Professional Documents
Culture Documents
b. c. d.
Unlimited Company
Sole Proprietorship
Formed under the Business Act 1956 (Amendment 1978). This form of business structure is solely owned by one person, where management rests on that person whose liability is unlimited. A sole proprietorship is the simplest business structure. As for the name of the business, the name of the owner or any other name may be used. Typically, a sole proprietorship business requires a small amount of capital to start with, compared with other forms of business entities
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Partnership
A partnership is a legal business entity with two or more partners. In this form of business, a person forms a partnership with one or more persons to carry out a business with a view to making profits. A partnership business is also incorporated under the Business Registration Act 1956 (Amendment 1978). A partnership is carried out by more than one person but not exceeding 20 persons. In a partnership, partners agree to undertake a joint business and jointly own the business. Professional businesses (legal firms, architect and accounting firms the members could number up to 50 persons). In this form of business entity, partners carry out the business, share the capital, profits and losses. 9
Advantages of Partnership
a. Easy to set up with few formalities. b. Easier to secure financial assistance from financial institutions compared with sole proprietorship. c. Equity can be increased through enlisting additional partners. d. Business risks can be reduced and distributed among partners. In case of losses, each partner will share the burden. e. The responsibility of managing and handling the business can be divided equally among partners. f. A lot of ideas, talents and skills can be pooled together for better management. g. As in a sole proprietorship business, income tax is not imposed on the partnership itself but on the owners as individuals.
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Disadvantages of Partnership
a. Business liabilities are unlimited, which may involve personal assets of all partners of the company b. The life span of the partnership business depends on the life span of the partners. If any of the partners passes away or is declared a bankrupt, the business is automatically dissolved, unless there is an agreement otherwise. c. If no Letter of Agreement is being made, unethical or misconduct behaviour may happen. d. Risk of personal clashes among partners
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Partnership Agreement
The Business Registration Act 1956 does not specify that the formation of a partnership business must be followed by a written agreement between or among partners. However, it is necessary for the business to have some kind of Contract or Partnership Agreement to avoid any misunderstanding that may occur among the partners
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Partnership Agreement
Some of the important elements that need to be stated in a Partnership Agreement: a. Name of the business b. The duration of the partnership (to prevent the dissolution of the business). The agreement should also state that in the event one partner passes away or withdraws from the partnership, the business will not be dissolved. c. Individuals involved in managing the partnership business. d. The accounts of the business and share capital that show the contribution of each partner and the right and obligations of each partner towards the capital. e. The properties are considered as assets of the business. 13
Partnership Agreement
Partnerships are governed by the Partnership Act 1961. If partners do not have their own agreement, the provisions of the Act will become applicable. Sections 26 and 27 of the Act, among other things, stipulate that the following must be provided for in a partnership agreement:. a. Profits or losses are to be shared equally. b. No interest is payable on a partners capital. c. Each partner is entitled to actively participate in the management of the business. d. No partner is entitled to a salary for participating in the partnership business. e. Partners have the right to be paid based on their 14 contribution to the business.
Partnership Agreement
f. Daily normal things in business can be decided by the majority of the partners, but any changes that regularly occur need to be made with consensus from all partners. g. A partner may withdraw after getting the consent of the other partners. h. The introduction of a new partner must have the unanimous consent of all existing partners. i. All business accounts books need to be kept at the main business premises. Partners are allowed to check through the books and they have the right to keep a copy of the books.
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d. e. f. g. h. i. j.
Members of Shareholders Board of Directors Company Secretary Auditors Registered Office Company Seal Authorisation Letter
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BUSINESS FORMATION
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BUSINESS FORMATION
There are four common methods of starting a new venture: 1. 2. 3. 4. Starting from scratch Buying an Existing Business Family Business Succession Acquiring a Franchise
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The time entrepreneurs spent to start the business is faster compared to starting a new venture form scratch The probability of getting the financing is greater if the existing business has a good track record. Existing market and loyal customers of existing business. Established networking with suppliers, supporting agencies and communities.
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4. Acquiring a Franchise
Another alternative of starting a new business A franchise is a product and/or service distribution system which is governed by a contract Made between two parties namely, the franchisor and the franchisee The franchisor is a company which sells the right to another party to operate the franchise. The franchisee is a person who purchases the right from the franchisor to operate the franchise
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Advantages of Franchising
To the Franchisee: a. Lower business risks as franchisee shares the business risks with the franchisor. b. Better market acceptance of products and/or services offered as they are established products and/or services of the franchisor. c. Benefits of economies of scales d. Guidance by the franchisors management team e. Continuous support from the franchisor and government agencies that involved in the development franchise industry.
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Advantages of Franchising
To the Franchisor: a. The franchisors business expansion can be done through recruitment of new franchisees. b. Benefits of economies of scales c. Lower business risks as franchisor shares the business risks with the franchisees. d. Problems related human resource management is reduced due to the fact that the franchisees have to manage the human resource related matters themselves. e. The franchisor can put more focus on product research and development since business expansion is done through franchise system. 46
Disadvantages of Franchising
To the Franchisee: a. Limited freedom and flexibility to manage the business according to franchisees desire b. The franchise right granted by the franchisor has its price to pay; the franchise fee, royalty and advertising & promotional contribution c. Limited product varieties; the franchisees are allowed to market and sell only the franchisors products d. Fear of chain-reaction; bad reputation and tarnished image due to the fault of either the franchisor or the franchisee would affect the whole franchise system
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Disadvantages of Franchising
To the Franchisor: a. Franchisee conformity; it is difficult to manage the franchisees especially in ensuring the conformity of the operational methods of all franchisees in the system due to the fact that they are not franchisors employees. b. The franchisor/franchisee goal incompatibility; The franchisor and franchisees may have different business objectives as well as personal objectives that could jeopardize the business marriage. c. Wrong franchisee; There are franchisees who want an easy-ride in an attempt to gain instant popularity for the business. d. Competition through imitation of business concept and model
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END OF MODULE 5
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