Converting from an Enterprise to a Sdn. Bhd. (Private Company)
Sole Proprietorship (Enterprise) is one of the most popular and easiest way to start your business. You can register your business as sole proprietorship under Registration of Business Act 1956 via SSM website https://ezbiz.ssm.com.my/ and the registration cost for an enterprise are very affordable at only:
New business registration/Business renewal
- Personal Name = RM30.00 per year
- Trade Name = RM60.00 per year
The advantages of sole proprietor (enterprise) are:
- Very affordable to start your business
- Lesser corporate compliance requirements (such as filing of audited accounts, annual return and etc)
- Easy to maintain
1. When should I consider to convert from a Sole Proprietorship (Enterprise) to a Private Company (Sdn Bhd)?
Usually when you feel your business are getting stable and aim to expand further, you may start considering what the benefits of Sdn. Bhd. and if you should convert your business into a Sdn. Bhd.
|Comparison||Sole Proprietorship (Enterprise)||Private Company (Sdn. Bhd.)|
|1. Separate legal entity||No, the owner and the business are considered as one entity||Yes, separate legal entity|
|2. Ownership||1 person||1- 50 shareholders|
|3. Governance||None||Stated in Companies Act to segregate role of shareholder and director|
|4. Income tax||Taxed under personal tax filing with graduated scale of rates at a maximum of 30%||Corporate tax rate for SMEs (17% for the first RM600K chargeable income) and subsequently at 24%|
|5. Compliance requirements||Minimal||Filing of annual return, financial statements and updates with SSM|
|6. Funding||Limited||A variety of choices- bank loan, government funding, Equity crowd funding (ECF), Peer to peer financing (P2P) and etc|
Once you understand the difference between sole proprietor (enterprise) and private company (Sdn Bhd) better, you may still trying to decide when it is a good time to convert. Here we try anaylze for you to compare cost to register and maintain a Sdn. Bhd. vs the potential tax savings
|Simple Illustration||Sole Proprietorship (Enterprise)||Private Company (Sdn. Bhd.)|
|Annual cost to maintain||RM1,000 (SSM and tax fee)||From RM5,000 and above (depending on sale turnover/expenditure)
(Co sec, audit and tax fee)
|Annual net profits (assumed same as taxable income)||RM500,000||RM500,000|
|Estimated income tax||RM108,450||RM85,000|
|Total cost (annual cost + income tax)||RM109,450||RM90,000|
|Estimated Savings||RM19,450 (RM109,450 - RM90,000)|
|Understand the relevant compliance requirements of a Sdn. Bhd.|
|Set aside a budget to pay cost to maintain a Sdn. Bhd.|
|Proper set of accounts and records are kept|
2. How do i convert from a Sole Proprietor (Enterprise) to a Private Company (Sdn Bhd)
Technically a sole proprietor (enterprise) cannot “convert” directly into a private company (Sdn. Bhd.) because it is a different legal structure and set up.
The process of converting your business into a Sdn. Bhd. is more like a migration where you set up a Sdn. Bhd. and migrate your business from your enterprise.
1. To register and incorporate a Sdn. Bhd.
You can check your preferred company name if it is available at SSM database. Usually SSM does not allow the exact same name as your enterprise business. You are advised to use a similar name.
Then you need to prepare the following information which are required for incorporation:
◼️ Proposed company names with its meaning
◼️ Principal business activities of the proposed company
◼️ Business address and contacts
◼️ Number of shares Paid-up capital information
◼️ Photocopy of all directors and shareholders NRIC or Passport
◼️ Latest proof residential address of all directors such as utility bills (if different from NRIC)
◼️ Business occupation, email and contact number of all directors and shareholders
◼️ Percentage of shareholding of each shareholder
You may then hire a licensed company secretary to help with the incorporation with SSM which usually take 2-3 working days. If all are in order, you will be given the incorporation details (*incorporation date and company reg no*) and relevant documents:
◼️*Sec 14 Superform*
◼️*Sec 15 Notice of Registration*
◼️*Sec 17 Certificate of Incorporation*
2. To open company bank account, apply relevant licenses, and registration with various agencies (to prepare it ready for business)
After your Sdn. Bhd. is incorporated, you need to prepare it to be “ready for business”, such as:
- To open bank account
- To register with other agencies under your new Sdn. Bhd. – EPF, PERKESO, HRD Corp
- To apply business license under your new Sdn. Bhd.
- To update name card, signboard and etc
Once the new Sdn. Bhd. is ready for business, you can then set a cut-off to inform and work with your customers, suppliers, landlord and employee to the new Sdn. Bhd.
- To novate or sign agreements
- To update job offer letters
- To ensure invoicing/billing after the cut-off date are addressed to the new Sdn. Bhd.
Based on the cut-off date, you will then need to finalize the assets/liabilities – inventory, plant and equipment to move to your new Sdn. Bhd. Please take note there may be some potential tax implications on controlled transfer. You are advised to seek professional advice to plan your business migration.
Finally, after the assets/liabilities have been transferred, you may then close the accounts by owner withdrawal. Then you may officially cease your business, close the bank account and de-register your enterprise with SSM.
GETTING DOWN TO BUSINESS
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