POD 3123 (Chapter 3)

8/3/2019 POD 3123 (Chapter 3)

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Chapter 3:Chapter 3:

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

SystemSystem

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Types of BusinessTypes of Business

Organization in MalaysiaOrganization in Malaysia

All types of business by law All types of business by law

must be registered. The threemust be registered. The three

Acts that govern business are: Acts that govern business are: The Business Registration ActThe Business Registration Act

1956 (Amendment 1978).1956 (Amendment 1978).

Procedures of BusinessProcedures of Business

Registration Act 1957Registration Act 1957

Company Act 1965Company Act 1965

22POD 3123 EntrepreneurshipPOD 3123 Entrepreneurship

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Types of Business OrganizationTypes of Business Organization

The following are types of business thatThe following are types of business that

operate in Malaysia:operate in Malaysia:

Sole Proprietorship OR Sole Trader.Sole Proprietorship OR Sole Trader.

PartnershipPartnership Ordinary Partnership or UnlimitedOrdinary Partnership or Unlimited

Partnership.Partnership.

Limited PartnershipLimited Partnership

CompanyCompany ± ± Private & Public CompanyPrivate & Public Company


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Company Act 1965Company Act 1965

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

an investor or prospector can forman 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


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Sole Proprietorship/Sole Trader Sole Proprietorship/Sole Trader

Formed under the Business ActFormed under the Business Act19561956 This type of business is owned by anThis 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 bigSome sole trader can operate as big

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

sole trader for long time until it turn intosole trader for long time until it turn into

private limited company ( Sdn. Bhd.)private limited company ( Sdn. Bhd.) Example of Sole trader Example of Sole trader ± ± tailor, Beautytailor, Beauty

Saloon, restaurants, launderettes (dobi),Saloon, restaurants, launderettes (dobi),mini market etc.mini market etc.


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Sole ProprietorshipSole Proprietorship

Advantages Advantages

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 heavyLow start up capital, no heavy

investment.investment.

Flexibility in operation.Flexibility in operation.

The Sole trader can act quicklyThe Sole trader can act quickly

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


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

with minimum formalities.with minimum formalities.

Nobody shares the rewards of theNobody shares the rewards of thebusiness, all profit will go to the owner.business, all profit will go to the owner.

Subject to less government rules andSubject to less government rules andregulation.regulation.

The owner The owner ± ± manager has to paymanager has to pay

income tax based on total profit earnedincome tax based on total profit earnedto LHDN ( Inland Revenue Board, M¶sia)to LHDN ( Inland Revenue Board, M¶sia)



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DisadvantagesDisadvantages

Limited source of capitalLimited source of capital Lack of capital to expand theLack of capital to expand the

business further.business further. The liability is unlimitedThe liability is unlimited

The owner The owner-- manager will be liable tomanager will be liable tosettle all debts outstanding.settle all debts outstanding.

Failing which all assets will beFailing which all assets will beceased by court order to be sold, andceased by court order to be sold, andcash generated will used to pay allcash generated will used to pay alloutstanding creditors.outstanding creditors.



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

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

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

upon the age of the owner and howupon the age of the owner and howefficiently he manages the business.efficiently he manages the business.

He is of ill health or passes away theHe is of ill health or passes away the

business continuation is disrupted.business continuation is disrupted. If he choose an heir (successor) to theIf he choose an heir (successor) to the

business, then the business has to bebusiness, then the business has to bereregistered.reregistered.



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PartnershipPartnership

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

In this type of business, aIn this type of business, aperson forms a partnershipperson forms a partnership(kongsian)(kongsian)

A partnership business has to A partnership business has to

be registered under thebe registered under theBusiness Registration Act 1956Business Registration Act 1956


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PartnershipPartnership

A partnership normally should A partnership normally should

consist of minimum of 2 personconsist 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, doctorsprofessionals ( lawyers, doctors

and engineers etc.) is theand engineers etc.) is the

members could number up to 50members could number up to 50persons.persons.


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Advantages Advantages Easy to set up and operateEasy to set up and operate ± ± less formalities.less formalities.

Easier to secure financial assistance fromEasier to secure financial assistance fromfinancial 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 borneBusiness risks can be less because risk is borne

by all existing partners.by all existing partners.

The responsibility of managing and overseeingThe responsibility of managing and overseeingthe 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 partnershipIncome tax is not imposed on the partnershipbusiness but instead on the individual partners.business but instead on the individual partners.

PartnershipPartnership ± ± Advantages & Advantages &



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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 & businesssince no distinction between personal & businessassets.assets.

The life span (jangka hayat) of the partnershipThe life span (jangka hayat) of the partnershipbusiness depends on the life spans of thebusiness depends on the life spans of thebusiness.business.

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

If a Letter of Agreement as per Partnership ActIf a Letter of Agreement as per Partnership Act

1961 is not made members may resort to1961 is not made members may resort tomismanage 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 toDifference of opinion and conflict may lead tobreakup of the partnership.breakup of the partnership.

PartnershipPartnership ± ± Advantages & Advantages &



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Contract AgreementContract Agreement

It is necessary for the business toIt is necessary for the business to

have some kind of Contract or have some kind of Contract or

Partnership Agreement to minimizePartnership Agreement to minimize

any problems that may arise.any problems that may arise. The Business Registration Act 1956The Business Registration Act 1956

does not state that the formation of adoes not state that the formation of a

partnership business must have apartnership business must have a

written agreement.written agreement.


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Contract AgreementContract Agreement

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

Name of the businessName of the business

The duration of the partnershipThe duration of the partnership

Agreement as the partnership status once the Agreement as the partnership status once thepartner/s passes away or withdraws from thepartner/s passes away or withdraws from thepartnership.partnership.

The name of the individuals involved in managingThe name of the individuals involved in managingthe partnership.the partnership.

The accounts of the business.The accounts of the business.

The structure of ownership i.e. the contributionThe 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 asWhat are the properties that are considered asbusiness assets to distinguish from personalbusiness assets to distinguish from personalassets.assets.


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Partnership Act 1961Partnership Act 1961

According to Sect 26 & 27 of the According to Sect 26 & 27 of theabove act:above act: Profit & Loss are to be shared equally.Profit & Loss are to be shared equally.

No interest is payable on a partner¶sNo interest is payable on a partner¶scapitalcapital

Partners are required to participatePartners are required to participateactively in the business.actively in the business.

No partner is entitled for salary for workNo 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.


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Partnership Act 1961Partnership Act 1961

Daily routine matters can be decided byDaily routine matters can be decided bythe majority of the partners, but major the majority of the partners, but major changes require the support of allchanges require the support of allpartners.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 canIf all partners agree a new partner canbe 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 ketin the business premises.in the business premises.

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


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Private Limited CompanyPrivate Limited Company

A private limited company (Syarikat A private limited company (SyarikatSendirian Berhad) is one of the major twoSendirian Berhad) is one of the major twobusiness entity set up under thebusiness entity set up under theCompanies Act 1965 and its subsequentCompanies Act 1965 and its subsequent

amendments.amendments. The other being the Public LimitedThe other being the Public Limited

Company (XYZ Berhad) which involves aCompany (XYZ Berhad) which involves amajor exercise which needs the approval of major exercise which needs the approval of the Suruhanjaya Syarikat Malaysiathe Suruhanjaya Syarikat Malaysia

(Companies Commission of Malaysia) and(Companies Commission of Malaysia) andSecurities Commission.Securities Commission.


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The Characteristics of a PrivateThe 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 onresponsibility. 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 dependentLife Span of a company is not dependentupon the death or resignation of itsupon the death or resignation of its

members.members.


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

company are limited to the total sharecompany are limited to the total sharecontributed to the company¶s capital.contributed to the company¶s capital.Personal assets of shareholders are notPersonal assets of shareholders are notaffected if the company goes bust or affected if the company goes bust or

winds up.winds up. MembershipMembership

A company must have at least twoA company must have at least twomembers who are of Malaysianmembers who are of Malaysiannationality. These two members of thenationality. These two members of thecompany will appoint the remainingcompany will appoint the remainingmembers of the Board of Directors.members of the Board of Directors.

Directors will manage the businessDirectors will manage the businessoperation in accordance with theoperation in accordance with theCompanies Act 1965.Companies Act 1965.


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The Private Limited CompanyThe Private Limited Company

Terms & ConditionsTerms & Conditions

The number of members does notThe number of members does notexceed 50 shareholdersexceed 50 shareholders

Has specific authorities to transfer Has specific authorities to transfer

ownership of member¶s shares withownership of member¶s shares withthe approval of the Board of Directorsthe approval of the Board of Directors

Not allowed to offer or sells any shareNot allowed to offer or sells any shareor debentures to general publicor debentures to general public

Not allowed to offer the general publicNot allowed to offer the general publicto deposit money within a stipulatedto deposit money within a stipulatedtime frametime frame

Must use the word ³Must use the word ³SdnSdn.. BhdBhd´ at the´ at theend of its nameend of its name


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Memorandum of AssociationMemorandum of Association

Articles of Association Articles of Association

The Share Capital of a CompanyThe Share Capital of a Company

Members of shareholdersMembers of shareholders Board of directorsBoard of directors

SecretarySecretary

Auditors Auditors

Registered officeRegistered office Company SealCompany Seal

Authorisation Authorisation Letter Letter

The Mechanism of a PrivateThe Mechanism of a Private

Limited CompanyLimited Company


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Advantages Advantages

Fund are easy to acquire through theFund are easy to acquire through theexchange of share ownershipexchange of share ownership

All shareholders are legally protected by All shareholders are legally protected bylawlaw

Shareholders are not burdened with theShareholders are not burdened with themanagement of businessmanagement of business

The liabilities of the company¶s membersThe liabilities of the company¶s membersare limited to the capital that theyare limited to the capital that theycontribute to the companycontribute to the company

The life span of the business is notThe life span of the business is notdependent upon the age or resignationdependent upon the age or resignation

It has greater potential for expansionIt has greater potential for expansion

Legally, the company is one businessLegally, the company is one businessentity by itself entity by itself


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Subject to more rules and regulationsSubject to more rules and regulationscompared with a sole proprietorship or compared with a sole proprietorship or partnershippartnership

The company¶s share cannot beThe company¶s share cannot be

transacted through the share markettransacted through the share market The company must pay corporate taxThe company must pay corporate tax

The qualified Auditors must audit theThe qualified Auditors must audit thecompany¶s yearly financial statementcompany¶s yearly financial statement

The financial affairs of the companyThe financial affairs of the companymust be made transparent to generalmust be made transparent to generalpublicpublic

The cost of setting up a company isThe cost of setting up a company ishighhigh



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Business LicenseBusiness License

Wholesaling LicenseWholesaling License

Manufacturing LicenseManufacturing License Food Manufacturing LicenseFood Manufacturing License

Sales Tax LicenseSales Tax License

Excise LicenseExcise License

PermitPermit

Foreign Workers Entry PermitForeign Workers Entry Permit

Transportation PermitTransportation Permit

LicenseLicense


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Trademarks ProtectionTrademarks Protection

The Trademark ActThe Trademark Act

Patent ProtectionPatent Protection The Patent Act 1983The Patent Act 1983

CopyrightCopyright

The Copyright Act 1987The Copyright Act 1987

Business RightsBusiness Rights


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Control the forms and contents of Control the forms and contents of hire purchase agreements.hire purchase agreements. VehiclesVehicles

Radios, televisions, cassetteRadios, televisions, cassetterecorders or any combination of therecorders or any combination of theitemsitems

Refrigerators, freezer Refrigerators, freezer

Sewing machines other than for Sewing machines other than for

industrial useindustrial use Vacuum cleanersVacuum cleaners

Air Air--conditioners other than for conditioners other than for industrial useindustrial use

Gas and electric cookers and ovenGas and electric cookers and oven

Hire Purchase Act 1967Hire Purchase Act 1967


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Business Support SystemBusiness Support System

Courses, seminars and workshopCourses, seminars and workshop

Technical assistanceTechnical assistance

Marketing assistanceMarketing assistance Infrastructure assistanceInfrastructure assistance

Information assistanceInformation assistance

Research and developmentResearch and development Financial assistanceFinancial assistance

Advisory assistance Advisory assistance

Extension servicesExtension services 2828POD 3123 EntrepreneurshipPOD 3123 Entrepreneurship

Documents

POD 3123 (Chapter 3)