Exploring the Differences Between Sdn Bhd and Enterprise in Malaysia

Starting a business in Malaysia requires careful consideration of various factors, including the type of business entity to register. The two most common business structures are Sdn Bhd (Sendirian Berhad, or Private Limited Company) and Enterprise, which includes Sole Proprietorship and Partnership. Each structure has its legal implications, benefits, and limitations, which can significantly impact your business operations and success. This article explores the key differences between Sdn Bhd and Enterprise to help you make an informed decision.

1. Understanding Sdn Bhd (Private Limited Company)

A Sdn Bhd is a private limited company that limits the number of shareholders to 50 and restricts the transfer of its shares. This structure offers a clear separation between the company's assets and liabilities and those of its shareholders. The company operates as a separate legal entity, capable of owning property, incurring debt, and entering into contracts independently of its owners. For example, A tech startup with high growth potential might choose a Sdn Bhd structure to attract investors and offer limited liability protection to its founders. This structure allows for easier access to venture capital and provides a formal corporate structure that supports rapid expansion. 

a. Legal Requirements and Registration Process

Registering a Sdn Bhd involves several steps:

Initiating the registration process for a Sendirian Berhad (Sdn Bhd) company in Malaysia starts with MyCoID. You can start by searching for a company name and making a reservation via Suruhanjaya Syarikat Malaysia (SSM).

You can check out the Registration of Company (ROC) fees to understand the various application costs charged by SSM. Below is a screenshot of the table from Suruhanjaya Syarikat Malaysia (SSM), illustrating Registration Fees Based On Business Entities in Malaysia for your reference.

In Suruhanjaya Syarikat Malaysia (SSM) Guidelines for Incorporating a Local Company, selecting a distinctive company name reflecting your business operations is crucial. Then, define your company's activities and shareholding structure, specify the number of shareholders and directors, and appoint a qualified company secretary. Both must be residents of Malaysia. For more information, refer to Step-by-Step Guide on Registering a Sdn Bhd Company in Malaysia. 

b. 3 Advantages Of Having A Sdn Bhd

Unlocking the potential of a Sdn Bhd offers numerous advantages for businesses in Malaysia. Let's delve into these 3 main advantages of incorporating a Sdn Bhd:

i. Limited Liability

Shareholders in a Sdn Bhd are only liable for the company's debts up to the amount of their investment, safeguarding personal assets. This protection encourages entrepreneurship by minimising the risk of financial loss and promoting investment in innovative ventures.

ii. Credibility 

A Sdn Bhd's adherence to regulatory standards enhances trust with banks, investors, and customers, fostering confidence in the company's reliability and governance practices, thereby attracting investment and facilitating access to financing.

iii. Perpetual Succession

This ensures business continuity despite changes in ownership or management, providing stability, facilitating long-term planning, and enhancing the company's value and attractiveness to stakeholders and investors

c. 2 Disadvantages About Sdn Bhd

Let's take a moment to explore some of the downsides of choosing the Sdn Bhd structure for your business. While it offers many benefits, like limited liability and credibility, there are also some challenges to be aware of. Let's dive into these potential drawbacks together, from the higher initial costs to the extra paperwork.

i. Cost

Establishing and maintaining a Sdn Bhd entails higher expenses than an Enterprise due to registration fees, legal documentation, and ongoing compliance costs. For example,  monthly company secretary fees could start at RM50 to RM80 per month, and yearly audit fees could start at RM2,000 to RM7,000, depending on the company's complexity of its activities. These financial commitments may pose challenges, particularly for small businesses or startups with limited capital, impacting initial investment requirements and cash flow management.

Below are the estimated annual fees for maintaining an Sdn Bhd sourced from  MalaysiaCo. These fees are subject to change, so it is recommended to consult authorised agents for the most current information.

ii. Complexity

Sdn Bhd faces complex regulatory obligations, such as conducting annual general meetings and preparing audited financial statements. Meeting these requirements demands additional time, resources, and expertise, increasing administrative burdens and operational costs. The intricate compliance framework may also require engaging professional services, further adding to the financial strain on businesses, especially those with limited internal capabilities or financial resources.

2. Understanding Enterprise (Sole Proprietorship and Partnership)

An Enterprise can be either a Sole Proprietorship, owned and operated by a single individual, or a Partnership, where ownership is shared between two or more individuals. Unlike Sdn Bhd, an Enterprise does not have a separate legal identity, meaning the business and its owners are legally the same. For example, a freelance graphic designer might opt for a Sole Proprietorship due to its simplicity and lower costs. This structure allows the designer to retain complete control over their work and manage their finances directly without the burden of complex regulatory requirements.

a. Legal Requirements and Registration Process

The registration process for an Enterprise is more straightforward:

EzBiz is an online platform that facilitates business registration, modifications, renewals, and terminations. New business registration can be applied for through EzBiz Online, accessible 24/7.

You may also refer to this Ezbiz user guideline registration of new business from SSM for more information. 

What Are the Requirements For Applying For An Enterprise in Ezbiz?

The owner must be a Malaysian citizen or permanent resident aged 18 years and above. Additionally, all business owners/partners must register and verify their accounts as users of EzBiz Online.

How Much Are the Fees for New Business Registration and Renewal Business?

According to Suruhanjaya Syarikat Malaysia (SSM), the fees for registering and renewing a new business are as follows: 

i. For New Business Registration

• Personal Name incurs an annual fee of RM30.00.
• Trade Name registration costs RM60.00 per year.
• Changing business particulars carries a fee of RM20.00.
• Branch registration is RM5.00 per branch annually.
• There's no fee for business termination.

ii. For Business Renewal

• Renewing a Personal Name registration costs RM30.00 per year.
• Trade Name renewal is RM60.00 annually.
• Each branch renewal incurs a fee of RM5.00 per year.
• Updating business information requires a fee of RM10.00.

b. 3 Advantages Of Having An Enterprise

Considering the benefits of an Enterprise structure is vital when establishing your business in Malaysia. While different from a Sdn Bhd, an Enterprise offers unique advantages worth exploring. 

i. Simplicity

Enterprises offer a straightforward and cost-effective setup process compared to Sdn Bhds, requiring minimal paperwork and lower registration fees. With fewer regulatory obligations and no requirement for annual general meetings or audited financial statements, Enterprises are ideal for small businesses or sole proprietors seeking a hassle-free and budget-friendly business structure.

ii. Control

In an Enterprise, owners retain complete autonomy and control over business operations, decision-making, and strategic direction without shareholder approval or board oversight. This direct control enables swift decision-making, adaptability to market changes, and personalised management approaches tailored to the owner's vision and objectives, fostering agility and responsiveness in dynamic business environments.

iii. Lower Compliance Costs

Enterprises generally have lower compliance costs than Sdn Bhd companies, as they are subject to fewer regulatory obligations and reporting requirements. This can result in cost savings for small and medium-sized enterprises (SMEs) with limited financial resources. Enterprises can allocate more resources towards business growth and expansion initiatives by reducing the administrative burden and associated costs.

c. 3 Disadvantages of an Enterprise

Before deciding on an Enterprise structure for your business in Malaysia, it's crucial to understand its potential drawbacks. While offering simplicity and direct control, Enterprises also come with limitations. Let's explore these disadvantages below:

i. Unlimited Liability

In Enterprises, owners bear unlimited personal liability for business debts and obligations, placing their assets at risk of seizure or liquidation to satisfy creditors. This heightened risk exposure can have dire financial consequences, jeopardising personal savings, investments, and even personal property, highlighting the importance of thorough risk management strategies and asset protection measures for business owners.

ii. Limited Growth Potential

Compared to Sdn Bhds, enterprises need help raising capital and accessing external funding sources. The absence of a formal corporate structure and limited liability protection may deter potential investors and lenders, restricting opportunities for business expansion, innovation, and market competitiveness. Consequently, Enterprises may need help realising their growth ambitions and capitalising on emerging market opportunities, hindering long-term sustainability and profitability.

iii. Lack of Continuity

Unlike Sdn Bhds, which has perpetual succession, Enterprises need more continuity as the business's existence is closely tied to the owner's involvement. In the event of the owner's departure, incapacity, or death, the business may cease to operate, leading to disruption, loss of goodwill, and potential liquidation of assets. This lack of continuity underscores the importance of succession planning and business continuity strategies to mitigate risks and ensure long-term viability.

3. 6 Key Differences Between Enterprise and Sdn Bhd 

When starting a business in Malaysia, it's crucial to understand the key differences between a Sdn Bhd (Private Limited Company) and an Enterprise. These differences impact legal structure, liability, ownership, taxation, compliance, and funding options. The table below highlights the main distinctions to help you make an informed decision.

Criteria	Sdn Bhd	Enterprise
Legal Structure	A Sdn Bhd operates as a separate legal entity, meaning it has a legal identity distinct from its shareholders. This separation allows the company to own property, incur debts, and enter contracts independently.	The business and the owner(s) are the same legal entity. This direct link simplifies management and tax reporting but exposes the owner(s) to greater personal risk.
Liability	Shareholders are only liable for the amount they invested in the company’s shares. This is particularly important in protecting personal assets from business debts, making it a safer option for those looking to minimise personal financial risk.	Owners are entirely liable for all business debts and obligations. This means personal assets such as homes, cars, and savings can be at risk if the business incurs debt.
Ownership and Management	Ownership in a Sdn Bhd is divided into shares, which shareholders hold. Directors appointed by the shareholders typically handle management. This structure allows for a clear distinction between ownership and management responsibilities.	In an Enterprise, ownership and management are usually handled by the individual owner(s). In a Sole Proprietorship, one person owns and runs the business. In a Partnership, two or more individuals share ownership and management duties.
Taxation	Corporate tax rates often provide tax advantages for profitable companies. Additionally, Sdn Bhd companies may be eligible for various tax incentives and allowances, reducing the tax burden.	An Enterprise is taxed at personal income tax rates, which may be lower for smaller profits, providing a potential tax advantage for small businesses or individual professionals. However, as profits increase, personal income tax rates may become higher than corporate rates.
Compliance Requirements	A Sdn Bhd must comply with more stringent regulatory requirements. This includes holding annual general meetings, maintaining audited financial statements, and adhering to other statutory obligations. These requirements ensure transparency and accountability but also increase administrative overhead.	An Enterprise faces more straightforward reporting requirements and fewer regulatory burdens. This typically involves basic registration with the Suruhanjaya Syarikat Malaysia (SSM) and annual tax filings. The reduced compliance demands make it easier and less costly to manage.
Funding and Financing Options	A Sdn Bhd generally has better access to funding and financing options. It can obtain bank loans more efficiently, attract investors by issuing shares, and raise capital through various means. The formal structure and limited liability make it a more attractive investment opportunity.	An Enterprise has limited financing options, often relying on the personal funds of the owner(s) or small business loans. Attracting significant external funding can be challenging due to the unlimited liability and lack of formal structure, which may deter potential investors.

4. 5 Factors That You Need To Consider When Choosing Between Sdn Bhd and Enterprise

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a. Business Size and Growth Potential

Evaluate your business's growth trajectory and funding requirements. A Sdn Bhd may be preferable if you anticipate substantial growth and require access to external funding sources to support expansion plans.

b. Risk and Liability

Assess the level of personal liability protection needed for your business. Sdn Bhd offers limited liability for shareholders, shielding personal assets from business debts. Meanwhile, an Enterprise exposes owners to unlimited liability, necessitating a thorough risk assessment.

c. Administrative Capacity

Consider your ability to manage a Sdn Bhd's regulatory and administrative responsibilities. The formal structure entails compliance with rigorous regulatory standards, including annual meetings and financial reporting, necessitating sufficient administrative capabilities.

d. Strategic Alignment

Align your choice of business structure with your long-term objectives. Evaluate how each option supports your growth plans, risk management strategy, and operational requirements to ensure strategic alignment.

e. Cost-Benefit Analysis

Conduct a comprehensive cost-benefit analysis to evaluate the financial implications of each business structure. Consider setup costs, ongoing compliance expenses, tax obligations, and funding opportunities to determine the most cost-effective option.

Conclusion

Choosing the proper business structure is essential for your business's success and sustainability. Understanding the key differences between Sdn Bhd and Enterprise can help you make an informed decision that aligns with your business goals, risk tolerance, and administrative capabilities. 

Whether you choose the more formal, scalable structure of a Sdn Bhd or the simplicity and direct control of an enterprise, ensuring your business structure supports your vision is crucial.