BAEB510 Chapter 4: Form of Business Entities

BAEB501 : ENTREPRENEURSHIPCHAPTER 4:Form of Business Entities

© 2010 Cosmopoint

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Chapter 4: Form of Business Entities

© 2010 Cosmopoint

Topic Outlines

4.1 Business Organization in Malaysia 4.2 Sole Proprietorship4.3 Advantages of Sole Proprietorship4.4 Disadvantages of Sole Proprietorship 4.5 Partnership4.6 Advantages of Partnership4.7 Disadvantages of Partnership 4.8 Corporation4.9 Advantages of Corporation4.10 Disadvantages of Corporation

© 2010 Cosmopoint

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Chapter 4: Form of Business Entities

© 2010 Cosmopoint

Learning Outcomes

After completing this chapter, student should be able to: Explain the main types of legal structure a business may operate

under Discuss the pros and cons of each type of legal structure Describe the various forms of intellectual property

Topics© 2010 Cosmopoint

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Chapter 4: Form of Business Entities

© 2010 Cosmopoint

4.1 Business Organization in Malaysia

Topics

Business in Malaysia can be registered under any of the following. Business Registration Act 1956 (Amendment 1978) and

Procedures of Business Registration 1957: There are two types of business that can be performed under this

Act:

Sole Proprietorship Partnership

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Chapter 4: Form of Business Entities

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4.1 Business Organization in Malaysia

Topics

Company Act 1965 There are 3 types of companies that can

be formed under this Act: Limited Company by Gurantee Limited Companny by Share

Private Limited Company (Sendirian Berhad)

Public Limited Company Foreign Owned Company

Unlimited Company Cooperative Act 1948 Parliamentary Act or State (Government)

Enactment

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Chapter 4: Form of Business Entities

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4.2 Sole Proprietorship

Topics

Solely owned by one person, where management rests on that person whose liability is unlimited.

The simplest business structure

Does not mean that the sole proprietorship has to be small.

May grow to any level in sales revenue

E.g: tailor shops, salons, restaurants.

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Chapter 4: Form of Business Entities

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4.3 Advantages of Sole Proprietorship

Topics

Simple to create

Least costly form of ownership to establish

Profit incentive

Total decision – making authority

No special legal restrictions

Easy to discontinue

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Chapter 4: Form of Business Entities

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4.4 Disadvantages of Sole Proprietorship

Topics

Unlimited personal liability

Limited access to capital

Limited skills and abilities

Feelings of isolation

Lack of continuity for the business

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Chapter 4: Form of Business Entities

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4.5 Partnership

Topics

A partnership is a legal business entity that carried out by more than one person but not exceeding 20 person.

However, in professional businesses, such as legal firms, architect and accounting firms, the members could number up to 50 person.

Partners carry out the business, share the capital, profits and losses.

Every partner is considered the company’s representative and acts on behalf of the company.

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Chapter 4: Form of Business Entities

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4.6 Advantages of Partnership

Topics

Easy to establish

Complementary skills

Division of profits

Larger pool of capital

Ability to attract limited partners

Little government regulation

Flexibility

Income tax is not imposed on the partnership itself but on the owners as individuals.

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Chapter 4: Form of Business Entities

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4.7 Disadvantages of Partnership

Topics

Unlimited liability of at least one partner

Capital accumulation

Difficulty in disposing of partnership interest without dissolving the partnership

Potential for personality and authority conflicts.

Partners should understand the law and regulation

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Chapter 4: Form of Business Entities

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4.8 Corporation

Obviously many corporations are big

Not only limits the liability of owners, it enables many people to share in the ownership (and profits) of a business without working there or having other commitments to it.

Corporate character

Establishment of years

Stockholders & Board of director

Topics

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Chapter 4: Form of Business Entities

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4.9 Advantages of Corporation

Limited liability of stockholders

Ability to attract capital

Ability to continue indefinitely

Transferable ownership

Topics

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Chapter 4: Form of Business Entities

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4.10 Disadvantages of Corporation

Cost and time involved in the corporation process

Double taxation

Potential for diminished managerial incentives

Legal requirements and regulatory

Potential loss of control by the founders.

Topics

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Chapter 4: Form of Business Entities

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Activity

Task: Select any three companies in any industry. Identify the advantages and disadvantages for 3 form of business entities.