Disclaimer: This article is for general informational purposes only and is not meant to be used or construed as legal advice in any manner whatsoever. All articles have been scrutinised by a practising lawyer from Tristan & Partners to ensure accuracy.
We’ve all seen the term Sdn Bhd after a business’ name, but not every business might have it. So, what exactly does it mean?
Sdn Bhd stands for Sendirian Berhad, aka “private limited.” It is the most common type of legal structure here in Malaysia and is most often used for small and medium enterprises.
In a Sdn Bhd structure, the company is a separate entity from its owners, which means the owners are liable only for the amount they have contributed to the company.
Sole proprietorship/partnership VS Sdn Bhd
Firstly, let’s be clear. You NEED to register your business under a legal entity. Whether you’re selling handcrafted wares on Shopee or sandwiches down the street, not registering your business within 30 days of starting operations could leave you with a fine of up to RM50,000 or even a prison sentence of up to two years!
Now, assuming that you’re starting a new business, some of the major options available to you include sole proprietorship, partnership, and Sdn Bhd.
Below is a list of advantages that the Sdn Bhd entity offers compared to sole proprietorship and partnership type entities.
| Sole proprietorship/partnerships | Sdn Bhd/Private Limited |
|---|---|
| As you are the only business owner, you bear all liabilities towards the business in your personal capacity. If your business gets sued, you get sued. | Shareholders are only liable for the capital they invested, protecting their assets. Hence, they are not personally liable for the company’s debts and liabilities. |
| Difficult to scale since you are not able to issue shares to get investments. | Can be scaled by increasing paid-up capital and issuing shares to investors. |
| Low credibility due to ease of application. | Better credibility as your company’s financial statements need to be audited, increasing your chances of obtaining loans from banks. |
| Personal income tax rates apply to owners. | Lower corporate tax rates (as low as 15%) and eligibility for tax incentives such as pioneer status and investment tax allowance. |
| Business ceases to exist if the owner(s) exits. | Perpetual existence, meaning it continues to exist and operate regardless of changes in ownership or management, guaranteeing stability against unforeseen events like death. |
In a nutshell, the Sdn Bhd structure minimises the risks imposed on business owners and offers significant protection and support to new business owners.
Importantly, registering your business as a Sdn Bhd entity allows for easy expansion and growth down the line.
Due to the ease of registering your business as a sole proprietorship or partnership, many companies and banks might not trust your business, as you can disappear overnight and your business could expire.
As the Sdn Bhd structure needs to comply with statutory requirements, it can’t be easily closed down overnight, so your company’s credibility improves, meaning banks are more likely to provide loans.
Disadvantages of a Sdn Bhd
Now that we’ve gone over the advantages that the Sdn Bhd structure offers, let’s talk about some of the disadvantages you need to consider when making this decision.
Compared to sole proprietorship and partnership structures, registering your business as a Sdn Bhd can be much more expensive, with the one-time SSM registration fee being RM1,000.
Additional fees for the required company secretary, compliance processes, and tax filing would further raise total startup costs to RM3,500 to RM15,000+.
For sole proprietorships or partnerships, however, there is a RM30 fee when registering with a personal name, which goes up to RM60 with a trade name. This licence needs to be renewed annually though, with any additional branches incurring an additional RM5 on top of the RM30/60 fee.
As mentioned above, applying as a Sdn Bhd requires an auditor and an assigned company secretary. This is because there is more documentation that needs to be submitted and verified for approval and compliance purposes, including your audited financial statements and annual returns.
That said, as of January 2025 the Companies Commission of Malaysia (SSM) has introduced a new audit exemption framework to ease the burden on small businesses. Eligibility will now be based on three simple factors: annual income, total assets, and the number of employees.
If your company meets these criteria, your financial statements need not be audited annually, reducing costs while still maintaining compliance.
So… should you register as a Sdn Bhd?
If you’re a younger person keen on starting a small business with minimal experience, registering your business as a sole proprietorship or partnership might be great for you to dip your toes into the business world without requiring significant investment.
But if you’re looking to get serious and either start a small business with longevity, or to expand and grow your current business, incorporating as a Sdn Bhd might be worth the extra financial investment and paperwork.
The extra support granted via tax incentives and your option at getting financial support via loans and raising capital can help your business remain afloat during unexpected downturns.
Additionally, registering your company as a Sdn Bhd minimises the risks you and your co-owners could face, be it debts, lawsuits or other liabilities.
Where do we start?
So now that you’ve decided to register your company as a Sdn Bhd, you must be wondering what your first steps might be.
Firstly, you want to start by selecting a distinctive name for your Sdn Bhd company that follows the rules of SSM. You can confirm name availability by searching on SSM’s website or in person at their office.
When you discover an unused name, you can reserve it for a fee (RM50). This reservation is good for 30 days and you should use this time to prepare the necessary documents for company incorporation.
This includes:
- Statutory Declaration by the company secretary or a director
- Declaration of Compliance with the requirements for company registration
- a copy of your identity card or passport (for foreign directors and shareholders)
- a copy of your business premise’s rental agreement (if applicable)
- other documents as required by SSM
It is advisable to seek legal and professional assistance to ensure that you meet all the requirements and to guide you through the more complex aspects of company registration in Malaysia. Additionally, you need to consider the specific requirements and regulations that apply to your industry or business activities.
Once you’ve fully prepared your documents, you can send your company registration paperwork to SSM either online or in person at an SSM office, along with paying the registration fees.
If your application is accepted, you’ll get a Certificate of Incorporation and a Business Registration Certificate, signifying the official creation of your Sdn Bhd company and you may now enjoy the benefits of extra credibility and financial support, along with the relief of limited liability for you and your partners.
