Forms of Business Organization,

Regulation & Business Support

System

© KL Metropolitan University College

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
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

 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
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.
 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.
 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, M’sia)
 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
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
 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.
 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
 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.
 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.
 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.
 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.
 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.
 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.
 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.
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.
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.
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.
The Private Limited Company
Terms & Conditions
 The number of members does
not exceed 50 shareholders