Why You Should Not Use Enterprise To Run Business

          Difference between Enterprise and Sdn. Bhd.

In Malaysia, an enterprise and Sdn. Bhd. are two different types of business entities with distinct characteristics and legal requirements. One of the main differences is in their ownership structure. An enterprise is a sole proprietorship, meaning that the business is owned and operated by a single individual. On the other hand, Sdn. Bhd. is a private limited company that is owned by multiple shareholders.

Another key difference is in the liability of the business owners. In an enterprise, the owner is personally liable for all the debts and obligations of the business. This means that their personal assets are at risk in the event of the business incurring significant debt or facing legal action. 

In contrast, the liability of the shareholders in Sdn. Bhd. is limited to the amount of their investment in the company. This provides greater protection for the personal assets of the shareholders.There are also differences in the legal requirements for setting up and running these two types of businesses. 

For example, an enterprise (sole proprietorship) can be set up quickly and easily without the need for formal registration with the Companies Commission of Malaysia (SSM). However, Sdn. Bhd. must be registered with the SSM and comply with various legal requirements, such as appointing a company secretary and holding annual general meetings.

          Disadvantages of an Enterprise

Unlimited Liability

One significant disadvantage of an enterprise (sole proprietorship) is that the business owner assumes unlimited personal liability or personal income tax for the company's debts and obligations. This means that if the enterprise faces financial difficulties or legal issues, the owner's personal assets are at risk. This lack of liability protection can be a significant concern for business owners who want to safeguard their personal assets.

Difficulty in Raising Capital

Enterprises often face challenges when it comes to raising capital for business expansion or investment. Since the business structure is less formal, it may be challenging to attract investors or secure loans from financial institutions. Limited access to funding can hinder growth opportunities and restrict the enterprise's ability to compete in the market

Limited Legal Existence

Unlike Sdn. Bhd. an enterprise does not have a separate legal identity. It is essentially an extension of the owner, making it difficult to separate personal and business affairs. This can create challenges when entering into contracts, engaging in business transactions, or establishing credibility with suppliers and customers.

Perceived Lack of Credibility

In the business world, operating as an enterprise may be perceived as less credible compared to a registered company. Potential clients, customers, and business partners may prefer to work with companies that have a formal legal structure, as it provides a sense of stability, professionalism, and accountability.

Limited Growth Potential

An enterprise may face limitations when it comes to scaling the business. The lack of a formal structure, governance mechanisms, and access to resources can hinder the enterprise's ability to expand its operations, attract top talent, and compete with larger and more established companies.

Succession and Continuity Challenges

Enterprises (sole proprietorship) typically lack clear provisions for business succession and continuity. In the event of the owner's retirement, incapacity, or death, the future of the business may become uncertain. This can lead to disruption and potential loss of value that could have been preserved through proper succession planning.

It's crucial to carefully evaluate these disadvantages and consider whether operating as an enterprise aligns with your long-term business goals and risk tolerance. If you seek limited liability protection, access to funding, and a more formal business structure, incorporating a company, such as Sdn. Bhd. company may be a more suitable option.

         Benefits of Sdn. Bhd.

In Malaysia, opting for the Sdn. Bhd. (private limited company) business structure offers several advantages that can contribute to the growth and success of your company. Consider the following benefits of operating as an Sdn. Bhd. :

           1.  Limited liability protection for shareholders

One of the primary advantages of an Sdn. Bhd. company is the limited liability protection it provides to its shareholders. As a shareholder, your personal assets are separate and protected from the company's liabilities. This means that its separate legal entity and your risk is confined to the amount you have invested in the business, offering peace of mind and financial security.

           2. Lower Income Tax Rate

Sdn. Bhd. company (private limited company) can enjoy benefit from certain tax incentives and advantages offered by the Malaysian government. These may include lower corporate tax rates, tax deductions for business expenses, investment allowances, and various tax exemptions, stimulating business growth and profitability.

           3. Transferability of Shares

As Sdn. Bhd. company (private limited company) will offer the flexibility of transferring shares, allowing for easier ownership transitions. Shareholders have the option to buy, sell, or transfer their shares, providing opportunities for strategic partnerships, mergers, acquisitions, or attracting new investors to fuel business growth.

           4. Greater access to funding through equity financing

Compared to other business structures, Sdn. Bhd. company generally have greater access to funding options. Financial institutions, investors, and venture capitalists are more inclined to provide funding to registered companies due to the perceived stability and formal structure. This enables you to secure capital for business expansion, research and development, and other growth initiatives..

           5. Increased credibility and reputation in the marketplace

Being registered as Sdn. Bhd. enhances your company's credibility and professionalism in the eyes of clients, suppliers, and partners. It demonstrates that your business has met the necessary legal requirements, adheres to corporate governance standards, and is committed to transparency and accountability.

         The Process of Converting to Sdn. Bhd.

By choosing to operate as an Sdn. Bhd. in Malaysia, you position your business for success, with limited liability protection, enhanced credibility, separate legal entity, access to funding, and various tax advantages. Our team of experts is ready to guide you through the process of incorporating Sdn. Bhd. company and help you unlock the numerous benefits it offers for your business.

           Step 1 - Consider your company's objectives and requirements.

Evaluate the advantages and disadvantages of converting your enterprise to an Sdn.Bhd. Assess the financial, legal, and operational implications of the conversion. The Feasibility Study and Planning phase is crucial in determining the viability and benefits of converting the enterprise to an Sdn. Bhd. 

It allows you to make informed decisions, assess risks, and develop a comprehensive plan for a successful conversion. Consulting with professionals such as business advisors, accountants, and lawyers can provide valuable insights and guidance during this phase.

           Step 2 - Choose you preferred company name

Choose a good name for your new Sdn. Bhd. business. You should make sure the name is original and not already being used by another business. The Companies Commission of Malaysia (SSM) mycoid portal allows you to check whether a name is available. Feel free to check the availability of your preferred new Sdn. Bhd. company name for company registration on our Altomate website.  

           Step 3 - Provide company details

Prepare the necessary documents, including a new Memorandum and Articles of Association. Provide the registered address of the new Sdn. Bhd. It can be a physical address within Malaysia. Appoint a qualified company secretary as required by the Companies Act. Provide the details of the company secretary, including their name, identification number, and contact information. 

Then, provide the details of the existing enterprise, such as the business name, business address, and any relevant registration numbers. It's important to consult with a professional, such as a company secretary or legal advisor, to ensure that you have all the necessary documents and information in order to complete the conversion process successfully.

           Step 4 - Submit incorporation documents to SSM

Submit the proposed new company name to the Companies Commission of Malaysia (SSM) for approval. Ensure that the name complies with the SSM guidelines and is not already registered. As soon as all of the necessary information is prepared, submit your application using the SSM mycoid portal together with the RM1,010.00 incorporation fee to the Companies Commission of Malaysia (SSM) for approval. 

Following evaluation of your application, the SSM will either approve it or notify you of a query. This procedure typically takes 1-3 days. Meanwhile for Altomate Our Package is only RM699 for converting enterprise to Sdn. Bhd. -> Click here for more

           Step 5 - Obtain all required licences and permits

Update and transfer any relevant licenses and permits from the enterprise to the newly converted Sdn. Bhd. Ensure compliance with any regulatory requirements. Determine if your new Sdn. Bhd. requires a specific business license based on the nature of your business activities. Certain industries or sectors may have specific licensing requirements. 

Depending on the nature of your business, you may need additional permits or approvals. These could include permits for importing or exporting goods, environmental permits, or licenses for specific activities such as operating a restaurant or providing entertainment services. Research the applicable regulations and obtain the necessary permits.

           Step 6 - Close your Enterprise

You must shut down your sole proprietorship company while changing from an enterprise to a Sdn Bhd company. Notify the appropriate government agencies such as the Employees Provident Fund (EPF) and Inland Revenue Board (IRB) of your plan to shut down your business. 

Once your Sdn Bhd is operational, it's crucial to wind down your business to prevent any misunderstandings or legal concerns. This entails paying off any outstanding debts or obligations and cancelling your company's registration with the SSM.

           Step 7 - Open Company Bank Account

Open a company bank account under your new Sdn Bhd company name as we also have our partner bank that you might preferred. This will help separate your personal and business finances and make it easier to manage your company’s transactions. Research and select a  bank that offers business banking services suitable for your company's needs. 

Consider factors such as branch accessibility, online banking facilities, and fees and charges.
A company bank account is essential for managing business finances and conducting financial transactions for your converted Sdn. Bhd.

           Step 8 - Transfer both assets and liabilities

Evaluate the advantages and disadvantages of converting your enterprise to an Sdn. Bhd. Assess the financial, legal, and operational implications of the conversion. The assets and liabilities of your business must be transferred to the new Sdn. Bhd. once it has been created. Transferring assets, contracts, debts, and other obligations may fall under this category. To make sure that the transfer is done correctly, you should get professional guidance from an accountant or lawyer.

           Step 9 - Inform customers and suppliers

Notify stakeholders, such as customers, suppliers, and business partners, about the conversion.Update company letterheads, official documents, bank accounts, and other business-related information. It is necessary to change the firm name and registration number on all official business papers, including contracts, invoices, and letterhead. This makes sure that your customers and supplier are notified of the modification and may update their records accordingly.

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