Chapter 3 on Entrepreneurship


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Chapter 3 on Entrepreneurship

  1. 1. Forms of Business Organization, Regulation & Business Support System © KL Metropolitan University College
  2. 2. Types of Business Organization in Malaysia <ul><li>All types of business by law must be registered. The three Acts that govern business are: </li></ul><ul><li>The Business Registration Act 1956 (Amendment 1978). </li></ul><ul><li>Procedures of Business Registration Act 1957 </li></ul><ul><li>Company Act 1965 </li></ul>
  3. 3. Types of Business Organization <ul><li>The following are types of business that operate in Malaysia: </li></ul><ul><ul><li>Sole Proprietorship OR Sole Trader. </li></ul></ul><ul><ul><li>Partnership </li></ul></ul><ul><ul><ul><li>Ordinary Partnership or Unlimited Partnership. </li></ul></ul></ul><ul><ul><ul><li>Limited Partnership </li></ul></ul></ul><ul><ul><li>Company – Private & Public Company </li></ul></ul>
  4. 4. <ul><li>Company Act 1965 </li></ul><ul><ul><li>According to Company Act 1965, an investor or prospector can form three types of companies. </li></ul></ul><ul><ul><ul><li>Limited Company by Guarantee </li></ul></ul></ul><ul><ul><ul><li>Limited Company by Share </li></ul></ul></ul><ul><ul><ul><ul><li>Private Limited Company ( Sdn. Bhd.) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Public Limited Company (Berhad) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Foreign Owned Company ( Pvt. Ltd.) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Unlimited Company </li></ul></ul></ul></ul>Types of Business Organization
  5. 5. Sole Proprietorship/Sole Trader <ul><li>Formed under the Business Act 1956 </li></ul><ul><ul><li>This type of business is owned by an individual or sole person. </li></ul></ul><ul><ul><li>Has a simple business structure </li></ul></ul><ul><ul><li>Some sole trader can operate as big business, e.g. Family run business. </li></ul></ul><ul><ul><ul><li>E.g. Kamdar Departmental Store was sole trader for long time until it turn into private limited company ( Sdn. Bhd.) </li></ul></ul></ul><ul><ul><li>Example of Sole trader – tailor, Beauty Saloon, restaurants, launderettes (dobi), mini market etc. </li></ul></ul>
  6. 6. Sole Proprietorship <ul><li>Advantages </li></ul><ul><ul><li>Easy to manage the business. </li></ul></ul><ul><ul><li>All decision made by the owner- manager. </li></ul></ul><ul><ul><li>Low start up capital, no heavy investment. </li></ul></ul><ul><ul><li>Flexibility in operation. </li></ul></ul><ul><ul><li>The Sole trader can act quickly with a degree of flexibility. </li></ul></ul>
  7. 7. <ul><li>Advantages </li></ul><ul><ul><li>Easy to form and dissolve (bubarkan) with minimum formalities. </li></ul></ul><ul><ul><li>Nobody shares the rewards of the business, all profit will go to the owner. </li></ul></ul><ul><ul><li>Subject to less government rules and regulation. </li></ul></ul><ul><ul><li>The owner – manager has to pay income tax based on total profit earned to LHDN ( Inland Revenue Board, M’sia) </li></ul></ul>Sole Proprietorship
  8. 8. <ul><li>Disadvantages </li></ul><ul><ul><li>Limited source of capital </li></ul></ul><ul><ul><ul><li>Lack of capital to expand the business further. </li></ul></ul></ul><ul><ul><li>The liability is unlimited </li></ul></ul><ul><ul><ul><li>The owner- manager will be liable to settle all debts outstanding. </li></ul></ul></ul><ul><ul><ul><li>Failing which all assets will be ceased by court order to be sold, and cash generated will used to pay all outstanding creditors. </li></ul></ul></ul>Sole Proprietorship
  9. 9. <ul><li>Disadvantages </li></ul><ul><ul><li>The future development of the business is limited. </li></ul></ul><ul><ul><ul><li>Lot depends on the managerial capability of the owner and physical health. </li></ul></ul></ul><ul><ul><li>The life span of the business depends upon the age of the owner and how efficiently he manages the business. </li></ul></ul><ul><ul><li>He is of ill health or passes away the business continuation is disrupted. </li></ul></ul><ul><ul><li>If he choose an heir (successor) to the business, then the business has to be reregistered. </li></ul></ul>Sole Proprietorship
  10. 10. Partnership <ul><li>A partnership is a legal business entity with two or more partners. </li></ul><ul><li>In this type of business, a person forms a partnership (kongsian) </li></ul><ul><li>A partnership business has to be registered under the Business Registration Act 1956 </li></ul>
  11. 11. Partnership <ul><li>A partnership normally should consist of minimum of 2 person but not exceeding 20 persons. </li></ul><ul><li>But exception in the case of professionals ( lawyers, doctors and engineers etc.) is the members could number up to 50 persons. </li></ul>
  12. 12. <ul><li>Advantages </li></ul><ul><ul><li>Easy to set up and operate – less formalities. </li></ul></ul><ul><ul><li>Easier to secure financial assistance from financial institutions. </li></ul></ul><ul><ul><li>Equity can be increased from existing partners. </li></ul></ul><ul><ul><li>Business risks can be less because risk is borne by all existing partners. </li></ul></ul><ul><ul><li>The responsibility of managing and overseeing the business can be handled by all partners. </li></ul></ul><ul><ul><li>Ideas, talents and skills can be pooled together from partners for better management. </li></ul></ul><ul><ul><li>Income tax is not imposed on the partnership business but instead on the individual partners. </li></ul></ul>Partnership – Advantages & Disadvantages
  13. 13. <ul><li>Disadvantages </li></ul><ul><ul><li>Business liabilities are unlimited. </li></ul></ul><ul><ul><ul><li>Personal assets can be seized by court order since no distinction between personal & business assets. </li></ul></ul></ul><ul><ul><li>The life span (jangka hayat) of the partnership business depends on the life spans of the business. </li></ul></ul><ul><ul><li>If partner declared bankrupt, dies or become insane business has to be dissolved. </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>Difference of opinion and conflict may lead to breakup of the partnership. </li></ul></ul>Partnership – Advantages & Disadvantages
  14. 14. Contract Agreement <ul><li>It is necessary for the business to have some kind of Contract or Partnership Agreement to minimize any problems that may arise. </li></ul><ul><li>The Business Registration Act 1956 does not state that the formation of a partnership business must have a written agreement. </li></ul>
  15. 15. Contract Agreement <ul><li>Should an agreement arises what should be the contents? </li></ul><ul><ul><li>The Contents are as follows: </li></ul></ul><ul><ul><ul><li>Name of the business </li></ul></ul></ul><ul><ul><ul><li>The duration of the partnership </li></ul></ul></ul><ul><ul><ul><li>Agreement as the partnership status once the partner/s passes away or withdraws from the partnership. </li></ul></ul></ul><ul><ul><ul><li>The name of the individuals involved in managing the partnership. </li></ul></ul></ul><ul><ul><ul><li>The accounts of the business. </li></ul></ul></ul><ul><ul><ul><li>The structure of ownership i.e. the contribution made by individual partners. </li></ul></ul></ul><ul><ul><ul><li>The rights and obligation of the business partners </li></ul></ul></ul><ul><ul><ul><li>What are the properties that are considered as business assets to distinguish from personal assets. </li></ul></ul></ul>
  16. 16. Partnership Act 1961 <ul><li>According to Sect 26 & 27 of the above act: </li></ul><ul><ul><li>Profit & Loss are to be shared equally. </li></ul></ul><ul><ul><li>No interest is payable on a partner’s capital </li></ul></ul><ul><ul><li>Partners are required to participate actively in the business. </li></ul></ul><ul><ul><li>No partner is entitled for salary for work contribution done for the partnership. </li></ul></ul><ul><ul><li>Partner’s should be paid based on their contribution. </li></ul></ul>
  17. 17. Partnership Act 1961 <ul><ul><li>Daily routine matters can be decided by the majority of the partners, but major changes require the support of all partners. </li></ul></ul><ul><ul><li>Partner may choose not to be partner any longer if all partners have agreed. </li></ul></ul><ul><ul><li>If all partners agree a new partner can be brought to replace the old partner. </li></ul></ul><ul><ul><li>All business accounts books need to ket in the business premises. </li></ul></ul><ul><ul><li>Partners have the right to check the books of the company as when needed. </li></ul></ul>
  18. 18. Private Limited Company <ul><li>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. </li></ul><ul><li>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. </li></ul>
  19. 19. Private Limited Company <ul><li>The Characteristics of a Private Limited Company. </li></ul><ul><ul><li>Right & Responsibility </li></ul></ul><ul><ul><ul><li>A company has a specific right & responsibility. It can buy assets under it on name. </li></ul></ul></ul><ul><ul><ul><li>A company can also take legal action and face legal action under its own name. </li></ul></ul></ul><ul><ul><ul><ul><li>Life Span of a company is not dependent upon the death or resignation of its members. </li></ul></ul></ul></ul>
  20. 20. Private Limited Company <ul><ul><ul><li>Liabilities </li></ul></ul></ul><ul><ul><ul><ul><li>The liabilities of the members in a company are limited to the total share contributed to the company’s capital. Personal assets of shareholders are not affected if the company goes bust or winds up. </li></ul></ul></ul></ul><ul><ul><ul><li>Membership </li></ul></ul></ul><ul><ul><ul><ul><li>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. </li></ul></ul></ul></ul><ul><ul><li>Directors will manage the business operation in accordance with the Companies Act 1965. </li></ul></ul>
  21. 21. The Private Limited Company Terms & Conditions <ul><li>The number of members does not exceed 50 shareholders </li></ul>