity or accumulating debt. Crowdfunding allows start-up company to offer information about their company, product or service for individual to view and decide if they want to invest via social networking sites and a web-based platform. Entrepreneurs will be able to pre-sell a product or concept that they have yet to bring to a market through crowdfunding campaign. Crowdfunding is one of the ways for entrepreneurs to receive financing and exposure in order to help company growth.
Crowdfunding platform allows small businesses to raise capital from the public, using online platforms registered with the Securities Commission Malaysia (SC). Ten ECF platforms have been registered to date. ECF allows small businesses to offer equity in their companies to investors, who in turn invest in the concept which they see potential in.
Only locally incorporated private companies (excluding exempt private companies) and limited-liability partnerships can raise funds from the ECF platform.
The following entities are prohibited from raising funds through an ECF platform:
- Commercially or financially complex structures (i.e. investment fund companies or financial institutions).
- Public listed companies and their subsidiaries.
- Companies with no specific business plan or their business plan is to merge or acquire an unidentified entity (i.e. blind pool).
- Companies, other than a microfund, which propose to use the funds raised to extend loans or invest in other entities.
- Companies, other than a microfund, with a paid-up share capital exceeding RM10 million.
- Any other type of entity that is specified by the SC.
Here are some local ECF operators in Malaysia licensed by SC:
- 1337 Ventures
- Ata Plus
- Ethis Ventures
A form of financing where capital is invested into a start-up or small company that shows a potential for long term growth is called venture capital. Venture capital funds usually obtain from managed firms that group capital from members or wealthy investors. Young entrepreneurs may go towards a Venture Capital firm to promo their strategy and projections for their business. By obtaining venture capital, a start-up company or young business will be able to get valuable guidance and consultation. This can help the young entrepreneur in a lot of the business decision.
GETTING DOWN TO BUSINESS
If you're looking to form an Sdn. Bhd. in Malaysia, or have any other questions on starting your business, contact the team at Altomate.
We're here to answer any questions, provide resources, and give you the exact answers you need to get your business to the next level. We thank you for reading this article and hope it gave you some new thoughts and business ideas to move forward with.