STARTING A NEW VENTURE

STARTING A NEW VENTURE

Module for Principles of Entrepreneurship (ENT 530)BBA, Faculty of Business Management, UiTM1 Fauziah Pawan, Sept. 2012 (ENT530)Module FocusThis module will focus on:The main business forms that appeal to new own-venture entrepreneurs & their key featuresKey licenses & permits to operate a businessKey forms of intellectual property & its protection 2 Fauziah Pawan, Sept. 2012 (ENT530)IntroductionStarting a new venture requires the entrepreneur to make informed decisions regarding several key issues that will impact on the entrepreneur s ability and capacity to extract the best potential from the target opportunity.

Some of the key initial decisions include the form of business to register, the business licenses & permits required to operate and protecting unique assets or intellectual property that impact greatly on the companys competitive edge and ability to make money.

3 Fauziah Pawan, Sept. 2012 (ENT530)3Section 1:Business Forms & Governing Legislations4Fauziah Pawan, Sept. 2012 (ENT530)Registration a Business EntityRegistering a business entity is a key initial step to creating a new venture to exploit entrepreneurial opportunities

To register a business, the entrepreneur(s) need to first determine the form of business or legal structure that best suits the entrepreneurs aspirations

Entrepreneurs need to know the implication of choosing one form of business over another form particularly in terms of the ownership implication, share of profits and liabilities, management control and continuity of business life (see Table 2 for a summary)

5Fauziah Pawan, Sept. 2012 (ENT530)Business Forms & LegislationsEntrepreneurs looking to create their own new venture often choose one of the following business forms:Sole ProprietorshipPartnershipPrivate Limited Company or Sendirian Berhad

The registration of these forms of businesses are governed by two key parliamentary legislations:Registration of Businesses Act 1956 (Amendment 1978)Companies Act 1965

Table 1 summarizes the legislations governing the registration of specific business forms.

6Fauziah Pawan, Sept. 2012 (ENT530)

Table 1Summary of Business Forms & Governing Legislations Business FormGoverning LegislationSole ProprietorshipRegistration of Businesses Act 1956 (Amendment 1978)

PartnershipRegistration of Businesses Act 1956 (Amendment 1978)

Private Limited Company (Sendirian Berhad)

Companies Act 19657Fauziah Pawan, Sept. 2012 (ENT530)Sole ProprietorshipThe most basic business entity in terms of ease of registration and relatively simple business structure and management requirements

Sole proprietorship allows only one person to be registered as the legal owner

This single owner is also considered the manager for the overall business and is often referred to as the owner-manager.

The size and scope of business is often relatively small and as such the owner-manager may run the business activity by himself or with the help of not more than 5 full time workers8Fauziah Pawan, Sept. 2012 (ENT530)Sole Proprietorship.cont.The sole ownership entitles the owner-manager to all profits earned by the business

On the other hand the owner-manager has to also bear the entire business risk and unlimited liabilities. Unlimited liability implies that personal assets can be seized to settled outstanding business debts.

Death of the sole owner will result in termination of the business

Fauziah Pawan, Sept. 2012 (ENT530)9PartnershipThis business form involves two or more partners in a single business concern

The maximum number of partners allowed is 20 persons

Professional business (e.g. legal firms, architect firms or accounting firms) are allowed to have up to 50 partners

Like the sole proprietorship, a partnership also allows the owners (partners) to manage freely with all profits being shared by the partners.

Partners also bear unlimited liabilities that means their personal assets can be seized to settle business debts.

10Fauziah Pawan, Sept. 2012 (ENT530)Partnershipcont.Partnerships are encouraged to have a Partnership Agreement outlining details of ownership, entitlement to profits and share of liabilities.

Partnership Agreements are not required by law but are very useful in case of disputes between partners.

Death or withdrawal of any of the partner may result in termination of the business unless stipulated otherwise in the Partnership Agreement

Fauziah Pawan, Sept. 2012 (ENT530)11Private Limited CompanyRegistered under the Company Act 1965 and is recognized by the affix Sdn. Bhd. (Sendirian Berhad) behind the registered trade name

Registration process is much more complex & costly

Registration has to be through a registered Company Secretary

Among the key documents that the Company Secretary must present for registration is the Memorandum of Association and the Articles of Association

The Memorandum of Association outlines how the money invested in the company is to be utilized while the Articles of Association focuses on the laws governing the internal management of the company

12Fauziah Pawan, Sept. 2012 (ENT530)Private Limited Company.cont.The Private Limited Company can have up to 50 members or shareholders

Control of day-to day operations is in the hands of a management team that may or may not be major shareholders.

Shareholders can indirectly affect operation decisions through representatives in a Board of Directors (BOD)

A BOD consist of representatives from the major shareholders, key members of the management team and the Company Secretary.

A key role of the BOD is to ensure shareholders business interest and investments are effectively represented in management direction and decisions.

13Fauziah Pawan, Sept. 2012 (ENT530)Private Limited Companycont.A Private Limited Company registration renders the business as having its own life separate from that of the life of the shareholders.

As such the company is a legal person able to bear its own liability arising from the business operations

This means that the business assets can be seized to settle outstanding debt or other legal claims

The individual shareholder is liable only to the extend of his investment in the company but his personal assets cannot be seized to settled company debts or claims

Since the life of the company and the shareholder is separate, the death or withdrawal of any shareholder has no effect on the life of the business.

14Fauziah Pawan, Sept. 2012 (ENT530)FactorsSole ProprietorshipPartnershipPrivate Limited CompanyOwnershipOne individualUp to 20 individualsUp to 50 individualsShare of profits & lossesOwner receives all profits & bears all lossesProfits depend on amount of investment or as specified in partnership agreementShareholder receives share of profits through dividend payoutsLiability of ownersUnlimited liability extending to personal assetsUnlimited liability unless otherwise specified in a partnership agreementShareholder liability limited to amount of share or capital contributionManagement controlOwner makes all management decisions and acts freely

All partners have equal control unless otherwise specified in a partnership agreement

In the hands of a management team guided by a Board of DirectorsContinuity of businessDeath of owner dissolves the businessDeath of any partner dissolves the business unless otherwise specified in a partnership agreementDeath or withdrawal of shareholder has no effect on existence of companyTable 2: Factors in Business Forms15Fauziah Pawan, Sept. 2012 (ENT530)15Section 2:Business Licenses & Permits

16Fauziah Pawan, Sept. 2012 (ENT530)Business Licenses & PermitsWhile a business registration brings a venture into existence, the new business needs various licenses and permit to operate legally or to carry out certain business related activities

The licenses needed are basically divided into two key categories of:General business premise license and signboard licenseSpecial licenses & permits17Fauziah Pawan, Sept. 2012 (ENT530)General Business Premise & Signboard LicensesA business in Malaysia needs to obtain a business premise license in order to begin operations in a particular location and legally erect a signboard for the business premise

Both licenses can be applied for from the relevant local authorities (e.g. Majlis Bandaraya Shah Alam; Dewan Bandaraya Kuala Lumpur)

Premise license applications often need to be accompanied by the premise Certificate of Fitness document, Fire Department support letter and premise rental agreement or a sales & purchase agreement.

Signboard license application need to be accompanied by photographs of the proposed location of the signboard and samples of the signboard design and colors18Fauziah Pawan, Sept. 2012 (ENT530)Special Business LicensesSome categories of businesses require special licenses to enable them to carry out a specific business operation

Businesses involved with manufacturing, construction and wholesale are among the businesses requiring special licenses

Table 3 summarizes examples of categories of businesses and the special licenses needed to operate.19Fauziah Pawan, Sept. 2012 (ENT530)Table 3: Examples of Special Business LicensesBusiness CategoryExampleManufacturingManufacturing license required for manufacturing business with at least 75 full-time employees. Apply for license from Malaysian Investment Development Authority (MIDA).Wholesale, retail, trading, import & export businessWholesale & Retail Trade (WRT) license. License is applied for from the Ministry of Domestic Trade & Consumer AffairsBuilding & ConstructionNeed a specific license from the Construction Industry Development Board (CIDB) to undertake any building and construction activities

20Fauziah Pawan, Sept. 2012 (ENT530)Business PermitsBusiness permits allows business to undertake certain business related activities that are regulated by governing authorities at either the federal, state or local level

Table 4 summarizes examples of business permits

21Fauziah Pawan, Sept. 2012 (ENT530)Table 4: Examples of Business PermitsBusiness Activity

Example

Foreign worker entry permit

Allows a business to bring into the country workers from other countries to work in their business operations

Retail sale eventAllows a retail or wholesale business to advertise and conduct a sale of goods at prices below normal retail prices for a specific time frame.22Fauziah Pawan, Sept. 2012 (ENT530)Section 3: Protecting Intellectual Property23Fauziah Pawan, Sept. 2012 (ENT530)Intellectual Property as a Business RightA business that has invested time, money and intellectual capital to produce something unique or different has the right to protect the outcome.

The outcomes are considered as company assets that are able to keep the company ahead of its competitors and lead to greater money making capacities

These assets are often categorized as intellectual property and can be legally protected as patents, copyrights and trademarks or brands.

Registering the companys intellectual property gives the company the exclusive right to use the property and to take against any unauthorized use of the registered property24Fauziah Pawan, Sept. 2012 (ENT530)PatentPatents are used primarily to protect inventions that represent a new way of doing things

Inventions normally involve some level of technology and can be in the form of a product or process

A registered patent gives exclusive right to the patent owner to make, use and sell the patented product or process for up to 20 years

A patent owner can still retain all rights to the invention but license another party to use the patent within certain agreed upon conditions and stipulations

The patent owner can also choose to sell the patent to another party hence severing all rights to the invention concerned.

25Fauziah Pawan, Sept. 2012 (ENT530)Patent cont.Patent rights are noted by the words Patent followed by the patent registration number. Because patents take time to register, companies can deter infringements by displaying the words Patent Pending or Patent in Progress.

Even so these deterrents have no legal impact until the patent is fully registered and given a patent number.26Fauziah Pawan, Sept. 2012 (ENT530)CopyrightCopyrights are used to protect a wide range of original creative, intellectual or artistic works or authorship

This can include original works of art and literature, music composition, audio recordings, drawings, sculptures, broadcasts films and computer programs.

The idea behind the creative work is itself not protected and as such some else can use the same idea but it must be in a significantly different form or composition so as to not infringe on an existing copyright.

A copyright can exist for up to 50 years after the death of the registered author

The symbol is universally used to denote a copyright

27Fauziah Pawan, Sept. 2012 (ENT530)Trademark or BrandTrademarks are any distinctive name, mark, symbols, words, shapes and colors

A trademark is sometimes also referred to as a brand to indicate a distinctive representation of a company

In Malaysia it is not compulsory to register a trademark but a company can still rely on common law to protect against infringement or imitation.Symbols used in to indicate trademarks include indicate an unregistered trademark and to show a registered trademark

28Fauziah Pawan, Sept. 2012 (ENT530)Where to Register an Intellectual PropertyIn Malaysia, a patent, copyright or trademark must be registered with Intellectual Property Cooperation of Malaysia (MyIPO).

For international protection, an intellectual property may need to be registered in multiple countries or with the World Intellectual Property Organization (WiPO)

The WIPO is a United Nations agency based in Geneva that represents mainly patent protection agreements valid in over 100 member nations. Malaysia is one of the member countries29Fauziah Pawan, Sept. 2012 (ENT530)SummaryIn starting a new venture, an entrepreneur must make decisions regarding fundamental issues such as the form of business registration, understanding business licenses and permits needed to operate legally as well as protecting intellectual properties

Making these decisions in an informed manner are important to ensure a business structure that can operate legally to optimize its entrepreneurial opportunities30Fauziah Pawan, Sept. 2012 (ENT530)Referenceshttp://www.malaysia.gov.my

http://ssm.com.my

Hisrich, Robert D., Peters, Michael P. & Shepherd, D., (2006). Entrepreneurship, New York: McGraw-Hill / Irwin, 8th Edition, International Edition, 2010.

UiTM Entrepreneurship Study Group (MEDEC), (2004). Fundamentals of Entrepreneurship, Petaling Jaya: Pearson-Prentice Hall Sdn. Bhd. 2004

Fauziah Pawan, Sept. 2012 (ENT530)31/27