Do you need to register a dropshipping business? We get this question asked a lot. Probably, you are also wondering, “do I need to register my dropshipping business with the authorities?”
You see many small home-based business owners have either started or are contemplating to start a home-based business. This is especially true now, amid the pandemic where regular jobs are scarce and many have even been laid off.
There are many advantages and benefits of registering a business with the local authorities. I’ve shared 6 below.
The contents of this article maybe tailored towards Malaysian small business owners planning to get into dropshipping for the very first time and are wondering if they should register their business as a legal entity.
I’m assuming you already know what dropshipping is. If you’re not familiar with this eCommerce model, please check out dropshipping explained in layman’s terms.
As a home run dropship business, you won’t need to deal with the usual overheads of a regular retail business. For example, you don’t have to pay shop rentals every month, no need to stock up any products or tie up your capital on products which may or may not be sellable. As a dropshipper, you don’t even need to hire or pay staff salaries. Neat right?!
With your own dropship business, you’re the boss! You call the shots of running the day-to-day activities of your business.
Yes, of course you can hire part-timers to help you with redundant and boring routine tasks but you should only scale up and hire when your dropship business has started generating regular streams of income. Until then, you’ve got to do EVERYTHING on your own. Or you can hire us to do it for you.
If you’re considering to get into the dropshipping business, why not look at what eComYoda business-in-a-box has to offer. Afterall, we are one of the few companies in the world giving its clients a Money-Back-Guarantee.
If you don’t have a clue which dropship business to start, consider getting into the shapewear and bodycon business. It has the potential to generate really high revenues as the market is not saturated with competitors, yet.
But of course, if the shapewear or bodycon topic doesn’t interest you, then how about getting into the health niche? It is also one of the hottest dropship niche topics to get into in 2021. The money is good and the competition is fairly low.
Steps on how to register dropshipping business
Assuming you are all set and ready to register your business. The question is, which type of business should you register?
There are so many types of business registrations. In Malaysia alone, 8-types of business registrations have been identified.
NOTE: Eventhough this article is tailored towards Malaysian home based businesses who are keen to start a dropship business from home, the info in here is applicable for small business owners in other countries too.
Company (Sdn Bhd) or Sole Proprietorship (Enterprise)
In Malaysia, the organization appointed by the government to register and incorporate businesses and companies is SSM (Suruhanjaya Syarikat Malaysia).
Here are the details, incase you’d like to get in touch with the office:-
SSM (Suruhanjaya Syarikat Malaysia)
No 7, Jalan Stesen Sentral 5
Kuala Lumpur Sentral
50623 Kuala Lumpur.
There are two (2) common types of business registrations usually preferred by Malaysian business owners.
1. Company (Sdn Bhd)
The suffix Sdn. Bhd. stands for Sendirian Berhad or also known as Private Limited company. These are small to midsized organizations.
- separate legal entities
- company’s liabilities are separate from the director’s/ shareholders
- under Companies Act 2016 (ROC)
- setup cost around MYR1500 – 2000
The liabilities for a Sdn Bhd company are always kept separate from the director’s or shareholders personal assets. Meaning, in the event the company goes bust, the authorities cannot touch the personal belongings or personal cash reserves of the directors or shareholders.
Very complex and costly process. Need to engage a company secretary to do all the paperwork and accounting.
2. Business (Sole-proprietorship; Enterprise)
A Sole Proprietorship business is the most common and simplest legal entity registration in Malaysia. This type of business registration in Malaysia is owned by a single individual using personal name or trade name.
- common legal entity in Malaysia
- Business owner MUST be a Malaysian citized or permanent resident.
- company’s liabilities are not separate from the owners
- under Registrar of Businesses Act 1956 (ROB)
- setup cost around MYR70
Fast and easy registration with no corporate tax payments. Less formal business requirements. Can wind up easily. Lowest annual maintenance (compared to Sdn Bhd or Bhd)
– Foreigners and corporate legal entities are not allowed to register. Only Malaysian citizens or Permanent Residents (PR) can register.
– Less formal business requirements can cause unscrupulous individuals to register a business easily and then wind up without justification.
6 advantages of registering a business legally
The benefits of having your dropship business incorporated are many but I’ve listed 6 main advantages below:-
1) Raising Capital
Once you register a company and I’m talking about Sdn Bhd (Private Limited Company) by the way, you are able to attract investors and raise funds for your business much easily.
Perhaps, you may not have put much thought about this, since you’re just starting out and based from home, but soon as you want to expand your operations, investors will prefer if your business entity is separate from your personal assets.
2) Minimized Tax Liability
As a Sdn Bhd company, you will be taxed much lower compared to a sole proprietorship or partnership. If I’m not mistaken, the tax rate is somewhere at 21% for Sdn Bhd and for sole prop it can go as high as 40%.
As a Sdn Bhd, you will be also be entitled to a range of tax deductions for education, advertising, training and office refurbishment. Why should you be paying more tax when you could reduce it.
3) Protect Your Personal Assets
If you’re signing up as a Sdn Bhd, you’re protecting your personal assets from your actions in the business. If you have debts, they will not be directly linked to you but rather to the company.
Sole proprietorship setup could be risky was you will be personally liable for debts and losses.
4) Avoid Conflict with Partners
Assuming you partners in your business. When you register a Sdn Bhd, all partners are subject to share allocation. In case there is a dispute, share allocation simply determines who has the most decision-making power.
Not only this, if you scale your business to a larger level, you can retain yourselves as shareholders and appoint managers to run your business for you.
The managers are paif monthly salaries and do not have any stake or shareholding in your company. Their job is to ensure works gets done and profits are made.
5) Branding and Awareness
Registering your business as a Sdn Bhd will ensure proper brand awareness, and reputation of your business out there.
If you take a look at some of the biggest brand names out there ie. Google, AliBaba, Facebook etc. These companies are all registered as a Private Limited Company or in other words Sdn Bhd.
Of course right now, you’re just operating your dropship business from home, but imagine if you wanted to expand and brand your business in 2-3 years from now, it will not be so easy since the legal structure of a sole proprietorship is very much limiting.
6) Stronger Partnerships
A Sdn Bhd or even a Sole Proprietorship registered company commands heightened legitimacy. As far as 3rd party partnerships are concerned, take for example, payment gateway companies, most prefer to deal with businesses that are properly registered.
After all, you will need these services to collect debit/credit card payments in your online store.
Just because you’re operating a small setup of your dropship business from home, that doesn’t mean you should not register your business. Now, with the information I’ve provided in this article, you know precisely what are the advantages of registering your business.
Moreover, you need to think BIG. Think of the larger brand names in your industry who’ve captured a fair amount of market share. Aren’t they companies legally registered. They are right?!
You’re just starting out. I understand. Funds are low. You have other overheads. I get it.
So, don’t register a Sdn Bhd at this stage. Go for a Sole Proprietorship company instead. It’s easier, faster and cost way lesser too. So long as you’re growing and you get more business, you can always upgrade later to a Sdn Bhd.
So, are you clear why you should register your dropshipping business now. Share your thoughts/ questions with me in the comments section below.
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