Chapter 3_ Business Format and Support System

FORMS OF BUSINESS ENTITIES AND BUSINESS SUPPORT SYSTEM

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Session ObjectivesAt the end of the session, students should be able to:

munderstand various forms of business organisations in Malaysia

m understand the support systemavailable for businesses

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LEGAL FORMS OF BUSINESSES IN MALAYSIARegistration of Business Entities: 1. Business Registration Act 1956 (Amendment 1978) 7 Procedures Of Business Registration 1957 2. Company Act 1965 3. Cooperative Act 1948

4. Parliamentary Act or State (Government) Enactment

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Common forms of business structure:lSole proprietorship or sole traderlPartnershiplLimited company

3 MAJOR CHARACTERISTICS:

NUMBER OF OWNER(S)LIABILITIES OF OWNER(S)LIFE SPAN OF THE BUSINESS / COMPANY

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Sole Proprietorship/Sole TraderSolely owned by one person

Management rests on that person

Liability is unlimited

Life span depends on owners

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PartnershipPartners / Owners :Min 2 and Maximum 20

Partners share management responsibilities

Unlimited liabilities (also refer to partnership agreement)

Life span depends on owners / partners

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Partnerships are governed by the Partnership Act 1961. If the partners do not make their own agreement, the provisions of the Act will become applicable, such as:

l profits & losses are to be shared equallyl no interest is payable on partners' capitall every partner is entitled to participate in the management of the businessl no partner is entitled to a salary for participating in the partnership businessl expulsion of any partner must be in the form of expressed agreement between the partners concernedintroduction of a new partner must be by an unanimous consent from all existing partners

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Limited CompanyA limited company is incorporated under the Companies Act 1965. It can be:lA company limited by shares- Private limited company (Sdn Bhd)- Public limited company- Foreign owned companylA company limited by guaranteelAn unlimited company with or without a share capital

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Company Limited By ShareThe liability of a member's contribution to the company's assets is limited to the amount specified, if any, unpaid on his share. The personal assets of a shareholder would not be available to the creditors of the company. Two types of companies limited bu share:

m a private limited company (Sdn. Bhd.)m a public limited company (Berhad)

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Private Limited company (Sdn. Bhd.)1.Restricts the right to transfer its share2.Limits the number of its members / shareholders between 2 to 50 3.Prohibits any invitation to the public to subscribe for any shares in the company4.Prohibits any invitation to the public to deposit money with the company for fixed periods

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Public Limited company (Bhd.)

A public limited company is any company other than a private company whose shares may be offered to the public for subscription. Such shares are freely transferable.

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ADVANTAGES AND DISADVANTAGES OF EACH BUSINESS FORM

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Sole Proprietor/Sole TraderAdvantages1. Easy to set up - few formalities2. Easy to manage - the owner is the boss3. The owner keeps the profits4. The owner is not required to disclose business affairs to the general public5. Few legal problems

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Sole Proprietor/Sole TraderDisadvantages1.The owner is totally responsible for any debts incurred by the business - if the business fails or goes bankrupt, the creditors are entitled to seize and sell the owner's possessions - personal as well as business2.Few or limited resources 3.More responsibilities

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Partnership Advantages1. Easy to set up - few formalities2. The owners are not required to disclose business affairs to the general public3. Contributions to capital can be increased through enlisting additional partners4. The risk is reduced - each partner will share the loss5. Better management - through skills, knowledge and experience of each individual partner

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Partnership Disadvantages

1. Each partner is liable for the debts of the business - regardless of which partner is at fault2. Risk of personal clashes between partners3. The death or bankruptcy of any partner automatically dissolves a partnership unless there is an agreement otherwise

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Limited CompanyAdvantagesShareholders are not liable for the company's debts beyond the amount of share capital they have subscribedEasier to transfer ownership, either wholly or partially, through the selling of all or part of its total shares, or through the issue of the new shares to additional investors

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Limited CompanyDisadvantages1. The public will have access to the financial affairs of the company2. The company has to comply with the requirements of the Companies Act 19653. The company has to appoint auditors to verify and report its financial statements4. Every limited company must have a company secretary 5. The cost involved in forming a limited company is high

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HOW TO REGISTER NEW BUSINESSES/COMPANIESlAll forms of sole traders and partnerships are required under the Registration Of Business Act 1956 to be registered with the Registrar of Business (ROB)lPrivate limited companies must register with the Registrar of Company (ROC) through companys secretary

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Sole ProprietorshiplBefore registering a business, complete a name search form to ensure that there is no duplicationlIf the name is approved, proceed to the following steps:

Step 1 : Obtain form "A" from ROBStep 2: Complete Form "A"Step 3: Have it verified by Commissioner for OathsStep 4: Submit Form "A" with a photo-copy of your i/c

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Memorandum and Articles of AssociationThe affairs of a limited company are governed by these documents. These are usually combined into one

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Memorandum of AssociationThis document defines the essential components of the structure of the company. It contains:lthe name of the companylthe situation of the registered officelthe objects of the companylthat the liability of members is ltd.lthe nominal amount of authorized share capitallthe association clauses

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Articles of AssociationThis document constitutes the internal regulations of a company. It contains:lthe name of the companylthe name of directorslthe minimum and maximum number of directorslthe share qualifications of each directorlname, address, identity card number and occupation of each subscribers

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Procedures and Legal AspectsLicense, Permit and Letter of AuthorityLicense

Business License Wholesaling License Manufacturing License Food Manufacturing License Sales Tax License Excise License

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Procedures and Legal AspectsPermits

Foreign Workers Entry Permit Transportation Permit

Letter Of Authority Certificate of Fitness

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Other Procedures To Be Considered Assembling of Machinery and Equipment Pollution Control Business Rights Trade Mark Protection Patent Protection Copyright Standards and Quality Hire Purchase Act Workers Social Needs Infrastructure Needs Import and Export Regulations

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BUSINESS SUPPORT SYSTEM

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Technical AssistanceSIRIM, MARA, MARDI, RRI, PORIM

Marketing AssistanceMITI, MATRADE, FAMA, NRC DISTRIBUTORS, GUTHRIE, BESTA

Infrastructure MARA, PKEN, SIRIM, UDA, KPLB, BPIMB, MIDA

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Information Services MATRADE, MITI, MARDI, SIRIM, MIDA, FRIM, universities

Business ResearchMARDI, SIRIM, universities

Financial Assistance commercial banks, merchant banks, industrial bank, financial institution, government agencies

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Consultancy & Advisory Services MEDEC, MARA

Training, Seminar and Workshop MEDEC, PUNB, MARA, FDPN, SEDC

Extension Services MEDEC, MITI, SIRIM, MARA, MATRADE, MARDI, NPC

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