Our guide below explains all the basic information about Sdn Bhd in Malaysia. A Sendirian Berhad (Sdn Bhd) is a type of company in Malaysia. It is a private limited company that can be founded by both Malaysians and foreigners.
SSM is the governing authority that governs all corporations functioning in Malaysia, including Sdn Bhd. Hence the company must be registered with the Malaysian Companies Commission (SSM) before it can be legally operating in Malaysia.
What Are The Key Features Of An Sdn Bhd in Malaysia?
Limitation of liability
- The concept of a limited liability company safeguards the personal wealth of the shareholders/owners.
- The corporation’s shareholders are solely responsible for debts incurred by the company in proportion to their investment levels, not more.
Perpetual continuity and separate legal entity status
- An Sdn Bhd firm is distinct from its shareholders/owners in terms of legal status.
- Its existence as a separate legal company permits it to operate regardless of who its founders, directors, or stockholders are.
- The corporation will continue to exist and operate unless it is dissolved, regardless of the deaths or retirements of its founders, directors, or stockholders.
- An Sdn Bhd firm has the authority to buy and sell assets, enter into contracts, and file lawsuits.
- In Malaysia, a shareholder of an Sdn Bhd is free to sell or transfer shares to anyone he or she chooses, as long as the potential buyer can afford the shares.
Easier to raise funds
- Raising money for an Sdn Bhd company, whether through equity or loan, is relatively simple.
- Sdn Bhd’s share model makes it simple for investors to invest in the company as long as the valuation is agreed upon.
- Since Sdn Bhd is a well-known corporate structure, it is easier to borrow money from banks at lower rates than other business structures. Banks may view Sdn Bhd loans as less hazardous than loans to other business formats.
Profit distribution flexibility
- A shareholder/owner of an Sdn Bhd corporation enjoys the benefit of being able to disperse the company’s profits as they see proper.
- Salary, director’s fees, bonuses, dividends, and other incentives are determined by the company’s owners. They also choose how much money should be re-invested in the company.
How Is Sdn Bhd Different As Compared To Berhad And A Partnership?
The suffix Berhad, BHD, or Bhd denotes that it is a Malaysian public limited company (PLC), whereas the extended suffix Sendirian Berhad (SDN BHD) denotes that it is a private limited company.
In Malaysia, an Sdn Bhd firm differs from a Berhad (Bhd) corporation in various aspects. For example, the number of stockholders in an Sdn Bhd firm can range from one to fifty whereas a Bhd can have an unlimited number of shareholders.
Sdn Bhd companies are made up of small and medium-sized businesses, or SMEs, whereas Bhd firms are made up of considerably larger corporations.
A public limited company must publish its financial statements to the public; Bhd has higher financial reporting requirements than SDN BHD enterprises. BHD enterprises also have more capital access than SDN BHD companies because they can use public equity and debt financing when needed.
Although both types of corporations go through the same incorporation process, an SDN BHD company’s Articles of Association contain more strict requirements.
These limits include a limit of 50 shareholders on share transfers, a prohibition on public subscriptions to the company’s shares or debentures, and the collection of public deposits. Although most BHD companies list and trade their shares on a stock exchange, it is not a requirement. As a result, they have the option of remaining unlisted.
Advantages And Disadvantages Of An Sdn Bhd
Advantages of an Sdn Bhd
100% foreign ownership
Foreigners are allowed to become shareholders and fully own the Sdn Bhd. They can also be directors as long as they have a local address. However, it is to be taken into account that not all businesses allow this, as certain industries require minimum participation from Malaysians.
It is possible to form a single shareholder/single-person company (“SPC”). If the company obtains an exemption from the Foreign Investment Law, an SPC can be established as a subsidiary.
Lower tax rate
A resident company with a paid-up capital of RM 2.5 million or less and a gross income from operations of RM 50 million will be entitled to a corporate tax rate of 17% on the first RM600,000. Non-qualifying companies will be taxed at a rate of 24% in general.
Dividends are tax exempted
In comparison to other corporate structures, Sdn Bhd companies receive higher tax benefits (e.g., pioneer status, investment tax allowance).
Sdn Bhd is an entity that pays taxes based on profits. Any distribution of dividends by the company will not be subject to further taxes. Individuals receiving dividend income in Malaysia are also exempted from paying individual taxes on the dividend.
Holding company structure
A corporation can be a holding company for real estate and other assets. This provides a company structure for property investors to better manage their assets. A parent corporation might structure itself as a holding company and create subsidiaries for each of its business lines as an asset protection strategy. One subsidiary might own the parent corporation’s brand name and trademarks, while another might own the parent corporation’s real estate.
This strategy attempts to restrict the holding company’s financial and legal liabilities risk (and of its various subsidiaries). It may also reduce a corporation’s overall tax liability by strategically locating specific elements of its operations in tax-friendly jurisdictions.
Sdn Bhd can have up to 50 shareholders, which is enough for a modest to medium-sized company. If there are more than 50 investors, a Berhad would be an alternate company structure. A shareholder of a company may be individuals or corporate bodies.
Due to the reporting standards that it must adhere to, Sdn Bhd companies in Malaysia have a significantly better market perception since they are considered a stable and transparent type of corporate structure.
Disadvantages of an Sdn Bhd
The public will have access to the company’s financial records.
Adherence to the Companies Act of 1965. Although compliance is not in and of itself a disadvantage, the amount of effort required to comply with the act is slightly greater than that required by a sole proprietorship or partnership.
Annual audits of the company’s financial accounts are mandatory.
A Malaysia company secretary must manage the firm’s statutory submissions and returns and attend and provide minutes for board and shareholder meetings.
The company will incur recurring fees such as audit, accounting, secretarial, and tax fees that must be paid regularly.
You should engage a professional firm such as Relin Consultants if you wish to form an Sdn Bhd in Malaysia to assist you with all the processes.
Is it possible for foreigners to establish an Sdn Bhd in Malaysia?
Yes, foreigners are permitted to establish an Sdn Bhd in Malaysia.
What is the maximum number of shareholders that an Sdn Bhd can have?
There can be up to 50 shareholders in an Sdn Bhd. If the number of employees exceeds 50, an alternative company structure, such as Berhad, may be explored.
What distinguishes Sdn Bhd from other businesses?
The following are the key characteristics of an Sdn Bhd.
- Limitation of Liability
- Perpetual Continuity and Separate Legal Entity Status
- Ownership Transferability
- Fundraising Ease
- Profit Distribution Flexibility