Chapter 3: Forms of Business Organization, Regulation & Business Support System

Types of Business Organization in Malaysia



All types of business by law must be registered. The three Acts that govern business are: The Business Registration Act 1956 (Amendment 1978). Procedures of Business Registration Act 1957 Company Act 1965
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Types of Business Organization



The following are types of business that operate in Malaysia:  Sole Proprietorship OR Sole Trader.  Partnership  Ordinary Partnership or Unlimited Partnership.  Limited Partnership  Company Private & Public Company

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Types of Business Organization



Company Act 1965



According to Company Act 1965, an investor or prospector can form three types of companies.
Limited Company by Guarantee  Limited Company by Share

   

Private Limited Company ( Sdn. Bhd.) Public Limited Company (Berhad) Foreign Owned Company ( Pvt. Ltd.) Unlimited Company
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Sole Proprietorship/Sole Trader



Formed under the Business Act 1956

  

This type of business is owned by an individual or sole person. Has a simple business structure Some sole trader can operate as big business, e.g. Family run business.


E.g. Kamdar Departmental Store was sole trader for long time until it turn into private limited company ( Sdn. Bhd.)

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


Advantages
Easy to manage the business.  All decision made by the ownerownermanager.  Low start up capital, no heavy investment.  Flexibility in operation.  The Sole trader can act quickly with a degree of flexibility.

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Sole Proprietorship


Advantages
   

Easy to form and dissolve (bubarkan) with minimum formalities. Nobody shares the rewards of the business, all profit will go to the owner. Subject to less government rules and regulation. The owner manager has to pay income tax based on total profit earned to LHDN ( Inland Revenue Board, Msia)

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Sole Proprietorship


Disadvantages


Limited source of capital



Lack of capital to expand the business further.

The liability is unlimited

The owner- manager will be liable to ownersettle all debts outstanding.  Failing which all assets will be ceased by court order to be sold, and cash generated will used to pay all outstanding creditors.

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Sole Proprietorship


Disadvantages


The future development of the business is limited.



Lot depends on the managerial capability of the owner and physical health.

 

The life span of the business depends upon the age of the owner and how efficiently he manages the business. He is of ill health or passes away the business continuation is disrupted. If he choose an heir (successor) to the business, then the business has to be reregistered.
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Partnership
 

A partnership is a legal business entity with two or more partners. In this type of business, a person forms a partnership (kongsian) A partnership business has to be registered under the Business Registration Act 1956
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Partnership


A partnership normally should consist of minimum of 2 person but not exceeding 20 persons. But exception in the case of professionals ( lawyers, doctors and engineers etc.) is the members could number up to 50 persons.
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Partnership Advantages & Disadvantages



Advantages
      

Easy to set up and operate less formalities. Easier to secure financial assistance from financial institutions. Equity can be increased from existing partners. Business risks can be less because risk is borne by all existing partners. The responsibility of managing and overseeing the business can be handled by all partners. Ideas, talents and skills can be pooled together from partners for better management. Income tax is not imposed on the partnership business but instead on the individual partners.
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Partnership Advantages & Disadvantages



Disadvantages


Business liabilities are unlimited.



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

 

The life span (jangka hayat) of the partnership business depends on the life spans of the business. If partner declared bankrupt, dies or become insane business has to be dissolved. If a Letter of Agreement as per Partnership Act 1961 is not made members may resort to mismanage or be unethical in conducting their business in the partnership. Difference of opinion and conflict may lead to breakup of the partnership.
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Contract Agreement


It is necessary for the business to have some kind of Contract or Partnership Agreement to minimize any problems that may arise. The Business Registration Act 1956 does not state that the formation of a partnership business must have a written agreement.

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Contract Agreement


Should an agreement arises what should be the contents?



The Contents are as follows:  Name of the business  The duration of the partnership  Agreement as the partnership status once the partner/s passes away or withdraws from the partnership.  The name of the individuals involved in managing the partnership.  The accounts of the business.  The structure of ownership i.e. the contribution made by individual partners.  The rights and obligation of the business partners  What are the properties that are considered as business assets to distinguish from personal assets.
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Partnership Act 1961



According to Sect 26 & 27 of the above act:

    

Profit & Loss are to be shared equally. No interest is payable on a partners capital Partners are required to participate actively in the business. No partner is entitled for salary for work contribution done for the partnership. Partners should be paid based on their contribution.
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Partnership Act 1961



   

Daily routine matters can be decided by the majority of the partners, but major changes require the support of all partners. Partner may choose not to be partner any longer if all partners have agreed. If all partners agree a new partner can be brought to replace the old partner. All business accounts books need to ket in the business premises. Partners have the right to check the books of the company as when needed.
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Private Limited Company



A private limited company (Syarikat Sendirian Berhad) is one of the major two business entity set up under the Companies Act 1965 and its subsequent amendments. The other being the Public Limited Company (XYZ Berhad) which involves a major exercise which needs the approval of the Suruhanjaya Syarikat Malaysia (Companies Commission of Malaysia) and Securities Commission.

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Private Limited Company



The Characteristics of a Private Limited Company.



Right & Responsibility



A company has a specific right & responsibility. It can buy assets under it on name. A company can also take legal action and face legal action under its own name.


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

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Private Limited Company



Liabilities


The liabilities of the members in a company are limited to the total share contributed to the companys capital. Personal assets of shareholders are not affected if the company goes bust or winds up. A company must have at least two members who are of Malaysian nationality. These two members of the company will appoint the remaining members of the Board of Directors.

Membership


Directors will manage the business operation in accordance with the Companies Act 1965.
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The Private Limited Company Terms & Conditions

 

 

The number of members does not exceed 50 shareholders Has specific authorities to transfer ownership of members shares with the approval of the Board of Directors Not allowed to offer or sells any share or debentures to general public Not allowed to offer the general public to deposit money within a stipulated time frame Must use the word Sdn. Bhd at the Sdn. Bhd end of its name
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The Mechanism of a Private Limited Company

         

Memorandum of Association Articles of Association The Share Capital of a Company Members of shareholders Board of directors Secretary Auditors Registered office Company Seal Authorisation Letter
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Advantages
   

  

Fund are easy to acquire through the exchange of share ownership All shareholders are legally protected by law Shareholders are not burdened with the management of business The liabilities of the companys members are limited to the capital that they contribute to the company The life span of the business is not dependent upon the age or resignation It has greater potential for expansion Legally, the company is one business entity by 3123 Entrepreneurship itself POD 23

Disadvantages


   

Subject to more rules and regulations compared with a sole proprietorship or partnership The companys share cannot be transacted through the share market The company must pay corporate tax The qualified Auditors must audit the companys yearly financial statement The financial affairs of the company must be made transparent to general public The cost of setting up a company is high
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License
      

Business License Wholesaling License Manufacturing License Food Manufacturing License Sales Tax License Excise License Permit
Foreign Workers Entry Permit  Transportation Permit

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Business Rights


Trademarks Protection


The Trademark Act The Patent Act 1983 The Copyright Act 1987

Patent Protection


Copyright


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Hire Purchase Act 1967



Control the forms and contents of hire purchase agreements.

 

    

Vehicles Radios, televisions, cassette recorders or any combination of the items Refrigerators, freezer Sewing machines other than for industrial use Vacuum cleaners AirAir-conditioners other than for industrial use Gas and electric cookers and oven
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Business Support System

        

Courses, seminars and workshop Technical assistance Marketing assistance Infrastructure assistance Information assistance Research and development Financial assistance Advisory assistance Extension services
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