Advantages of Incorporating Sdn. Bhd.

Businessman are always encouraged either by the business associates, bankers or accountants to incorporate Sdn. Bhd. for their businesses. What are the advantages of Sdn. Bhd. which attracts small and medium enterprises. Currently, majority of businesses are operating under Enterprise, which is in the form of Partnership or Sole-Proprietor.

(a) Separate legal entity

Sdn. Bhd. is a separate legal entity which can sue or being sued by others. Business owners, in the form of shareholders have legal standing from Sdn. Bhd. For example, if the company has huge amount of liabilities and unable to repay the loans, the bankers may sue the company for bankruptcy. If the directors or shareholders do not provide personal guarantee in obtaining the loans, the directors or shareholders will not be sued for repayment of the loans. It also applies on unsecured creditors i.e. supplier of raw materials, if the suppliers are unable to collect the debts from the company, they are unable to sue the directors or shareholders for the outstandings debts.

However, under Enterprise, the owners or partners will be sued for any debts or borrowings owed by the Enterprise and consequently, the owners or partners may be sued for bankruptcy.

(b) Tax planning or savings

The Enterprise is tax under individual scale rate i.e. the owners who bear maximum tax rate of 27%. However, Sdn. Bhd. (With share capital less than RM2.5 million) will enjoy tax rate of 20% for the first RM500,000 of the chargeable income and chargeable income starting from RM501,000 onwards will be taxed at 25%. So there is a tax saving of approximately 7% for income below RM500,000 and 2% tax saving for income above RM500,000.

(c) Financing from bankers

It is easier to obtain financing from bankers under Sdn. Bhd. as compared with Enterprise as the accounts of Sdn. Bhd. will be audited by an approved auditor and compliance with approved accounting standards by the Sdn. Bhd. is more representative.

(d) Branding

It is easier to secure the sales under Sdn. Bhd. as compared with Enterprise because generally, the businessman have the perception that Sdn. Bhd. are more established and more reliable to secure raw materials from established businesses as compared with those small players.