Starting a Business? Which Business Incorporation should I go for ?

Starting a Business? Which Business Incorporation should I go for ?
This is Chapter 1 : Types of Business Incorporation and Tax Differences
Imagine yourself in the shoes of a new entrepreneur, you are excited, you want to go out do some business, make some money. You started the business online, using your name, then you realize at one point of time: right, is time for me to make it into a serious business. 
Why you have these kinds of thoughts? Plenty of reasons:-
1. You need funds, but who wants to invest in you? So, you have to make sure you have a proper company or accounts. The proper company gives investors, bankers, or your shareholders confidence to invest in you. 

2. I want to buy inventories on credit. Who the hell wants to sell you inventories? if you buy it under your name? What happens if you go missing? What happens if you go bankrupt? So surely no one wants to give you any form of credit term.
3. Let’s say you are lucky enough to get these inventories. But because you have never intended to submit your taxes, you have no proper entity, you are unable to furnish any sales documents or invoice, customers lose confidence. Come on, they need the invoice so that they can do their accounting and reduce their taxes correct? If there is no invoice, what happens if the government suspect they are smuggling goods? 
So you decided. It’s time to get serious! You go to this place call the Companies Commission of Malaysia or Suruhanjaya Syarikat Malaysia (SSM) and speak to the officer. The more you speak to an officer, the more confused you get. There are generally 4 different main types of business incorporation in Malaysia. Of course, there are more, but let’s keep it simple now.

Type A : Enterprise / Sole Proprietor 
This is the easiest to incorporate. You just need one person, which is yourself. 
The pro: easy to start. Simple. Cheap. 
The con: high risk. Very high risk. Very super high risk. 

Type B : Partnership 
2nd easiest to incorporate. You need 2 people. You and your wife; or you and your husband; you and your friends. You can, of course, go more than 2, up to 20 people. But, come on. The more people you have, the harder to manage. Trust me, keep it simple. 
The pro: easy to start. Simple. Cheap. 
The con: high risk. Very high risk. Very super high risk. 
Let’s talk Cheap. It is cheap because starting these businesses and maintaining these businesses is easy. You just need to get someone to do up your accounts yearly and submit your taxes. Secretary fee and audit fee are not required. 
Unfortunately, these 2 types of business incorporation have something in common : 

1. these are not separate legal entities. That means if anything happens to these businesses, your personal assets/wealth will be affected as well. Exposing you to extremely high risk. 
2. In addition to that, the tax audit risk is VERY HIGH. Meaning, you are exposed to high tax audit risk – for a very simple reason. No auditor checked your accounts. 
3. On top of that, the tax rates follow individual tax, therefore the highest bracket may hit 30%. For SMEs, it is hovering around 25% at average. 

That’s where you may want to consider: hmm, is there any better / safer way out?

Type C : Sdn Bhd 
The pro: Good and Secure in every way
The con: higher cost 
Sdn Bhd is the best choice for every business. Yes, it may be the most costly way to start with because you have to engage a company secretary to set up the company for you. Every year, you have to engage an auditor to check your accounts. 
But is because of these factors:-

1. your accounts are clean! banks are confident! shareholders and investors are confident. 
2. You can even give or sell the shares. To investors who believe in your potential or even employees that you trust, who can go along with the company and grow. 
3. You can use the company to get loans, hold properties, or even for long-term succession planning. 
4. Suppliers are happy to offer long credit term – but sometimes also depends who are the owners and what is the share capital amount. 
5. Shareholders can be individual or even corporate shareholders. 
6. The best part is it is a separate legal entity. Meaning, your assets are protected. Except for government matters. 
7. Tax rate is 17% for 1st 600k chargeable income = profit. Subsequent 24%, which is way cheaper than an individual in the long run. 
8. you can plan your taxes legally among the company and the directors. Kill 2 birds with 1 stone. 
9. Lastly, You can start the company with one person. 

Whether this is feasible or not? Easy. Ask yourself: do you need finances? Do you need loans? do you need investors? Most importantly: what is the amount of taxes you are paying now? What are the potential tax savings? Most importantly whether such savings and benefits outweigh my compliance cost. 
There is of course another final option which is :

Type D : LLP
Lastly Limited Liability Partnership
The pro: Cheap and Secure 
The con: hard to get finances and more suitable for the services industry
LLP is the best of both worlds – Partnership and Sdn Bhd. Similar to Partnership, you need at least 2 people to start the business. 

1. It is cheap because you do not need a company secretary and auditor. 
2. You enjoy taxes similar to Sdn Bhd with only 17% for the first RM600k chargeable income and
3. it is a SEPARATE LEGAL ENTITY. Your personal assets are protected if the company goes down. 

It seems LLP is the best of everything, should I go for LLP? 
There are a few catches. 
LLP may seem too good to be true, but remember, due to lack of audited financial statements and its structure of generally owned by an individual, bankers, shareholders, or investors still perceive LLP as a high-risk entity. Therefore, getting a loan under LLP is a challenging one. Furthermore, the degree of tax audit risk remains high. 

Conclusion
Well… none of the above is perfect. 
If you are new to the market, risk-averse, limited cash and unsure whether you will succeed in business – let’s try sole proprietor or partnership. If the business is successful, you can move to Sdn Bhd. 
If you are a lawyer or chartered accountants, you have no choice but to stick with sole proprietorship or partnership, or Maybe LLP. Depending on your professional body. 
If you are in the service line, where credit term is never a concern, you do not intend to get any loans, LLP seems to be a cheaper and more feasible option for you. 
If you are confident, know you need funding soon, have a long-term vision as I do, Don’t waste time – go for Sdn Bhd. Certain money is worth spending for.