Common Forms of business

Forms of Business Organization, Forms of Business Organization, Regulation & Business Support Regulation & Business Support

SystemSystem

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Types of Business Types of Business Organization in MalaysiaOrganization in Malaysia All types of business by law All types of business by law

must be registered. The three must be registered. The three Acts that govern business are:Acts that govern business are:

The Business Registration Act The Business Registration Act 1956 (Amendment 1978).1956 (Amendment 1978).

Procedures of Business Procedures of Business Registration Act 1957 Registration Act 1957

Company Act 1965Company Act 1965

Types of Business OrganizationTypes of Business Organization

The following are types of business that The following are types of business that operate in Malaysia:operate in Malaysia: Sole Proprietorship OR Sole Trader.Sole Proprietorship OR Sole Trader. Partnership Partnership

Ordinary Partnership or Unlimited Ordinary Partnership or Unlimited Partnership.Partnership.

Limited PartnershipLimited Partnership Company – Private & Public CompanyCompany – Private & Public Company

Company Act 1965Company Act 1965 According to Company Act 1965, According to Company Act 1965,

an investor or prospector can form an investor or prospector can form three types of companies.three types of companies. Limited Company by GuaranteeLimited Company by Guarantee Limited Company by ShareLimited Company by Share

Private Limited Company ( Sdn. Bhd.) Private Limited Company ( Sdn. Bhd.) Public Limited Company (Berhad)Public Limited Company (Berhad) Foreign Owned Company ( Pvt. Ltd.)Foreign Owned Company ( Pvt. Ltd.) Unlimited CompanyUnlimited Company

Types of Business OrganizationTypes of Business Organization

Sole Proprietorship/Sole TraderSole Proprietorship/Sole Trader

Formed under the Business Act Formed under the Business Act 1956 1956 This type of business is owned by an This type of business is owned by an

individual or sole person.individual or sole person. Has a simple business structureHas a simple business structure Some sole trader can operate as big Some sole trader can operate as big

business, e.g. Family run business.business, e.g. Family run business. E.g. Kamdar Departmental Store was E.g. Kamdar Departmental Store was

sole trader for long time until it turn into sole trader for long time until it turn into private limited company ( Sdn. Bhd.)private limited company ( Sdn. Bhd.)

Example of Sole trader – tailor, Beauty Example of Sole trader – tailor, Beauty Saloon, restaurants, launderettes (dobi), Saloon, restaurants, launderettes (dobi), mini market etc.mini market etc.

Sole Proprietorship Sole Proprietorship

AdvantagesAdvantages Easy to manage the business.Easy to manage the business. All decision made by the owner- All decision made by the owner-

manager.manager. Low start up capital, no heavy Low start up capital, no heavy

investment.investment. Flexibility in operation.Flexibility in operation. The Sole trader can act quickly The Sole trader can act quickly

with a degree of flexibility. with a degree of flexibility.

AdvantagesAdvantages Easy to form and dissolve (bubarkan) Easy to form and dissolve (bubarkan)

with minimum formalities.with minimum formalities. Nobody shares the rewards of the Nobody shares the rewards of the

business, all profit will go to the owner.business, all profit will go to the owner. Subject to less government rules and Subject to less government rules and

regulation.regulation. The owner – manager has to pay The owner – manager has to pay

income tax based on total profit earned income tax based on total profit earned to LHDN ( Inland Revenue Board, M’sia)to LHDN ( Inland Revenue Board, M’sia)

Sole Proprietorship Sole Proprietorship

DisadvantagesDisadvantages Limited source of capitalLimited source of capital

Lack of capital to expand the Lack of capital to expand the business further.business further.

The liability is unlimitedThe liability is unlimited The owner- manager will be liable to The owner- manager will be liable to

settle all debts outstanding.settle all debts outstanding. Failing which all assets will be Failing which all assets will be

ceased by court order to be sold, and ceased by court order to be sold, and cash generated will used to pay all cash generated will used to pay all outstanding creditors. outstanding creditors.

Sole Proprietorship Sole Proprietorship

DisadvantagesDisadvantages The future development of the business The future development of the business

is limited.is limited. Lot depends on the managerial capability Lot depends on the managerial capability

of the owner and physical health.of the owner and physical health. The life span of the business depends The life span of the business depends

upon the age of the owner and how upon the age of the owner and how efficiently he manages the business.efficiently he manages the business.

He is of ill health or passes away the He is of ill health or passes away the business continuation is disrupted.business continuation is disrupted.

If he choose an heir (successor) to the If he choose an heir (successor) to the business, then the business has to be business, then the business has to be reregistered.reregistered.

Sole Proprietorship Sole Proprietorship

Partnership Partnership

A partnership is a legal business A partnership is a legal business entity with two or more partners.entity with two or more partners.

In this type of business, a In this type of business, a person forms a partnership person forms a partnership (kongsian)(kongsian)

A partnership business has to A partnership business has to be registered under the be registered under the Business Registration Act 1956 Business Registration Act 1956

Partnership Partnership

A partnership normally should A partnership normally should consist of minimum of 2 person consist of minimum of 2 person but not exceeding 20 persons.but not exceeding 20 persons.

But exception in the case of But exception in the case of professionals ( lawyers, doctors professionals ( lawyers, doctors and engineers etc.) is the and engineers etc.) is the members could number up to 50 members could number up to 50 persons.persons.

AdvantagesAdvantages Easy to set up and operate – less formalities.Easy to set up and operate – less formalities. Easier to secure financial assistance from Easier to secure financial assistance from

financial institutions.financial institutions. Equity can be increased from existing partners.Equity can be increased from existing partners. Business risks can be less because risk is borne Business risks can be less because risk is borne

by all existing partners.by all existing partners. The responsibility of managing and overseeing The responsibility of managing and overseeing

the business can be handled by all partners.the business can be handled by all partners. Ideas, talents and skills can be pooled together Ideas, talents and skills can be pooled together

from partners for better management.from partners for better management. Income tax is not imposed on the partnership Income tax is not imposed on the partnership

business but instead on the individual partners.business but instead on the individual partners.

Partnership – Advantages & Partnership – Advantages & DisadvantagesDisadvantages

DisadvantagesDisadvantages Business liabilities are unlimited.Business liabilities are unlimited.

Personal assets can be seized by court order Personal assets can be seized by court order since no distinction between personal & business since no distinction between personal & business assets.assets.

The life span (jangka hayat) of the partnership The life span (jangka hayat) of the partnership business depends on the life spans of the business depends on the life spans of the business.business.

If partner declared bankrupt, dies or become If partner declared bankrupt, dies or become insane business has to be dissolved. insane business has to be dissolved.

If a Letter of Agreement as per Partnership Act If a Letter of Agreement as per Partnership Act 1961 is not made members may resort to 1961 is not made members may resort to mismanage or be unethical in conducting their mismanage or be unethical in conducting their business in the partnership.business in the partnership.

Difference of opinion and conflict may lead to Difference of opinion and conflict may lead to breakup of the partnership.breakup of the partnership.

Partnership – Advantages & Partnership – Advantages & DisadvantagesDisadvantages

Contract AgreementContract Agreement

It is necessary for the business to It is necessary for the business to have some kind of Contract or have some kind of Contract or Partnership Agreement to minimize Partnership Agreement to minimize any problems that may arise.any problems that may arise.

The Business Registration Act 1956 The Business Registration Act 1956 does not state that the formation of a does not state that the formation of a partnership business must have a partnership business must have a written agreement.written agreement.

Contract AgreementContract Agreement

Should an agreement arises what should be the Should an agreement arises what should be the contents?contents? The Contents are as follows:The Contents are as follows:

Name of the businessName of the business The duration of the partnership The duration of the partnership Agreement as the partnership status once the Agreement as the partnership status once the

partner/s passes away or withdraws from the partner/s passes away or withdraws from the partnership.partnership.

The name of the individuals involved in managing The name of the individuals involved in managing the partnership.the partnership.

The accounts of the business.The accounts of the business. The structure of ownership i.e. the contribution The structure of ownership i.e. the contribution

made by individual partners.made by individual partners. The rights and obligation of the business partnersThe rights and obligation of the business partners What are the properties that are considered as What are the properties that are considered as

business assets to distinguish from personal business assets to distinguish from personal assets.assets.

Partnership Act 1961Partnership Act 1961

According to Sect 26 & 27 of the According to Sect 26 & 27 of the above act:above act: Profit & Loss are to be shared equally.Profit & Loss are to be shared equally. No interest is payable on a partner’s No interest is payable on a partner’s

capitalcapital Partners are required to participate Partners are required to participate

actively in the business.actively in the business. No partner is entitled for salary for work No partner is entitled for salary for work

contribution done for the partnership.contribution done for the partnership. Partner’s should be paid based on their Partner’s should be paid based on their

contribution.contribution.

Partnership Act 1961Partnership Act 1961

Daily routine matters can be decided by Daily routine matters can be decided by the majority of the partners, but major the majority of the partners, but major changes require the support of all changes require the support of all partners.partners.

Partner may choose not to be partner Partner may choose not to be partner any longer if all partners have agreed.any longer if all partners have agreed.

If all partners agree a new partner can If all partners agree a new partner can be brought to replace the old partner.be brought to replace the old partner.

All business accounts books need to ket All business accounts books need to ket in the business premises. in the business premises.

Partners have the right to check the Partners have the right to check the books of the company as when needed.books of the company as when needed.

Private Limited CompanyPrivate Limited Company

A private limited company (Syarikat A private limited company (Syarikat Sendirian Berhad) is one of the major two Sendirian Berhad) is one of the major two business entity set up under the business entity set up under the Companies Act 1965 and its subsequent Companies Act 1965 and its subsequent amendments. amendments.

The other being the Public Limited The other being the Public Limited Company (XYZ Berhad) which involves a Company (XYZ Berhad) which involves a major exercise which needs the approval of major exercise which needs the approval of the Suruhanjaya Syarikat Malaysia the Suruhanjaya Syarikat Malaysia (Companies Commission of Malaysia) and (Companies Commission of Malaysia) and Securities Commission. Securities Commission.

Private Limited CompanyPrivate Limited Company

The Characteristics of a Private The Characteristics of a Private Limited Company.Limited Company. Right & ResponsibilityRight & Responsibility

A company has a specific right & A company has a specific right & responsibility. It can buy assets under it on responsibility. It can buy assets under it on name.name.

A company can also take legal action and A company can also take legal action and face legal action under its own name.face legal action under its own name.

Life Span of a company is not dependent Life Span of a company is not dependent upon the death or resignation of its upon the death or resignation of its members.members.

Private Limited CompanyPrivate Limited Company

LiabilitiesLiabilities The liabilities of the members in a The liabilities of the members in a

company are limited to the total share company are limited to the total share contributed to the company’s capital. contributed to the company’s capital. Personal assets of shareholders are not Personal assets of shareholders are not affected if the company goes bust or affected if the company goes bust or winds up.winds up.

MembershipMembership A company must have at least two A company must have at least two

members who are of Malaysian members who are of Malaysian nationality. These two members of the nationality. These two members of the company will appoint the remaining company will appoint the remaining members of the Board of Directors.members of the Board of Directors.

Directors will manage the business Directors will manage the business operation in accordance with the operation in accordance with the Companies Act 1965.Companies Act 1965.

The Private Limited Company The Private Limited Company Terms & ConditionsTerms & Conditions

The number of members does The number of members does not exceed 50 shareholdersnot exceed 50 shareholders