The Ultimate Guide to Company Incorporation in Malaysia
Our modern economy is a beautiful thing!
Anybody, from anywhere in the world, can start their own business. They also can have instant access to millions of people through an internet connection. In our humble opinion, there's never been a better time for company incorporation.
But, where do you incorporate your company? Does it make sense to incorporate in the country where you're operating or some other country? Incorporating in another country may give your business certain advantages.
Today, we're going to talk about company incorporation in Malaysia. Whether you're a Malaysian resident, or a business owner looking to capitalise on the advantages of owning a Malaysian business, consider this your complete guide.
We'll start by covering the basics of incorporation. Next, we'll go over the process of how to incorporate a company in Malaysia. And, finally, we'll cover what incorporation in Malaysia can do for you and your business.
We have a lot of information we need to cover so let's get going.
What Is Company Incorporation?
So, what does it mean when a company is incorporated? That's a great question. When a company incorporates they're adopting an "entity structure". There are several different types of entity structures throughout the globe.
The type of business that you run is going to dictate what type of entity structure you use. Each entity structure has different advantages for you, the business owner.
One of the biggest differences between entity types is the tax benefits they offer. But, there are other reasons as to why you want to choose one business structure over another, as well.
The type of business structure we're going to be covering today is an Sdn. Bhd. Its official name is a Malaysian Private Limited Company.
Benefits of An Sdn. Bhd.
Certain countries have very strict laws against foreigners owning businesses, real estate, etc. in their home country. The country may offer great tax rates, have a low cost of living, or have other advantages. But, the local governments work very hard to preserve those benefits for their own people.
An example would be The Philippines. No foreigners can own real estate in the Philippines. The only possible avenue foreigners have to own real estate within the country is marriage to a Filipino national.
One of the biggest advantages to an Sdn. Bhd. is that foreigners can own these businesses by themselves as long as they have a local address. This is an important aspect if you're looking to expand your business to Malaysia.
Foreigners can expand to the Malaysian market without having to relocate there. But, there are even more benefits to operating your business as an Sdn. Bdh. Let's go over them below:
If you choose to undergo company incorporation in Malaysia, your Sdn. Bhd. will allow to easily transfer ownership of the company. Shareholders can transfer their shares of the company over to other shareholders or investors without much trouble at all. The ownership transfer will also allow daily operations to remain the same.
An Sdn. Bdh. incorporation of a company is treated as a "legal person". This gives your Private Limited Company a number of legal benefits. One of them is that your business can purchase land, vehicles, and other assets under its own name.
Your business entity can also "sign on the dotted line" to bind a contract. The advantage of this is more protection if a contractual agreement were to fall apart. If the other party wanted to pursue legal action, they would have to sue your company and not you personally.
This concept also works both ways. If you're being sued, the "corporate veil" offers you added protection. If you wish to sue someone, you can also do so under your company's name.
Having the "separate legal entity" aspect of an Sdn. Bhd. on your side also offers protection in another way. It offers shareholders protection of their personal wealth and assets. The reason is that shareholders aren't held personally liable for debts accumulated by the business.
The fact that your legal entity is considered a "person" in the eyes of Malaysian law gives you the benefit of owning property in the business name. This doesn't just apply to real estate property. You can own land, vehicles, and other assets all under the umbrella of your Sdn. Bdh.
Shareholders also have no claim to any of the property held within the business. This can be helpful when it comes to business disputes. If you and a business partner have a falling out, there's no arguing over who gets what.
As long as the business remains in operation, everything would still stay in the company name. This means everyone can go their separate ways without any damage to the daily operations or overall production of the business.
Company incorporation in areas like Singapore and Malaysia can offer some great tax benefits. Incentive programmes like pioneer status and investment tax allowance are offered to businesses choosing to incorporate in Malaysia.
You'll also have access to certain grant programmes. Two of them, in particular, are the SME Digitalisation Grant and the Automation Grant.
In addition to grants and incentive programmes, an Sdn. Bhd. will also receive a business-friendly tax rate. Businesses in Malaysia are taxed based on the business' "before tax" profit.
The first MYR 600,000 earned by the business will be taxed at 17%. Anything over that will be taxed at a rate of 24 percent.
The requirements for annual compliance are less strict in Malaysia than in other countries. This is thanks to The Company Act of 2016.
Business owners no longer need to worry about procedures like bringing a new director into the business or the annual meeting requirement. Malaysia also chose to get rid of the exemption on audited corporate financial statements.
Once an Sdn. Bhd. is formed it will stay in existence until it's legally dissolved by its members. This gives the business much greater security and protection in the case of unexpected events.
For example, if a shareholder were to leave or pass away suddenly, other members of corporate management don't need to worry. The loss of the shareholder will not affect the company's existence.
Choosing to form your company as an Sdn. Bhd. will give you better access to funding. This is because your company is considered a "legal person".
Since your Sdn. Bhd. has a separate legal entity, you can open a bank account and apply for loans from the bank all under the company name.
Being a private limited company also allows you to leverage capital from investors. An Sdn. Bhd. can invite third-party investors to fund the business. You can do this by offering shares of the business up for purchase.
You'll need to work with your corporate management, and your potential investors, to negotiate the price of the shares as well as a dividend payout.
Disadvantages of Company Incorporation in Malaysia
Forming your company as an Sdn. Bhd. in Malaysia certainly has its advantages. But, it's not all sunshine and rainbows. Like anything else, there are some drawbacks to forming a private limited company.
Here are some of the disadvantages to consider when forming your Sdn. Bhd.
Shareholders can be a powerful funding tool for your business. We see, in the section of this article on advantages, that an Sdn. Bhd. allows you to leverage investors for funding. However, there's a limit to that.
An Sdn. Bhd. has a limit of 50 shareholders. This can severely limit the amount of funding that shareholders can inject into your business. The result is that it may slow down daily operations or limit your growth.
If you think that your business may require a lot more funding to grow, it may be wise to consider another type of corporate structure.
In the beginning, starting an Sdn. Bhd. as a sole owner is an easy process. But, the goal is for your business to grow over time. Once that happens, you'll be bringing more directors and shareholders on board.
The problem with that is, because of the structure of an Sdn. Bhd., every decision needs to go to a vote. As your group of shareholders and board members grows, it's more likely that there will be conflict among these members.
Therefore, it may be more difficult for the business to remain flexible and make decisions quickly as time goes on.
So, what exactly is required to incorporate a company in Malaysia? There's some paperwork and a few steps that are required. Here is a quick rundown of what you'll need to get your business up and running.
The information and documents required for incorporation are:
- Preferred Company Name(s)
- Nature of business and MSIC Industries code of your business
- Contact information of your business - address, email, phone number
- Information and ID copy of your shareholders and the shareholding allotment
- Information and ID copy of your directors
- Fill up the incorporation form on our website or contact Altomate team to provide the above information
- Our team will perform name check and inform result of name check
- If preferred company name is available, the pre-incorporation (incorporation form and sec 201) will be sent to you to sign
- Once KYC check and signing completed, we will proceed to submit your company registration with SSM.
- If all are in order, SSM will usually approve the company registration in 1-2 working days.
- Once successfully incorporated, we will send to you 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
Company incorporation in Malaysia is an amazing vehicle for your business. Forming an Sdn. Bhd. can be the perfect move to start your business on the right foot. Consider how much you want to grow and your business' group dynamic before making the decision.
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.
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