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What is a Limited Company (SDN BHD in Malaysia)?
A Limited Liability Company, quite simply is a company whose liability is limited. That’s the short version. The longer version is that a limited company is a type of company which when set-up allows an entrepreneur to keep their own assets and finances separate from the business itself. This means that people who have invested in the business (the shareholders) are only responsible for any company debts up-to the amount that they have invested and no more. It is therefore a good way for a business to get investment without risk to a personal wealth. Essentially a Limited Company is seen as an entity in its own right, which can be subject to legal action. As a separate body, a limited company can even be the director of another company.
Limited Liability – The obvious advantage of a Limited Liability Company is the financial security that comes with business. As already mentioned, the Company’s shareholders will only be liable for any debt the company accrues according to the levels of their own investment and no more. This can provide a comfortable feeling of security for investors in the Company.
Separate Entity – Due to its very nature, a limited company is deemed to be a separate legal entity from its owners. This has several advantages, including the fact that the company will exist beyond the life of its members. If they retire or die, the company will continue to exist and operate. This ensures security for employees and other members and also is an advantage which other legal forms of business are not subject to.
Taxation and Tax Advantages – Limited Companies are only taxed on their profits and as such are not subject to the higher (personal) tax rates placed on sole traders or partnerships. There are ways to use the limited company form to benefit the members/directors and their interests. If you are forming and running a limited company, you are recommended to pay yourself at minimum wage levels.
Not Using a Company Car – Many people take pride in their company car. However, as the owner of a limited company, you are actually better off not purchasing and running a company car, but instead using your own personal car for business purposes. In this way you can charge the mileage accrued on business travel to the company which allows you to benefit from tax free fuel and the costs are actually tax deductible to the company, so you benefit in two ways.
Using Your House – Starting out as a small company, you may not be able to afford to lease or buy premises to run your business from. The good news is, you can run the business from your house and claim back for the cost of doing so. If you use 1 room in your home for business purposes then you have to calculate the cost of that room by working out the costs of the house in general (water, electricity, heating, council tax and rent or mortgage interest (not the mortgage payments themselves)) then dividing that number by all the rooms in the house to give you the amount you can claim back.
Company Name – Part of registering a Limited Company, includes the registration of a Company name. This name will help identify the business in the marketplace, separating it from other Companies and protecting it.
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