There are several types of business organizations in Malaysia governed under various Acts. The main types are sole proprietorship, partnership, and private limited company. A sole proprietorship is owned and managed by one individual and has unlimited liability but easy formation. A partnership has two or more partners who share profits and losses, and is governed by the Partnership Act 1961. A private limited company is formed under the Companies Act 1965 and has a separate legal identity from its owners. It limits the liability of its shareholders to their share capital contribution.

1. Forms of Business Organization, Regulation & Business Support System © KL Metropolitan University College

2. 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

3. 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

4. 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 Types of Business Organization

5. 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.

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

7. 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, M’sia) Sole Proprietorship

8. Disadvantages Limited source of capital Lack of capital to expand the business further. The liability is unlimited The owner- manager will be liable to settle 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. Sole Proprietorship

9. 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. Sole Proprietorship

10. 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

11. 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.

12. 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. Partnership – Advantages & Disadvantages

13. 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. Partnership – Advantages & Disadvantages

14. 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.

15. 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.

16. 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 partner’s capital Partners are required to participate actively in the business. No partner is entitled for salary for work contribution done for the partnership. Partner’s should be paid based on their contribution.

17. 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.

18. 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.

19. 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.

20. Private Limited Company Liabilities 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. Membership 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. Directors will manage the business operation in accordance with the Companies Act 1965.

21. The Private Limited Company Terms & Conditions The number of members does not exceed 50 shareholders