CHAPTER 9

LEGAL ISSUES IN
ENTREPRENEURSHIP
 CHAPTER OUTLINE

Understand the three forms of

business namely sole Describe six types of
proprietorship, partnership and intellectual property.
company.

Understand the
Discuss the advantages and
process of
disadvantages of each
business
forms of business.
registration.
 BASIC QUESTIONS
• Three forms of business entities you can choose:
a) Sole Proprietor
b) Partnership
c) Company

• Three concerns as an entrepreneur :

1. How to register a business in Malaysia?
2. What are the requirements to form a business in Malaysia?
3. What are the documents needed to register as a business?
 SOLE PROPRIETORSHIP

• Characteristics of sole proprietorship

SOLE PROPRIETORSHIP
• Formation of sole proprietorship

• Characteristics of partnership
PARTNERSHIP
• Formation of partnership

• Characteristics of limited liability

LIMITED LIABILITY partnership
PARTNERSHIPS
• Formation of partnership
 SOLE PROPRIETORSHIP
• Simplest form of business which is it’s normally owned
Sole Proprietorship and operated by a single individual - home based
businesses – landscapers, housekeeping services,
tutoring, buying or selling merchandise online or food
catering – using personal name (IC) or trade name

Characteristics of • Unlimited liability

• Single owner but at
sole proprietorship times employs workers

Formation of sole • To operate a sole proprietorship, the business must

be registered under the law
proprietorship
• For purposes of registration, renewal and termination see
Registration of Business Act(1956)
 SOLE PROPRIETORSHIP
Advantages
Easiest and least expensive form of ownership
to organise.
Sole proprietors have complete control,
making decisions as they see fit.
Sole proprietors receive all income generated
by the business to keep or reinvest.
Profits from the business flow through directly
to the owner’s personal tax return.
The business is easy to dissolve or sell, if
desired.
Disadvantages
Unlimited liability. Since sole proprietors are legally
responsible for all debts against the business, their business
and personal assets are at risk.
Raising fund may be more difficult compared to other forms
of business. Sole proprietors are often limited to using funds
from their personal savings or consumer loans.
May have difficulty attracting high calibre employees, or
those who are motivated by the opportunity to own a part of
the business.
Some of the employee benefits such as owner’s medical
insurance premiums are not directly deductible from
business income (they are only partially deductible as an
adjustment to income).
 PARTNERSHIP
• It is normally operated by at least two, but often, more than two persons.
• There must be a common intent between, or among the partners to operate the
relevant business with the objective of profit-making.

Characteristics of Partnership:
a) The business of a partnership is usually carried on as a firm.
b) A partnership lacks legal personality. The partners will be held accountable in their
individual capacity for the actions and liabilities of the firm.
c) A partnership cannot comprise more than twenty persons.

Formation of Partnership:
• Prospective partners are required to seek approval for the proposed name of their firm,
and to make an application for the registration of the firm.

• A partnership can commence its business after the Registrar has issued a certificate of
registration. This certificate must be displayed at every address where the partnership
carries on its business.
 PARTNERSHIP
Advantages
A partnership is relatively easy to form and
the start-up cost is low.
Allows several people to combine
resources and expertise, i.e. additional
investment capital as well as a wider pool
of knowledge, skills and contracts as
compared with a sole proprietorship.
Limited regulation by authorities.
Similar to a sole proprietorship, each
partner is taxed individually, meaning that
each partner includes business incomeon
his personal income tax return.
Disadvantages
It may be difficult to find suitable partners.
Unlimited liability.
The partners are personally and jointlyresponsible
for all the debts of thefirm.
Divided authority and the lines of authority may not
be clear.
Partners can legally bind each other without prior
approval.
Lack of succession. The duration of the partnership
is uncertain. If any partner dies, is injured,
withdraws, sells his interest or a new partner is
admitted into the business, the partnership comes to
an end.
LIMITED LIABILITY PARTNERSHIP
• A body corporate and that it is to have a legal personality separate from its partners making up
the partnership. It means any changes in partners shall not in any way affect the existence of the
partnership or its rights and liabilities.

Characteristics of Limited Liability Partnership:

• A limited liability partnership is a body corporate and shall have legal personality separate from
that of its partners.
• A limited liability partnership shall have perpetual succession.
• Solely liable for any obligations whether arising in contract, tort or otherwise.
• Any changes in the partners of a limited liability partnership shall not affect the existence, rights
or liabilities of the limited liabilitypartnership.
• A limited liability partnership shall have unlimited capacity and shall be capable of:
a) Suing and being sued;
b) Acquiring, owning, holding and developing or disposing of property; and
c) Doing and suffering such other acts and things as bodies corporate may lawfully do and suffer.

Formation of Limited Liability Partnerships:

• Any two or more persons, either as individuals or a body corporate, can form a limited liability
partnership for profit as agreed in the partnership agreement.
• The professional governing bodies are specified under the First Schedule of the Limited Liability
PartnershipAct.
• The governing bodies will consult the Registrar of Limited Liability Partnership.
 LIMITED LIABILITY PARTNERSHIP
Advantages
Flexible - Limited liability
partnerships offer partners flexibility
in business ownership
Separate Legal entity - Limited
liability partnership structure
protects individual partners from
personal liability. Individual partners
are not personally responsible for
company debts or other obligations.
Tax advantages- The partnershipis
not held responsible for paying
these taxes.
Disadvantages
Requires a minimum of 2 partners at all times.
The individual partners do not have to consult with each
other over certain business arrangements. An agreement
should be drawn up between the partners that outlines
what each partner can and cannot do when making a
decision about the business
The limited liability partnerships are automatically
dissolved upon the death of a partner.
Limited Liability Partnerships lack the ease of ownership
transfer and investment that a company structure
provides.
No corporate tax benefits: Tax exemptions availableto
private limited companies are not available to Limited
Liability Partnerships
 COMPANY
Company Registration

Legal Personality of a Company

The Consequences of Incorporation

Types of Company
• Unlimited
• Limited by Shares
• Limited by Guarantee
• Holding
• Subsidiary
• Foreign
• Private
• Exempt Private
• Public
 Company
Companies Act (1965)

Security Industry Act (1983)

Securities Commission Act (1993)

Companies Commission of Malaysia Act (2001)

Bodies Website
http://www.pemudah.gov.my/companies-
Companies Commission of Malaysia commission-of-malaysia-ccm-
(CCM) http://www.ssm.com.my/

Bursa Malaysia Securities Berhad http://www.bursamalaysia.com/market/

(Bursa)
http://www.bnm.gov.my/index.php?ch=li_ba
Pengurusan Danaharta Nasional nking&pg=li_banking_danaharta&ac=59&ca
Berhad t=banking&type=OT&lang=bm

http://www.sc.com.my/
Securities Commission Malaysia

Responsible Bodies for the Regulation of Companies

 Unlimited
Public Company Company Company Limited by
Shares

Exempt
Private Company
Company Types of Limited by
Company Guarantee

Private
Company
Holding
Company
Foreign Subsidiary
Company Company
 • The most important characteristic of a
Legal Personality of
company is that upon incorporation, it
a Company acquires a legal personality or legal
entity.
• Example: The company is generally viewed as a
person in itself, with an identity that is distinct and
separate from those of its members
(shareholders), and directors.

The Consequences of • The consequences of incorporation are

Incorporation with a legal personality, a company
becomes a corporate body.

• The liability of its members may be limited, meaning that if

the company incurs debts, members’ liability will be limited
to the amount they have contributed, or agreed to
contribute to the company’s assets.
PROCEDURE FOR REGISTRATION OF A
COMPANY

Reservation of
name

Memorandum and
Articles of
Association

Statutory
declarations
 • Companies Act of Malaysia (1965)
Procedure for • SSM online website – 1 hour registration
Registration a • Any two or more persons can register a company – Must be
Company Malaysians to register for sole proprietorship or partnerships

• Enquire from the Registrar of Companies whether

Reservation of Name the name proposed for the company is available, or
is already being used by another entity.

Memorandum and Articles • Applicants for the registration of a company must

deposit the company’s Articles, and Memorandum
of Association of Association with the Registrar, along with other
(Constitution) documents that may be required (Section 18
Companies Act)

Statutory • The person mentioned in the Memorandum (or as

Articles) of Association the company’s first make
Declarations secretary is required to and submit to the
Registrar of Companies a statutory declaration, using
the prescribed form. Ensuring compliance with the
Companies Act. Issuance of certificate of corporation.
 COMPANY
Advantages Disadvantages

Limited liability. Investors can limit their

Cost of registering a company. Registering a company involves
liability to the total amount of their
compliance costs as there are procedures that must be complied with
investment
before and after the company is registered.

Ability to attract capital. Because of the

Lack of confidentiality. Disclosure or transparency, is the hallmark of
protection of limited liability, corporations
modern company law, as many view disclosure as an effective tool in
have proved to be the most effective form of
combating fraud and abuse of power. Disclosure consequently results in
ownership for accumulating large amounts
lack of confidentiality.
of capital.

Ability to continue indefinitely. Unlike a sole
proprietorship or partnership, in which the
death of a founder ends the business,
the company lives of thosewho gave it life.
Separation between control and ownership. Although shareholders have
contributed capital to the company and therefore, although theoretically,
they own the company, this does not necessarily mean that they control
the company. This is because the company’s articles usually bestow upon
the company directors the power to manage the company.

Transferable ownership. If shareholders in a Over-regulation – a company has various stakeholders and there is a need
corporation are displeased with the to protect the conflicting interests of these various stakeholders. Therefore
business’s progress, they can sell their companies and their owners are subjected to numerous laws and
shares to someone else. regulations
Entrepreneur vs Businessmen
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 INTELLECTUAL PROPERTY RIGHTS

• Copyright
The exclusive right given to the
creators of literary and artistic works
for a certain period of time.
1) Literary work (penulisan),
2) Artistic work (seni),
3) Musical work (music),
4) Film (filem);
5) Sound Recording (rakaman bunyi);
6) Broadcasting (penyiaran).
Period: Life + 50 thn/ 50 thn
• Patent
An exclusive right granted to those
who have made inventions.
Period: 20 years (Patent)
10 years renew every 5 years (utility
innovation)
Law
Patent Act 1983 (Akta 291)

Law:
Copyright act 1987
 Criteria

NEW / NOVELTY
Not identical
Before Not disclose to
with prior
filing/priority the public in the
art/the different
date world
in material

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Patent

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 • Trademark
A sign that indicates the origin of
goods and services.
Period: 10 years & renewable
Law
Trademark act 1976 (Akta 175)
• Industrial Design
The ornamental or aesthetic aspect of
an article.
1) 3D design; dan
2) 2D design.
3D – furniture, phone, car;
2D – cloth pattern, shoes.
Period: 5 years+ renew (4x 5 years)
Law
ID act 2015 (Akta 552)
Trademarks

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beer toothpaste condensed milk

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 Industrial Design

Configuration

Pattern
Shape

Ornament
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 What is an
“article”
Saunders v Weil = Westminster
Abbey building shape on spoon Popeye Brooches case

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 What is
not an
King Features Syndicate Inc v OM Kleeman (1941) 58 RPC 207
Lord Wright – the sketches of Popeye were made as illustration
“article”
in a newspaper (comic strips) and for no other purpose.. It is not
intended to applied on articles (ie dolls/toys) and not intended to
be multiplied by industrial purpose.
(8 years after comic strips, the author grant license for making
toys)

Comic strips (or paper per se) = not an article = no protection on ID; but
Making toys/doll where designs/patterns intended to applied in articles for
industrial = protection in ID

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GUI Graphical User Interface
Apple Computer Inc Design Application
[2002] (article and industrial process
issues)
Icon or gui also a design which attach
to an article ie gadget.

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Subject matter
judge by the eye
F&N Dairies (Malaysia) Sdn Bhd v
Tropicana Products, Inc & Another
[2013] 1 LNS 390, CA.

a) Design that appeal in the eye

b) Does the design dictated solely

by function

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 Subject
Pugh v Riley Cycle Co Ltd (1912) 1 Ch 613
Design for wire spoked wheels matter
principle of
The design was so generalised that it amounted to an
attempt to protect a mode of construction.
construction
When such there is no possible way to change the
design of a shape = method of construction

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• Geographical Indication
A name or sign that identifies any product
as originating from a particular country or
territory, or a region or locality in that
country or territory, which gives it a special
quality, reputation, or other attributes.
Period: 10 years (renewable)
Law
GI act 2000 (Akta 602)
• Layout Design
The three-dimensional disposition of the
elements of an integrated circuit, and
some or all of the interconnections of the
integrated circuit or such three-
dimensional disposition prepared for an
integrated circuit intended for
manufacture.
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How to register?

PERBADANAN HARTA
INTELEK MALAYSIA
 Intellectual Property Corporation of Malaysia (MyIPO)

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McDonald:
CASE 1:
CASE 2:
 CONCLUSION
• There are laws that govern the establishments of sole
proprietorship, partnership, limited liability partnership
and companies to guide the market players in managing
their business activities.

• Elements must be fulfilled to comply with the

requirements of the law in Malaysia.