How to Convert Enterprise to Sdn Bhd in Malaysia

Are you a small business owner running a sole proprietorship or enterprise and considering converting it to a Sdn Bhd (Sendirian Berhad) company? You’re not alone!

Many entrepreneurs choose to make this change for various reasons, including tax benefits, limited liability protection, and increased credibility. Before making the switch, it’s crucial to understand the differences between an enterprise and a Sdn Bhd, as well as the requirements and process for conversion.

In this article, we will cover essential details related to converting your enterprise into a Sdn Bhd company, answer common questions about the process, and provide helpful tips on ensuring a smooth transition. Whether you’re just starting or have been running an enterprise for years, read on to learn how to take your business to the next level by converting to a Sdn Bhd company.

*A conversion to a Sdn Bhd is not an actual upgrade of an enterprise to a Sdn Bhd as there is no such mechanism by SSM to do so, but rather a process of incorporation a new Sdn Bhd

Understanding the Difference Between Enterprise and Sdn Bhd

As Enterprise, which can be a Sole proprietorship or Partnership, is commonly owned and managed by a Malaysian individual or multiple partners. In this business structure, the owner or partners assume full responsibility for the business’s liabilities and are subject to taxation through their personal income tax. In contrast, a Sdn Bhd (Sendirian Berhad) operates as a private limited company, comprising shareholders who hold limited liability for the company’s obligations.

What is an Enterprise?

As Enterprise in Malaysia, which can be a Sole proprietorship or Partnership, is commonly owned and managed by a Malaysian individual or multiple partners. Enterprise is simple and easy, while also the cheapest form of business to set up in Malaysia.

In this business structure, the owner or partners assume full responsibility for the business’s liabilities and are subject to taxation through their personal income tax.

What is a Sdn Bhd (Sendirian Berhad) Private Limited Company?

A Sdn Bhd (Sendirian Berhad) operates as a private limited company, comprising shareholders who hold limited liability for the company’s obligations. One of the main benefits of a Sdn Bhd company is that it provides more protection to owners because Sdn Bhd is a separate legal entity.

This includes registering with the Companies Commission of Malaysia and obtaining necessary licenses. It’s important to note that a Sdn Bhd company requires more formalities such as appointing auditors and tax agents and filing annual compliances.

Major Differences Between an Enterprise and a Sdn Bhd Company

One of the major difference between Sdn Bhd and Enterprise is that the former business entity provides limited liability protection to its shareholders. This means that the personal assets of shareholders are protected in case the company faces legal issues or financial difficulties. In contrast, an enterprise does not offer any legal protection.

Incorporating as a Sdn Bhd requires more paperwork and legal formalities compared to running an enterprise. Additionally, a Sdn Bhd is recognized as a separate legal entity from its owners, providing increased credibility and growth opportunities. While any profit of an Enterprise (Sole proprietorship or partnership) are subject to taxation through their personal income tax

For more information, can refer to our Private Limited Company vs Sole Proprietor article.

Benefits of Converting from Enterprise to Sdn Bhd (Sendirian Berhad) Private Limited Company

Converting an Enterprise (Sole proprietorship or Partnership) to a Sdn Bhd (Sendirian Berhad) company offers numerous benefits to the shareholders.

It’s important to note that the process to change from enterprise to Sdn Bhd company may require assistance from a professional service provider, such as a company secretary or accountant. However, the benefits of making the switch can greatly outweigh any initial costs or complexities involved in the process.

Limited Liability Protection

One of the main benefits of converting from an enterprise to a Sdn Bhd company is limited liability protection for shareholders of the company. This means that shareholders’ liability are limit to the cost of their investment and their personal assets are protected from any financial liabilities incurred by the business.

Increased Credibility

Sdn Bhd company is a legal entity that offers limited liability protection for shareholders, which can help attract more investors and secure larger contracts. This protection also makes it easier to obtain financing and government grants.

Being recognized as a legal entity gives your business a more professional image and may improve your chances of attracting high-quality employees or partners.

Easier to Raise Capital

One major advantage is that it can make it easier to raise capital. Sdn Bhd companies are able to issue shares, which allows for more investors and potential funding sources.

In addition, Sdn Bhd companies have greater credibility with banks and financial institutions, making it easier to secure loans and financing.

Tax Rate Benefits

Sdn Bhd companies are taxed at a lower rate than sole proprietorships and partnerships, which can help you save money and reinvest it into your business. In addition to tax benefits, Sdn Bhd companies offer limited liability protection, separate legal status, and easier access to funding.

Considering the tax benefits alone, converting to a Sdn Bhd company can be a smart move for many businesses.

Example for the 2023 revised tax rates for personal income tax on RM 100,000 taxable income, it is at 24%. Whereby for corporate tax rate of the same taxable income, it is only at 15%. Refer to our What are the benefits to SMEs from Budget 2023 Malaysia? article to learn more.

Requirements for Converting Enterprise to a Sdn Bhd in Malaysia

Converting your enterprise to a Sdn Bhd company in Malaysia has several requirements.

1. Firstly, you must have one shareholder for your private limited company.
2. The paid-up capital required for a Sdn Bhd is a minimum of 1 share.
3. It is essential to reserve a unique name for your Sdn Bhd before registering it with the Companies Commission of Malaysia (SSM).
4. Additionally, you must appoint at least one director and one company secretary for your Sdn Bhd.
5. These requirements are mandatory for any enterprise looking to convert to a Sdn Bhd company in Malaysia.

For more details of the basic requirement of Sdn Bhd incorporation process, do refer to our Sdn Bhd Company Incorporation Process in Malaysia article to know more.

Steps to Convert Your Enterprise to a Sdn Bhd Company

Converting your enterprise to a Sdn Bhd company involves several steps. Here is a step-by-step guide to help you navigate the process:

1. Evaluate your business requirements and goals:

Before taking any action, evaluate the reasons for converting your enterprise into a Sdn Bhd company. Make sure it aligns with your business objectives and financial goals. Consult with an accountant or financial advisor if needed.

2. Choose a company name:

Select a suitable name for your new Sdn Bhd company. Ensure that the name is unique and not in use by another company. You can check for name availability through the Companies Commission of Malaysia (SSM) mycoid portal. Do feel free to check your chosen new Sdn Bhd company name availability for company registration at our Start your company online page.

3. Provide necessary details:

To incorporate a Sdn Bhd company, you will need to prepare the following :-

1. Name of Company
2. Nature of business of Company
3. Address of Company (If no company address, can use house address first, later can change)
4. At least 1 Malaysian director
5. At least 1 shareholder (director & shareholder can be the same person)

4. Submit incorporation documents to SSM:

Once all the details are ready, make your application at SSM mycoid portal, submit and pay the incorporation fees of RM1,010.00 to the Companies Commission of Malaysia (SSM) for approval. The SSM will review your submission and either approve or sent you a query notice on your application. This process usually takes around 1-3 days.

Do note that you also can do all this through our fully online incorporation process at Start your company online.

5. Obtain necessary licenses and permits:

After your Sdn Bhd company is incorporated, you will need to obtain relevant licenses and permits to operate legally. This may include business licenses, permits from local authorities, and industry-specific licenses. Ensure that you comply with all regulatory requirements.

6. Close your enterprise:

As you’re transitioning from an enterprise to a Sdn Bhd company, you must close your sole proprietorship business. Notify the relevant authorities, such as the Inland Revenue Board (IRB) and Employees Provident Fund (EPF), of your intention to close your enterprise.

7. Open a corporate bank account:

Open a corporate bank account under your new Sdn Bhd company name. This will help separate your personal and business finances and make it easier to manage your company’s transactions.

8.  Transfer assets and liabilities:

Transfer all assets, contracts, and liabilities from your enterprise to the new Sdn Bhd company. This may include property, equipment, inventory, and outstanding loans or debts. Consult with an accountant or company secretary to ensure a smooth transition.

9.  Notify clients and suppliers:

Inform your clients, suppliers, and other stakeholders about your transition to a Sdn Bhd company. Provide them with your new company name, registration number, and contact details.

10. Update marketing materials and online presence:

Update your website, social media accounts, business cards, and other marketing materials to reflect your new Sdn Bhd company name and information.

Remember that converting your enterprise to a Sdn Bhd company is a significant decision that requires careful planning and execution. Consider seeking professional advice from a company secretary, accountant, or business consultant to help you through the process.

Tips for a Smooth Transition to a Sdn Bhd Company

To ensure a successful conversion of your enterprise to a Sdn Bhd company, consider the following tips:

1. Seek professional advice:

Consult with professionals such as company secretary, accountants, and business consultants to help you make informed decisions and guide you through the process. They can assist with preparing necessary documents, understanding legal and financial implications, and ensuring compliance with regulations.

2. Plan ahead:

Start planning the transition well in advance. This will give you enough time to handle all necessary tasks and minimize disruptions to your day-to-day operations. Create a timeline and checklist to keep track of your progress and ensure that no critical steps are missed.

3. Communicate with your team:

Keep your employees informed about the transition and any changes that may affect them. Address their concerns and answer any questions they may have. Engaging your team throughout the process will help ensure a smooth transition and maintain employee morale.

4. Maintain proper records:

Proper record-keeping is essential when operating as a Sdn Bhd company. Ensure that you maintain accurate financial records and comply with all reporting requirements. Consider implementing accounting software or hiring an accountant to help manage your financial records.

5. Stay compliant with tax obligations:

As a Sdn Bhd company, you will be subject to different tax regulations compared to an enterprise. Ensure that you understand and comply with all applicable tax laws and requirements. Seek advice from a tax consultant if needed.

6. Review contracts and agreements:

Review all existing contracts and agreements related to your business, such as supplier agreements, leases, and customer contracts. Make any necessary changes or amendments to reflect your new Sdn Bhd company status.

7. Monitor and evaluate your progress:

Regularly monitor your business performance after the conversion to assess whether the transition has achieved the desired results. Evaluate your financial position, growth opportunities, and overall business performance to ensure that the conversion is benefiting your business.

FAQ About Converting from Enterprise to Sdn Bhd Company

1. What is the process to convert an enterprise into a Sdn Bhd?

A conversion to a Sdn Bhd is not an actual upgrade of an enterprise to a Sdn Bhd, as there is no such mechanism provided by the SSM (Companies Commission of Malaysia) to do so. Instead, the process involves incorporating a new Sdn Bhd and transferring the relevant assets, liabilities, and operations from the existing enterprise to the newly formed company.

2. What is the main reason for converting an Enterprise to a Sdn Bhd company?

The main reason for converting an Enterprise to a Sdn Bhd company is to limit personal liability in case of any financial or legal issues, as Sdn Bhd companies are private limited liability companies.

3. Can sole proprietorships convert to Sdn Bhd companies?

Yes, sole proprietorships can convert to Sdn Bhd companies by following the necessary legal procedures. This offers several benefits such as limited liability protection and easier access to funding.

4. What are the compliance requirements for Sdn Bhd companies?

Sdn Bhd companies must comply with various regulations and laws, including the Companies Act and the Income Tax Act. They are required to submit annual financial statements and annual retuns and have at least one director who is a resident of Malaysia.

5. How long does the conversion process take?

It is advisable to consult with a professional adviser, such as a company secretary or accountant, who specializes in this area before making any decisions regarding your business structure. They can help you understand legal requirements, tax implications, and compliance with regulatory requirements.

Conclusion

In conclusion, converting from an enterprise to a Sdn Bhd company has many benefits, including tax rate benefits, increased credibility, limited liability protection, and easier capital raising.

Although the conversion process may take time, it is well worth the effort in the long run. So don’t hesitate to take action and make the move towards converting your enterprise to a Sdn Bhd today.

Our team of experts can help guide you through this process smoothly.

Ready to convert to a Sdn Bhd company? Sign up now for our Fully Online Sdn Bhd Incorporation Services!