LAW 604

TYPES OF BUSINESS
ENTITIES IN MALAYSIA
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DIFFERENT TYPES OF
BUSINESS ENTITIES
SOLE
PROPRIETORSHIP

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 SOLE
PROPRIETORSHIP
• Meaning
 One person running a business for himself. The business is the person
who runs it.

• Formalities
 No formal legal process to start business, BUT have to register his
business under the Registration of Businesses Act 1956.
 No agreement as he is dealing alone.
 May begin business without formality.
 Not required by law to expose information relating to his business
dealings.

• Laws
 His business is subjected to personal laws, such as in contract and tort. In
other words, all rights and actions are in his personal capacity, thus he
can sue and be sued in his name.

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 SOLE
PROPRIETORSHIP
• Assets and Liabilities
 He is the owner of the business and is personally responsible for those
assets and liabilities of the business.
 Liability unlimited.
 Can use the capital in any way he wants to.

• Borrowing Powers
 No artificial restriction.

• Termination
 As the running of the business is a personal decision, a sole proprietor
may start and end his business as he wishes.

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 PARTNERSHIP
• Definition

 Section 3(1) PARTNERSHIP ACT 1961: Partnership is “the relation

which subsists between persons carrying on a business in common
with view of profit.”

• Laws

 The laws relating to Partnership in Malaysia is based on common law, but

PA 1961 makes certain provisions for partnerships.
 PA 1961 provisions may be set aside by the partners themselves.

• Formalities
 Partnership under PA 1961 is made up of two to twenty persons.
 Must have some form of agreement by conduct, orally, or in writing.
 The partners as one unit is called a firm. The business is normally carried
out under a firm’s name.
 Like a sole proprietorship, a partnership has to be registered under the
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Registration of Businesses Act 1956.
 PARTNERSHIP
• Assets and Liabilities

 The assets of the partnership are collectively owned by the partners,

and the partners are all personally liable for the debts and obligations of
the firm.
 PA 1961 makes all partners liable for the acts of other partners under
certain circumstances.
 Like a sole proprietorship, the partners are personally liable for actions in
contract and tort.
 As for legal actions for or against the firm, it may be taken in the name of a
member of the partnership or the firm as a whole.

• Borrowing Powers
 Same as sole proprietorship.

• Termination

 Dissolving the partnership, can be either by agreement, by operation of

law, or according to the grounds under the Partnership Act. 6
 COMPANIES
• Definition

 The Companies are incorporated associations under Companies Act 1965.

• Laws

 Must be Formed and Registered under Companies Act 1965.

 The membership of a company is not less than two, and except for private
companies where it should not exceed fifty, it has no limit to the number of
members of a Public Co.

• Form

 Once registered, the company is recognized at law as a ‘person’ separate from

people behind its formation.
 A company’s life continues even if all the members of a company have died.

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 COMPANIES
• Assets and Liabilities

 Co. can own property in its own name.

 It is liable for its own debts and obligations, and it can sue and be sued in its
own name.
 Co’s assets belong to the company.

• Dissolution

 A company must be dissolved as according to the process set out under

the Companies Act 1965.

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 DIFFERENCES BETWEEN
COMPANIES AND OTHER
ASSOCIATIONS
in the formation and dissolution,
members’ liability,
enforcement of legal rights,
the transfer of interests in the company,
the management and ownership of the
business,
the limits on the size of the organization,
the raising of capital; and
the disclosure of accounts of companies.9
 ADVANTAGES OF COMPANIES OVER
PARTNERSHIPS
COMPANY PARTNERSHIP

Can sue and be sued in its own Legal action on a partnership

name. generally through its members.

As one legal entity, also owns the Assets are generally collectively
company’s assets. owned by all the partners.

Has the unique ability to create Can only borrow by charging on their
floating charges over their current fixed assets.
assets to secure a loan.

May have limited liability. Partners’ liability is unlimited.

Continuous life until it is legally Death of a partner is a ground for

wound up, and does not dissolve dissolving the partnership.
because of the death of their
member.
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 LIMITED LIABILITY PARTNERSHIP
• In force from 26 December 2012
• Gazetted date : 9 February 2012
• Fourth type of business operation in Malaysia
• an alternative business vehicle offering a hybrid
of characteristics between conventional
partnership and a company.
• Its special features : are that of a conventional
partnership in terms of the flexibility in its
administration and a company in terms of the
limited liability status conferred to its partners

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 LIMITED LIABILITY PARTNERSHIP
• The LLP offers limited liability to its partners whereby any
debts and obligations of the LLP will be borne by the assets
of the LLP.
• In the case of a conventional partnership the partners has
unlimited liability jointly and severally in the partnership.
• There are many fundamental differences between an LLP
and a company. Amongst others, the differences are:-
• No issuance of shares
• Flexibility in making decisions
• No formal requirement for Annual General Meetings
• No requirement to submit financial statements to SSM
• Accounts need not be audited.
• Further information : http://www.ssm.com.my/en/LLP-
AboutLLP
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