BUSINESS ENTITIES

In Malaysia, there are basically five types of business entities, namely a sole proprietorship,
partnership, limited partnership, limited liability partnership and company.

SOLE-PROPRIETORSHIP

A business carried on by a sole proprietorship is held by one person, who often generally runs the
company and operates it. People may or may not be working in the company these are referred to
as business workers and the owner is the employer. The sole proprietorship earns all profits, and is
legally obliged to directly bear and cover all expenses. The sole proprietorship shall be solely
responsible for business debts. So, the sole proprietorship has unlimited liability for repaying sums
owing to the company, or debts. For example, if the company incurs debts arising from a guarantee
claim, then the individual will be held liable for those debts, and any lawsuits will be made against
the personal assets of the individual. As well, the federal tax system controls sole proprietorships.

The sole proprietorship is easy to set up and only requires business name registration and it is free
to run the company as he or she feels best and is not accountable to a supervisor. As for the
company name, it can use the owner's name or some other name. Usually, a sole proprietorship
needs a small amount of capital to commence relative to other forms of business entities.

Section 12 of Registration of Businesses Act 1956 states that it is an offence if the business is not
registered and the sole-proprietor is liable to a fine not exceeding RM50 000 or to imprisonment for
a term not exceeding two years or to both.

Section 8 of RBA 1956 states that if the sole-proprietor did not register his business, the sole-
proprietor cannot sue to enforce any rights under a contract made or entered into by him unless he
has obtained relief from the High Court. However, he can be sued. He cannot enforce his rights but
he is still liable to perform his obligations under the contract.

PARTNERSHIP

Section 3(1) of the Partnership Act 1961 defines a partnership as “the relationship which subsists
between persons carrying on business in common with a view of profit”.

Partnership is an arrangement of two or more individuals or organizations serving as partners in the

company. Commonly, the partners run and manage the company. However, even though they have
contributed money to the partnership, there may be a silent partner who does not take any part in
the running of business. Any partner in a relationship is directly responsible for all debts incurred by
the company; in the event of a business collapse, personal properties of each partner shall be
jeopardized.

The partners will have a written agreement in the partnership that specifies how decisions will be
made, how profits will be split, how conflicts will be resolved, how potential partners can be added
to the partnership, how partners may be acquired and what steps will be taken to end the
partnership when necessary.

There are two simple, general and restricted types of partnerships. Both partners have unlimited
liability in a general partnership, while in a limited partnership at least one partner has limited
liability only for his or her contribution and at least one other partner has complete liability.
Partnerships include law or accounting firms, medical or dental services.
Section 47(2) of the Partnership Act and Section 13 of the Companies Act 2016 states that the
maximum number of persons in this business relationship is 20. However, section 13 does not
prohibit the formation of a partnership for profit consisting of more than 20 persons under any other
written laws.

Tax Consideration

The sole proprietorship of any company income shall be regarded as the business owner 's income
and all profits shall be declared on the individual tax return and paid in the year it is received.
Enterprise deductions are allowed. Because a Partnership Agreement can distribute profits or losses
in any ratio negotiated between partners, but if no Agreement exists, the profits must be allocated
fairly. The partnership shall take out business deductions before the income that is distributed to the
partners and claimed on their personal tax returns. When received, a company's income is taxed on
the company, and then taxed on its owners when distributed as dividends. This leads to double
taxation. When it distributes dividends to shareholders, the company does not get a tax deduction.

Liability

In Sole proprietors have unlimited liability, and are legally liable for all debts against the company.
Their company and personal properties are at risk. Partners in Partnership are responsible for all of
the company's debts and the entire sum of these debts will be obtained by one or more partners,
rather than the debt being divided equally. During the usual course of business, partners can also be
held responsible for actions committed by one of their partners. Company owners have corporate
liability insurance. That's because the organization operates like a corporation as a separate entity. If
a director of a corporation has signed a personal pledge, he cannot be held legally responsible for
debts.

Ease and cost of set up

It is easy to set up the sole ownership and partnership, and can use a trade name to advertise its
goods and services. A firm must be registered with the Registrar of Companies when in the business.
Company cost more than a sole proprietorship or partnership to set up and run. There are, for
example, the initial training fees, filing fees and annual state fees. Such expenses are therefore partly
offset by lower rates of insurance.

LIMITED LIABILITY PARTNERSHIP

The Limited Liability Partnership (LLP) is basically a structured general partnership, with one key
distinction, unlike a general partnership, in which individual partners are responsible for the
liabilities, debts and responsibilities of the partnership, an LLP protects the individual partners from
personal responsibility for such partnership obligations.

Section 6 of the Limited Liability Partnership Act (LLP) states that any two or more members
associated for carrying on any lawful business with a view to profit may form a limited liability
partnership. Thus, an LLP must have two or more partners, but no maximum number of partners is
imposed. In the event the number of partners falls below two, the remaining partner is given six
months to increase the number to at least two. The sole partner may apply to Registrar of LLP for
extension of time.

Members of the Limited Liability Partnership have limited liabilities in relation to liability to the
extent of their holding in the business. Similarly, the shareholders of Limited Responsibility
companies have limited liability of relation to the company’s debt to the sum of their equity in the
company. However, the partners have unlimited liabilities to the company's debt in General
Partnership. Nevertheless, limited partnerships have limited liability to the extent of their interest in
the company, while the General Partner has unlimited liability in the partnership.

Differences between a Company and Partnership

Registration

A company should be licensed obligatorily under the Companies Act. The development is very
complicated. But, under the Partnership Act, registration of a partnership company is not
compulsory. The business is focused on deed of partnership. Its development is very easy.

Legal Position

A company is a corporate entity and a legal individual with a distinct corporate identity from its
members. The members cannot be held accountable for the company's acts. Yet a partnership has
no distinct legal life from its members. Partners are responsible for the firm 's actions.

Liability

In the case of a limited company, the shareholders' gross liability is limited to the face value of the
shares which they bought. In the case of companies which are limited by contract, the shareholders'
responsibility would be up to the sum they guarantee. But on a partnership case. Partner liability is
infinite. The partners jointly and severally bear the responsibility for all the debts of the partnership
firm.

Number of Members

A private company will have at least 2 members, and can have up to 50 employees. A public
corporation will have a minimum of seven members, and no maximum limit is set. But a partnership
should have at least 2 members and can have a maximum of 20 people.

Management

The management team is in the hands of a collective of shareholders' elected officials. Only this
party considers the day-to-day activities of the organization hard to handle. It's mainly taken out by
salaried men. Such people are not supposed to take an active part as the owners in the
management. But in the case of a partnership the management is in the partners' own pockets. They
work with utter honesty. They will give the clients personal attention and thereby improve the
relationship between the customer and the company.

Capital Formation

Even people with minimal resources may become major company shareholders. It will inspire them
to future save something out of their profits. That is a green signal for the country's capital
development. In the case of a partnership such capital development is not feasible.

DIFFERENCE BETWEEN PUBLIC COMPANY AND PRIVATE COMPANY

A corporation is a legal entity with the right to own property and conduct business, as distinct from
any individual person. Corporations are either listed as private or public. Public company formed
primarily for the administration of a local civil government entity, such as a nation, city, town, school
district, to manage public business. Unique law establishes public corporation by deciding the intent
and the powers of the company. Whereas a private corporation is established for private purposes
by individuals and has no governmental obligations.

First, the name of a public company must include the words 'Public Limited Company' or its
equivalent, while the name of private limited companies cannot end with the words 'Limited' or its
equivalent, such as Ltd, unless the corporation has received permission to dispense with the use of
the term 'Limited' in its name. Instead of the minimum capital requirement, incorporate as a private
entity will transact business as soon as it is incorporated, while the statutory instrument allows a
public corporation to have a minimum paid-up capital of £ 50,000, and that sum specified.
Therefore, the minimum number of members required to form a private company is 2, while a public
corporation requires at least 7 members; the maximum number of members in a private company is
limited to 50 and the maximum number of members in a public company is not restricted.

In Private Business, the transferability of the shares is absolutely limited by its Articles of Association,
while there is no limit on the transferability of a Public Company's shares. A Private Company may
have 1 director to handle the company's affairs, while a Public Company will have at least 2
directors. As of the consent directors, private company directors do not need to give any consent,
but a public company's directors must register with the consent of the registrar to serve as the
company's director. For the certification of shares, the managers of a private company do not need
to sign an undertaking to obtain the certification securities; public company managers are expected
to sign an undertaking to acquire the qualification shares of the public Company. A Private Company
does not need to sell its existing shareholders the further issue of shares while a Public Company
must sell its existing shareholders the further issue of shares as right shares. Only with the consent
of the current shareholders in the shareholders general meeting will further issue of shares be sold
to the general public.

Public companies typically have guarantees of continued operations above those of smaller,
privately owned businesses. In terms of efficiency and market positioning, downturns in the
economy or a shift in the climate such as increased competition or regulatory changes can have a
greater effect on private business than public enterprises. The higher risk could lead to a value
discount for private companies. While private firms are more likely to receive valuation discounts
than public firms, there is at least one area where they can get a value premium. Whereas a private
company 's sale normally results in the acquisition of the controlling interest in the corporation, the
ownership of public-company stock typically consists of a minority-share holding which may be
perceived as less valuable than a controlling interest position.

Compare a sole proprietorship, a partnership, a limited liability partnership and a company

The sole proprietorship referring to the 1956 Business Act Registration (ROBA). Sole proprietorship's
legal status is that it's not a separate legal entity, it's where the creditor can sue A if he can't solve
his debt even if the company is closed. Sole proprietorship formation is easy and does not really
require many formalities. Registration is pursuant to s.5 of ROBA 1956 where it is stated that the
registration must be completed within 30 days. In ROBA 1956 s.12 states that any failure to file is an
offense under this provision that is punishable by imprisonment of no more than RM50 000 or 2
years. In addition, there can be only 1 master in sole proprietorship or the one who makes decisions,
they can have employees but they cannot make any decisions. A sole proprietor has full control and
management of the undertaking in the management part. The capital is given completely by the sole
proprietor. The sole proprietor is entirely liable for the company’s debts in the part of liability, and
has unlimited liability. The company continues until there is some sort of bankruptcy, or until the
owner dies. There is no particular name needed of a sole proprietor to follow.

Partnership refers to the 1961 Partnership Act; a partnership is not a separate legal entity
incorporated therein. A partnership is easy to form, everything depends on the partnership
agreement, and it can be in writing or oral. It is better to have a written agreement in place to avoid
future misunderstandings between partners. Pursuant to ROBA 1956 a partnership must register.
The number of partners who may participate is a minimum of 2 people and a maximum of 20
people, according to s.13 of PA 1961 it is known as a business if a partnership involves more than 20
individuals. No max limit on professional practice. For a partner 's management part, all partners can
be involved including a sleeping partner who provides money but is not active in business
management. The partners contribute capital. The partners have joint liability under s.11 of PA 1961.
For limitless liability happens when the company's assets are not sufficient to pay off all the debt so
the creditors go after the partners individually, because if they believe that partner A is wealthiest so
they go after him only and at that time A cannot argue that he holds just 25 per cent of the liability.
Like the sole proprietor, a partnership can only exist until the partners' bankruptcy or death, and no
specific name has been given to the business.

Limited Liability Partnership is based on the Limited Liability Partnerships Act 2012 LLPA. The limited
liability partnership S.3 of LLPA 2012 is a separate legal entity and shares the characteristics of both
a general partnership and a company. The creation of the limited liability partnership is performed
pursuant to s.6 of LLPA 2012 which states that if two or more persons are associated with being on a
lawful bus and want benefit, a limited liability partnership can be established taking into account the
terms of the limited liability partnership agreement. For the limited liability partnership membership
amount is 2 minima and there is no maximum number of persons this can be seen in s.6 of LLPA
2012. Every partner or member may be involved as for the part of the management. The partners
contribute capital. The liability for this is limited, as can be seen in s.21 of LLPA 2012, when
established, limited liability partnership is liable and an artificial entity is only formed to the extent
of the partner's contribution. Perpetual succession is the duration of the limited liability partnership.
Finally, unlike sole proprietorship and a partnership, limited liability partnership has a specific name
to follow or add in the real name of the business that is Perkongsian Liabiliti Terhad (PLT) as written
in LLPA s.13 2012.

A company that refers to the Companies Act 2016 (CA), the legal status of a company is a separate
legal entity that falls under s.20(a) of CA which states that the legal entity must be independent from
the partners. As for the establishment of a company, it has formalities to be met as specified in
s.14(1) of CA 2016 that a company must first apply to the registrar and pursuant to s.14(3) of CA
2016 is that the application must be submitted with the statements included. As for CA 's
membership s.9(b) states that a minimum of 1 member must be present. For a private company the
maximum number of members is 50 pursuant to s.42(a) of CA and for a public company there is no
maximum number. A company is managed by the Executive Board. The equity is divided among the
shareholders. A corporation is responsible for its obligations, 2 forms of responsibility are the limited
and unlimited liability. As for limited liability, s.10of the CA 2016 notes that limited liability by shares
is where the responsibility of the owner is limited to their own unpaid securities when the company
is liquidated, as though the liquidator cannot go after the company in full payment of A. On the
other hand, limited liability by guarantee is that the members are liable only for the amount
guaranteed to be paid. As for an unlimited company, the unlimited liability applies. Company life
cycle is eternal succession can be seen in CA s.20(b).
Differences between a private company, public company and exempt private company

Any entity that is licensed as a private company under the Companies Act 2016 is a private company
that is clarified under s.2 of the CA. The minimum number of members of a private company is 1
pursuant to CA s.9(b), and the maximum number of members under a private company is 50
pursuant to CA s.42(1). For private companies, there are restrictions under CA which are, the
members must be below 50 or 50 s.42(1) CA. Secondly, a private corporation cannot pass CA's
s.42(2) shares and finally, according to s.43(1) of CA, a private company cannot sell the public any
securities. As regards share capital, s.11 of CA shows that a private company can be limited by shares
and s.42 of CA shows that a company with fewer than 50 members is registered as a private
company and is a company limited by shares. It is compulsory for each private company to have SDN
BHD clarify this in its name of company s.25(1)(b) of CA. The minimum number of directors for a
private company is 1 male, pursuant to CA s.196(1)(a). Under s.123(1) of CA, a private entity is not
permitted to buy its own shares. A private company shall not be prohibited from appointing fewer
than 2 directors in a single resolution. A private firm fails to hold an annual meeting known as the
AGM. Under s.225(1) of CA the loan individual cannot be linked to the director in a private company;
it is prohibited. Under CA's 224(1), a private company cannot give directors loans. According to
s.259(1)(a) of CA the balance sheet filing and profit and loss report must be registered with the
registrar within 30 days from the financial statements.

In the other hand, as for a public corporation, as a corporation other than or which is not a private
company is regarded as a public company is explained under s.2 of CA. Under s.9(b) of CA the
minimum number of members is 1 and the maximum number of members for a public company is
not present. A public company is not bound by the restrictions laid down in s.42 and s.43 of CA
which apply only to a private company. It is inappropriate for the share capital and, as referred to in
s.11(1) of CA, a share-limited company with more than 50 members is a public company and s.11(2)
of CA notes that a guarantee-limited company is a public one. As for the name of a public company,
pursuant to s.25(1)(a) of CA all public corporations must have BHD behind the company name. CA's
S.196(1)(b) indicates that a public corporation has a minimum number of directors 2. It is
appropriate for a public corporation to purchase its own shares if it can be seen in s.127(1) of CA
granted permission by its constitutions. Unlike a private company, a public company is prohibited
from having a single resolution to appoint less than 2 directors, but there is an exception under s.203
of CA that exists unless the members agree in a meeting and no vote is taken against it. A public
enterprise must have an AGM which is an annual meeting pursuant to CA s.340(1). Lending to a
director is also prohibited in a public company pursuant to s.224(1) of CA and it is also prohibited
under s.225(1) of CA to lend to a person related to the director is similar to private company. For file
a balance sheet and profit and loss account pursuant for s.259(1)(a) of CA, a public corporation is
expected to register with the registrar within 30 days of the Annual General Meeting.

Under s.2 of CA an exempt private company is defined as a private company in the shares of which
no beneficial interest is held directly or indirectly by any entity and a company that has no members
more than 20 and none of which is an entity and must be individuals. The leaders cannot be more
than 20. According to s.224(2) of CA and s.225(1) of CA, loan to director and loan to person
connected with director are not prohibited for this business unlike private or public business.
How companies may be classified by reference to the liability of the members?

Companies can usually be classified into two organizational categories, namely statutory and
registered companies. A business can form as one of the following: (1) a limited company by shares,
(2) a limited company by guarantee, or (3) an unlimited company (Section 10(1), CA 2016). By
comparison, there are four categories of companies under the CA 1965 (Section 14(2), CA 2016),
with the additional form of a company restricted by both the shares and the guarantee.

A business shall be protected by guarantee if its members' liability is reduced to the sum that the
members agree to pay in the event it is wound up (Section 10(3), CA 2016). A public corporation
shall be a limited company by guarantee (Section 11(2), CA 2016). Under Section 45(1) of the CA
2016, only the following objects can be used by a company limited by guarantee: providing
recreation or amusement; promoting commerce and industry; promoting art; promoting science;
promoting religion; promoting charity; promoting pension or superannuation schemes; or promoting
any other object useful for the community or country. Under the Company Limited by Guarantee
Guidelines provided by the CCM ("the Guideline"), the subject-matter referred to in (h) above was
sub-categorized into objects such as health, protection, education, scientific, social or sport support.
Where companies limited by shares and unlimited companies can have the option of a constitution,
companies limited by guarantee do not have the option. It is required to adopt a constitution
(Section 38, CA 2016). The following requirements are to be observed in the constitution of the
company the name of the company; the objects of the company; the amount up to which the
member undertakes to contribute to the assets of the company in the event of its being wound up;
the full names, addresses and occupations of the subscribers; and a statement that the subscribers
are desirous of being formed into a company in pursuance of the constitution. Under the Guidelines,
companies that are limited by guarantee may also be required by Registrar to submit a segmental
report along with its financial statements. It must also ensure that the company or its financial
resources are not used by any of its members or directors to carry out any form of political or illegal
activities. Other requirements applicable to a company limited by guarantee are, inter alia, (a) the
company shall apply its profits or other income in achieving or promoting its objects, (b) the
company shall prohibit the payment of any dividend to its members and (c) it shall require all the
assets that would otherwise be available to its members generally be transferred on its winding up
either to another body with objects similar to its own or to another body the objects of which are
the promotion of charity (Section 45(2), CA 2016). A limited company may not omit the word
"Berhad" or the abbreviation "Bhd" from its name and may not hold land (Sections 45(3) and 45(4),
CA 2016) unless a license is obtained from the Minister.

As the name suggests, if the liability of its members is limited to the amount, if any, unpaid on shares
held by the members, a company is limited by share. A joint-stock corporation can be either a
private or a public company (Section 11(1), CA 2016). The liability of its members is limited to the
amount that they hold unpaid on shares (Section 10(2), CA 2016). Section 435(2)(b) states that no
contribution shall be required of any member which exceeds the amount unpaid on shared shares
held by the member.

A business is an unrestricted business unless its members have a cap on their liability. An
unrestricted business is either a private or a public corporation (Section 10(4) and Section 11(3) of
the CA 2016).