INTRODUCTION TO THE CONCEPT OF DOING BUSINESS AS LEGAL ENTITY Business for Engineers.

INTRODUCTION TO THE CONCEPT OF DOING BUSINESS AS LEGAL ENTITY

Business for Engineers

Introduction to Business

Planning your business

Before setting up your business, you need to know about Malaysia economy and basic information

Find out business registration requirementGet loansFind market information Find competitor and supplierPrepare a Business PlanDecide of a Business Structure

AN OVERVIEW

Malaysia Economy

The GDP is expected to register a smaller overall decline of 3.0% for 2009 and to grow between 2.0% - 3.0% in 2010

•The construction sector is projected to grow by 3.2% in 2010 (2009: 3.5%)•The services sector is anticipated to expand by 3.6% in (2009: 2.1%) •Services sector such as :communication, finance and insurance, wholesale and retail trade as well as real estate and business services sub-sectors.•Several niche growth areas in the services sector has been identified – Islamic finance, healthcare travel, education tourism and ICT

Business Registration Requirement

Suruhanjaya Syarikat Malaysia (SSM)www.ssm.com.my

It is also called as Companies Commission of Malaysia (CCM)

SSM, established on 16 April 2002, serves as an agency to incorporate companies and register businesses.

SSM also ensures compliance with business and corporate legislations through comprehensive enforcement and monitoring activities.

SSM offers efficient and fast service for the incorporation of companies, registration of businesses and lodgement of statutory documents.

SSM has nationwide presence through its headquarters located in Kuala Lumpur as well as branch offices in all the states in Malaysia.

SSM also serves as a depository and custodian of corporate and business information. Such information is vital to enable the business community to make informed business decisions and to enable members of the public to carry out verifications.

SSM is responsible for the administration and enforcement of the following legislation:

Companies Act 1965 (Act 125); Registration of Businesses Act 1956 (Act

197); Trust Companies Act 1949 (Act 100); Kootu Funds (Prohibition) Act 1971 (Act 28); any subsidiary legislation made under the

Acts specified above such as: Companies Regulations 1966; and Registration of Businesses Rules 1957.

Some statistics

There are more than 600,000 registered companies in Malaysia and approximately 4000 foreign companies, majority of them are companies limited by shares.

(Source: Data obtained from the Companies Commission of Malaysia)

These companies range from small family business where the directors and shareholders are family members, SMEs as well as large businesses with high business volumes and assets.

There are over 1,000 companies listed on Bursa Malaysia Securities Berhad. The companies are publicly traded and public investors can buy and sell shares on the Malaysia stock exchange.

FINANCIAL INSTITUITION

Loans

Commercial banks

There are nine licensed commercial banks operating in Malaysia.

There are also thirteen foreign banks that have established representative offices in Malaysia, but they are not permitted to conduct normal banking business.

Commercial banks are also authorised to deal in foreign exchange and are the only financial institutions allowed to provide current account facilities.

In addition to offering normal banking services, commercial banks may accept deposits denominated in foreign currencies from non-residents, loan foreign currencies to residents or syndicate such loans for productive purposes or for the purchase of Malaysian assets owned by non-residents.

LocalLocal ForeignForeign

1. RHB Bank Berhad 2. Public Bank Berhad 3. Malayan Banking Berhad 4. Hong Leong Bank

Berhad 5. EON Bank Berhad 6. CIMB Bank Berhad 7. AmBank (M) Berhad 8. Alliance Bank Malaysia

Berhad 9. Affin Bank Berhad

1. United Overseas Bank (Malaysia) Bhd.

2. J.P. Morgan Chase Bank Berhad 3. The Bank of Nova Scotia Berhad 4.  Standard Chartered Bank

Malaysia Berhad 5. OCBC Bank (Malaysia) Berhad 6. HSBC Bank Malaysia Berhad 7. Deutsche Bank (Malaysia)

Berhad 8. Citibank Berhad 9. Bank of Tokyo-Mitsubishi UFJ

(Malaysia) Berhad 10. Bank of China (Malaysia) Berhad 11. Bangkok Bank Berhad 12. The Royal Bank of Scotland

Berhad

Example of Commercial banks

Investment Banks (Ibs)

Investment banks differ from commercial banks, which mainly take deposits and make commercial and retail loans.

Investment banks engage mainly in public and private market transactions for corporations, governments and investors.

These transactions include mergers and acquisitions (M & A), investitures and issuance of equity and debt securities.

Investment banks also advise and assist clients with specialised industry expertise (such as technology and real estate).

They also do securities businesses such as trading, securitisation, financial engineering, merchant banking, funding, investment, management and securities services.

Example of Investment Banks (Local)

1. Affin Investment Bank Berhad 2. Alliance Investment Bank Berhad 3. AmInvestment Bank Berhad 4. CIMB Investment Bank Berhad 5. ECM Libra Investment Bank Berhad 6. Hong Leong Investment Bank Berhad 7. Hwang-DBS Investment Bank Berhad 8. KAF Investment Bank Berhad 9. Kenanga Investment Bank Berhad 10. Maybank Investment Bank Berhad 11. MIDF Amanah Investment Bank Berhad 12. MIMB Investment Bank Berhad 13. OSK Investment Bank Berhad 14. Public Investment Bank Berhad 15. RHB Investment Bank Berhad

Development Financial Institutions

The development financial institutions are government agencies specialising in the provision of medium and long-term loans to finance capital investments of new industries as well as entrepreneurs in the industrial sector.

The six Development Financial Institutions are:

1.Bank Pembangunan Malaysia2.Bank Perusahaan Kecil & Sederhana Malaysia (SME

bank)3.Export – Import Bank of Malaysia Berhad4.Bank Kerjasama Rakyat Malaysia5.Bank Simpanan Nasional6.Agrobank (formerly known as Bank Pertanian Malaysia)

Development Financial Institutions (con’t)

Other Development Financial Institutions:

1. Malaysian Industrial Development Finance Berhad (MIDF)2. Credit Guarantee Corporation Malaysia Berhad (CGC)3. Lembaga Tabung Haji4. Sabah Development Bank Berhad5. Sabah Credit Corporation Berhad

MIDF was formed as a joint venture between the government and the private sector to provide medium and long-term finance for the manufacturing industry.

The other development banks provide loans to meet the credit needs of the industrial and the agriculture sectors respectively.

Market Analysis &

Market Strategy

Market Analysis (example: Contractor company)

Market Analysis

2004 2005 2006 2007 2008

Potential Customers Growth

Office building construction

6% 2,517 2,668 2,828 2,998 3,178

Restaurant construction

3% 1,779 1,832 1,887 1,944 2,002

Special facilities construction

3% 2,750 2,833 2,917 3,005 3,095

General construction 2% 3,264 3,329 3,396 3,464 3,533

Total 3.45% 10,310 10,662 11,028 11,411 11,808

Market Analysis (cont’)

Target Market Segment Strategy What you plan to accommodate your clients Example : a well established and expeditious permitting

program, strict cost accounting and supply management, and intensive and comprehensive project management

Business Analysis Business growth for the past years The Advantage to your company current contractor companies in your proposed area Why the proposed area still in need of your company

Competition and Buying Patterns Identify competitors in the proposed area Supply and demand in the proposed area

Business Structure/Company Ownership

Business Structure

In Malaysia, the most common types of businesses are:

Sole proprietorshipsPartnershipsCompanies

Sole proprietorships (under companies act 1965)

usually have just one business owner, and only Malaysian citizens or permanent residents can register.

Personal names or trade names can be used as business names, and the Application of Business Name form must be filled in before a business can be registered.

Partnerships (under companies act 1965)

comprise two or more business partners pooling their resources in a business with a view to profit.

Like sole proprietorships, only Malaysian citizens or permanent residents can register partnerships.

A partnership agreement is usually drawn up by legal counsel, which outlines the responsibilities of each partner, conditions of termination and means of resolving intra-partner disputes.

Companies (under companies act 1965)

The most common type of company in Malaysia is a company limited by shares (public limited and private limited companies).

Private limited companies cannot sell shares to the public, and are distinguished by the appellation "Sendirian Berhad", shortened to "Sdn Bhd" or "S/B".

Public limited companies source their capital by selling shares to the public, and are distinguished by the appellation "Berhad", shortened to "Bhd".

Most common company structure in Malaysia is (Sdn. Bhd).

Companies (cont’)

a private limited company is limited to 50 members (public limited companies have no member limit).

This form of company can have foreign directors but at least 2 of the directors need to be principally residing in Malaysia; and it can be 100% foreign owned for industries such as the manufacturing, trading, and information technology sector.

A minimum paid-up capital of only RM2 is needed to start a private limited company, while public limited companies need a paid-up capital of not less than RM60mil (if it seeks to be listed on the Kuala Lumpur Stock Exchange Main Board) or not less than RM40mil (if it seeks to be listed on the KLSE Second Board).

VARIOUS DEVELOPMENT PROGRAMME

Government Agencies to assist Entreprenuer

Government Agencies for Entreprenuer

To assist and guide new and existing entrepreneurs in planning their business, the following Government agencies have established various development programmes:

Malaysian Entrepreneurship Development Centre (MEDEC)

Small-and-Medium Enterprises (SME) Development Programme by SMIDEC

MSC Technopreneur Development Bahagian Latihan Keusahawanan, Kementerian

Pembangunan Usahawan dan KoperasiMARA Entrepreneurial DevelopmentBahagian Pembangunan Usahawan, Kementerian Kerja

Raya Pejabat MARA NegeriPusat Bimbingan Usahawan

Business Plan

Introduction to Business Plan

A Business Plan is a document that underlines in details the important elements of a business that cover initial plan, market study, capital needs, marketing strategies, sales and profit projection and so on.

Apart from recording all the key information in one place for future reference, a business plan is also needed when an entrepreneur plans to obtain financial help from financial institutions when the need to expand the business arises.

Business Plan – the purpose

the use of a business plan, are:

1. To allow the entrepreneur evaluate and assess his or her business viability from various aspects, especially the technical and financial parts

2. To become a blueprint, or guide after the business is successfully launched

3. To study the market condition, trend and competition, and conclude if the business will have a good prospect to prosper, or otherwise

4. To be used during negotiation with financial bodies, in order to obtain loan or expansion capital

What you need to have in your Business Plan

1. Content pageOutline the topics and segments of your Business Plan

so that you (or the reader) will have an easy access to different scopes of the Business Plan.

Each topic in the Business Plan must be written in such a way that the reader can skip any part of the earlier section and come back to it later.

2. Executive summary/synopsis & introductionExplain, in summary, about the business you are

planning to venture, and what are the important elements the reader can discover from reading your business plan.

Name the company, type of business, products/services offered concisely.

Content in Business Plan

3. The purpose of the business plan State clearly the purpose of the business plan writing. Is it a submission for financial loan from specific institution? Is it a plan for a start up operation, or an expansion plan for an existing

business? Is it a blueprint or a plan for the entrepreneur’s future reference? Or Is there any other objectives?

4. Company (owner) profile/background This is where the details of the company profile and background are

discussed. Where is the business based on and operating? Who is the contact person and where are the other contact/corresponding

details? How long has the company been operating? Is the company a sole propriety, partnership or a limited liability (Sdn Bhd)? Take note that there are differences in those 3 types of business/company

structure. What is the company’s registration number? What is the total paid capital? List down the shareholders/owners of the company, including the details

covering full name, telephone number, academic qualification and experience

Content in Business Plan

5. Management and organizational structure What is the company’s vision and mission? Who are in the management team and what are the

qualification and credentials? How is the organizational structure of the company? List down the key person who will be handling different scope

of work e.g. operation, marketing, finance, sales and so on. State the salary and remuneration package for each

employee involved, if any.

Content in Business Plan

6. Marketing plans and strategies A very important aspect of a Business Plan. In fact, many loans are rejected due to lack of effective marketing

plans and strategies in the Business plan. Embark on a very detailed analysis of the market condition so that you

will be able to make accurate and sensible sales projection. A good Business Plan will take account the aspects of

products/services to be offered – prospects and customers, benefits and advantages, ease of availability, location, advertising & promotion and competition.

How does your product differ from what is currently being offered in the market?

Is it the same? Are you selling your product at a competitive price, lower price, or

higher price? What about the distribution and supply chain element? Are you appointing authorized dealers and agents, or you will be

selling directly to the customers? What are the medium of advertising & promotion you will be using –

distributing flyers, internet, newspaper, radio, television and so on (do not overlook the cost associated with each of the promotional method)?

Content in Business Plan

7. Operation/production plan If your business is product-based, how many quantities you will be

producing in, let’s say, 1 month? If the product will undergo a manufacturing cycle, draw a clear flow diagram or chart of the complete process for the readers to see. How does the inventory works? How is the maintenance of the machinery is carried out?

8. Financial plan Also another critical aspect of a Business Plan, as to ensure that the

figures and numbers of your cost, sales, revenue, profit and others are realistic. The financial plan consist of the following aspect:

Cost and capital expenditure Financial sources e.g. your own contribution, bank loan, hire purchase

etc Cash flow analysis – monthly, yearly, 3 years and so on Income statement – yearly, 3 years and so on Break even analysis – how long your business will be operating before

covering all the cost incurred during the start up

Click here for sample of business plan

REGULATORY AGENCIES CONCERNED WITH BUSINESS OPERATION

BUSINESS LOCATION AND SITE

REGULATORY AND RECORD KEEPING REQUIREMENT (TAXATION)

BOOK KEEPING AND ACCOUNTING SYSTEM

Starting your Bussiness

MITI(MATRADE, MIDA, SMIDEC)SECURITIES COMMISSION

LOCAL GOVERNMENT AUTHORITIESFACTORIES AND MACHINERY DEPARTMENT

MINISTRY OF SCIENCE, TECHNOLOGY AND INNOVATION

Regulatory Agencies concerned with business

operation

Ministry of International Trade and Industry (MITI)

MITI deals with foreign investments and promotion thereof and has overall responsibility for all aspects of foreign trade and industrial development.

MITI acts through MATRADE, MIDA and SMIDEC

i. Malaysian External Trade Development Corporation (MATRADE)

MATRADE was established since March 1, 1993 as the external trade promotion arm of Malaysia’s MITI.

MATRADE functions as a focal point for Malaysian exporters and foreign importers to source for trade related information.

MITI (continue)

ii. Malaysian Industrial Development Authority (MIDA) MIDA controls the promotion and co-ordination of all

industrial activities. It advises MITI on the formulation and implementation of

various industrial development policies, strategies and incentives for industry and on other matters concerning accelerated industrial development.

MIDA issues manufacturing licences, which are required under ICA and gives approval on various incentives.

iii. Small and Medium Industries Development Corporation (SMIDEC) SMIDEC was established on May 2, 1996.

The establishment of SMIDEC was in recognition of the need for a specialised agency to further promote the development of Small and Medium Industries (SMIs) in the manufacturing sector.

Securities Commission (SC)

This is a statutory body, set up under the Securities Commission Act 1993 to ensure the orderly and efficient development of the Malaysian securities market for the purpose of national economic development.

SC's primary role is to advise the Minister of Finance on all matters relating to the securities and futures contract industries.

It is also to safeguard the public's and minorities' interest, as well as to maintain market integrity and efficiency.

Local Government Authorities

These authorities are responsible for local by-laws that affect business operations.

Such laws relate mainly to buildings and structures (business premises), health, public safety and security, and displays (signboards, advertisement hoarding (i.e., billboards), etc.)

Local Government - Licenses and Permits

Business licenses and permits are issued by the relevant ministries and local authorities.

Licence and Permit By Local Authorities (Majlis Daerah, Majlis Perbandaran etc) Komposit Perniagaan, Permohonan Lesen Anjing,

Permohonan Lesen Hiburan Dan Tempat hiburan, Permohonan Lesen Hiburan Video / Snooker ,Permohonan Lesen Iklan Sementara, Permohonan Lesen Penjaja, Permohonan Lesen Perniagaan, Sementara Permohonan Tukar Milik Lesen

Factories and Machinery Department

Approval from this department is required before manufacturing operations may begin

Ministry of Science, Technology and Innovation (MOSTI)

This Ministry has responsibility for the administration of the Environmental Quality Act and ensures that factories are equipped with appropriate anti-pollution controls.

Other Government Agencies

Various other government agencies regulate specific industries, such as Inland revenue malaysia (LHDN) finance and banking, insurance, real estate, petroleum, etc.

EMPLOYMENT LAW

Malaysian Law and Legislation concerned with

Business

Employment Law - Rights and Liabilities

The main body of employment is Malaysia is found in three principal legislation and subsidiary legislation. They are :-

1. Employment Act, 19552. Industrial Relations Act, 19673. Trade Unions Act, 1959

The employers in Malaysia also need to bear in mind the relevant legislations :-

1. Employees Provident Fund Act, 19912. Employees Social Security Act, 19693. Worksmen’s Compensation Act, 19524. Worker’s Minimum Standards of Housing and Amenities Act,

19905. Wages Council Act, 19476. Children and Young Persons (Employment) Act, 19667. Occupational Safety and Health Act, 19948. Human Resources Development Act, 1992

Employment Act 1955

The Employment Act 1955 is the legislation regulating the terms and conditions of employment of any person, irrespective of his occupation, who has entered into a contract of service with an employer under which such person's wages do not exceed RM1,500 a month. Among other things it sets out the minimum conditions of employment which include:

A contract of service engaging a person may be written or oral, expressed or implied, specifying the period of notice required to terminate it;

Wages earned must be paid not later than the seventh day after the last day of any wage period;

Employment Act 1955

Female workers are not permitted to work in any industrial or agricultural undertakings between the hours of ten in the evening and five in the morning. An application can however be made to waive the restriction;

Ten paid gazetted public holidays in any one calendar year;

Eight days of paid annual leave for employees with less than two years of service, twelve days of paid annual leave for those employees with two or more years of service but less than five years of service, and sixteen days for those with over five years of service;

Employment Act 1955

Fourteen to twenty-two days sick leave in a year depending on length of service and where hospitalisation is necessary, up to an aggregate of sixty days sick leave in each year;

Normal hours of work shall not exceed eight hours a day or forty-eight hours a week;

Payment for overtime work is at a minimum of one and a half times the hourly rate of pay on normal working days, two times his hourly rate on rest days and three times his hourly rate on public holidays;

Paid maternity leave for female employees on maternity leave for sixty days.

Employees Provident Fund Act 1951 (EPF)

The Employees Provident Fund Act 1951 provides for a compulsory contributory provident fund which is payable to employees in full on reaching the age of 55 years.

All employers and employees are required to contribute to EPF at the rates of 12% and 11% respectively of the employees' monthly wages.

Among the categories of employees precluded from compulsory contributions are:

Expatriates employees Domestic servants - Persons who are employed to work in or connected with

work in a private dwelling house including a valet, gardener, and who are paid from the private account of the employers.

However, expatriate employees, domestic servants and self-employed persons can elect to contribute to the EPF.

Employees' Social Security Act 1969

The Social Security Organisation (SOCSO) administers the Employment Injury Insurance Scheme and the Invalidity Pension Scheme, as provided for under the Employees' Social Security Act 1969.

All establishments, including factories, employing workers earning wages not exceeding RM 3,000 a month, are required to insure their workers under the two social security schemes.

The Employment Injury Insurance Scheme provides employees with coverage in the event of any disablement or death due to employment injury by way of cash benefits and medical care. The contribution is borne solely by the employer and is about 1.25% of the wages of an employee.

The Invalidity Pension Scheme provides a 24-hour coverage to employees against invalidity and death due to any cause before the age of 55 years. The total contribution is about 1% of the wages and is shared by the employer and the employee equally.

Human Resource Development Fund Act 1992

The Human Resources Development Act, 1992 which was enforced in January 1993 led to the establishment of the Human Resources Development Fund (HRDF) and administered by the Human Resources Development Council (HRDC). In line with the corporatisation exercise via the Pembangunan Sumber Manusia Berhad Act, 2001, the HRDC is now known as Pembangunan Sumber Manusia Berhad (PSMB).

The HRDF operates on the basis of a levy/grant system. Employers who have paid the levy will qualify for training grants from the fund to defray or subsidise training costs for their Malaysian employees.

Workmen’s Compensation Act 1952

An Act to provide for the payment of compensation benefits to a foreign worker who

possesses valid employment document for injuries sustained due to accident which arises

out of or in the course of employment or if death results from he accident, to the

dependents.

Occupational Safety and Health Act 1994

An Act to make further provisions for securing the safety, health and welfare of persons at work, for protecting others against risks to safety or health in connection with the activities of persons at work, to establish the National Council for Occupational Safety and Health, and for matters connected therewith.

HUMAN RESOURCETAXATION

ACCOUNTING AND AUDITING NEEDSSTANDARDS AND ACCREDITATION

ARBITRATION

Managing Your Business

Human Resources Management

Labour Laws and Employment Guide As an employer, you should be aware of the rules and guidelines for hiring

and recruiting an employee for your company. Employment Act 1955: A Guide To Malaysian Labour Laws Workmen’s Compensation Children and Young Persons (Employment) Act 1966 (Revised 1988) Occupational Safety and Health Act 1994

Discontinuing an Employee Services how to discontinue your employee’s service within the boundaries of the

law: Guidelines on the Implementation of Retrenchment , Employee

Service/Contract Termination

Benefits and Contributions Maternity Leave Benefits, Rest Days and Public Holidays, Employees

Provident Fund, Social Security Organisation

Employment of Foreign Workers and Expatriate Personnel There are guidelines and procedures that you have to follow when

hiring a foreign worker and expatriate personnel. The Immigration Department of Malaysia is the government agency that provides services for the application process of employment of expatriate personnel and foreign workers in Malaysia.

Taxation

All income of accrued in, derived from or remitted to Malaysia, are liable to tax.

However, income derived from outside Malaysia and remitted to Malaysia by resident companies (except those involved in the banking, insurance, air and sea transportation business), non-resident companies and non-resident individuals are exempted from tax

The Inland Revenue Board Malaysia (LHDN) act as an agent to provide services in assessing, administering, collecting and enforcing the payment of income tax and other taxes that are under the board's jurisdiction.

Taxation (cont’)

It is the duty of every person carrying on a business to keep proper books and prepare regular accounts.

It is also essential to meet the requirements of Section 82 of the Income Tax Act, 1967 and also, in the case of limited companies, to meet the requirements of the Companies Act, 1965

Malaysian laws are governed by statutes and the other principal statute that all businesses have to comply with is the Income Tax Act, 1967.

ADD A NEW LOCATION FOR YOUR BUSINESS

HIRE MORE EMPLOYEES

FIND MARKET INFORMATION

REGISTER AS A STATE VENDOR

GETTING STARTED IN INTERNATIONAL TRADE

TAKE OVER AND MERGERS

Growing Your Business