BUSINESS ENTITIES,

FORMATION & SUPPORT SYSTEM

Pn Ima Shanaz Wahidin

Business and Management Department
UiTM Perak Branch
Tapah Campus
BUSINESS
ENTITIES
 Business Entities in Malaysia

Business Entities Sub-Types

Business a. Sole Proprietorship

b. Partnership

Company a. Private Limited (Sdn Bhd)

b. Public Limited Company (Bhd)

Hybrid Limited Liability Partnership

Business Registration Act 1956:
 Sole Proprietorship
 Partnership
Limited Liability Partnership Act 2012
 Limited Liability Partnership
Company Act 1965:
 Limited Company by Guarantee
 Limited Company by Share
Private Limited Company (Sdn Bhd)
Public Limited Company
Foreign Owned Company
 Unlimited Company
 Sole Proprietorship
Formed under the Business Act 1956
(Amendment 1978).
Owned by one person whose liability is
unlimited.
Simplest business structure.
May use the name of the owner or any
other name may be used.
Requires a small amount of capital to start
with, compared with other forms of business
entities.
 Advantages Sole Proprietorship
a. Easy to manage as owner can make own
decisions.
b. The owner enjoys a certain degree of flexibility
since as a sole owner he can react quickly
and positively regarding necessary changes in
the business.
c. Easy to form and dissolve (minimum
formalities).
d. All profits or losses bear by the owner.
e. Not subjected much to government rules and
regulations. The owner pays income tax based
on his total individual income.
 Disadvantages Sole Proprietorship

a. Limited source of capital.

b. Liability of the business is unlimited. If the business incurs debts
for which the business assets are not sufficient to cover, the
owner must be prepared to settle the debt with his personal
assets.
c. Future development of the business is limited and depends on
the management capability of the owner and the condition of
his health.
d. The owner is solely responsible for carrying out all the tasks,
therefore, a lot of time and effort needs to be spent in
managing the business.
e. The life span of the business depends upon the age of the
owner and how efficiently he manages the business. In
addition, the business will be dissolved if the owner passes
away. If someone wishes to continue the business, it will have to
be re-registered.
 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).
 Between one person but not exceeding 20
persons agree to undertake a joint business and
jointly own the business.
 Partnership Advantages
a. Easy to set up with few formalities.
b. Easier to secure financial assistance.
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. 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.
 Partnership Disadvantages
a. Business liabilities are unlimited, which may
involve personal assets of all partners of the
company
b. Life span 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.
 Private Limited Company
 Set up under the Companies Act 1965.
 A legal entity and its identity is separate
from the identity of the company’s
members.
 Private Limited Company
Characteristics
a. Right and Responsibility
• A company has a specific right and responsibility. It can acquire assets under its
own name. A company can also take legal action and face legal action
under its own name
b. Life Span
• The life span of a company is not dependent upon the death or resignation of
its members. A company can be dissolved when its members are no longer
interested in continuing the business
c. Liabilities
• The liabilities of the members in a company are limited to the total shares
contributed to the company’s capital. Personal assets are not affected
regardless of what happens to the company
d. Membership
• A company must have at least two members who are of Malaysian nationality.
These two members can act as a director and founder of the company. The
members of the company will appoint the Board of Directors who will manage
and run the business operation subject to the Companies Act 1965
 Terms & Conditions of Private Limited
Company
a. The number of members does not exceed 50
people;
b. It has specific authority to transfer ownership of
members’ shares with the approval of the
company’s Board of Directors;
c. A company is not allowed to offer or sell any
share or debenture to the general public;
d. A company is not allowed to offer the general
public to deposit money within a stipulated
time frame; and
e. A company must use the word “Sdn. Bhd.” at
the end of its name.
 Private Limited Company
Requirements
a. Memorandum of Association
b. Articles of Association
c. The Share Capital of a Company
a. Authorised capital
b. Paid-up capital
d. Members of Shareholders
e. Board of Directors
f. Company Secretary
g. Auditors
h. Registered Office
i. Company Seal
j. Authorization Letter
 Private Limited Company
Advantages
a. Funds are easy to acquire through the exchange of share
ownership or loan from a financial institution.
b. All shareholders are legally protected by law.
c. Shareholders are not burdened with the management of
the business because the responsibility to manage and run
the business is held by the Board of Directors, who are
appointed by the company’s shareholders.
d. Limited liabilities to the capital that they contributed.
e. Life span of the business is not dependent upon the age or
resignation of its members.
f. Greater potential for expansion.
g. Legally, the company is one business entity by itself.
 Private Limited Company
Disadvantages
a. More rules and regulations and must always
abide by the rules and fulfil the terms set by the
Companies Commission of Malaysia.
b. The company’s shares cannot be transacted
through the share market.
c. The company must pay corporate tax.
d. The qualified Auditors must audit the
company’s yearly financial statement and the
statement must be complete and regularly
updated.
e. The financial affairs of the company must be
made transparent to the general
f. The cost of setting up a company is high.
 BUSINESS
FORMATION
 Business Formation

1. Starting from scratch

2. Buying an Existing Business

3. Family Business Succession

4. Acquiring a Franchise
 1. Starting From Scratch
 The most popular method among entrepreneurs
 Entrepreneur has to make decisions on:
a. Appropriate form of business
b. Business or trade name
c. Business and product/service image
d. Suitable location of the business
e. Appropriate funding to kick-start the business
f. Proper business planning for everything that needs
to be take into consideration.
 Starting From Scratch
Advantages
a. Entrepreneurs are free to make his/her own
decisions.
b. Entrepreneurs have the opportunities to try and
practice his/her own ideas.
c. Entrepreneurs are free to choose suitable business
location and premise, and acquiring appropriate
machine and equipment's for the business.
d. Entrepreneurs are free to develop business image
and personality that suits their desire and interest.
 Starting From Scratch
Disadvantages
a. Need to put in a lot of efforts. It requires more
time, energy and money in ensuring the business
kick-off.
b. Higher chances of losses due to high project
implementation cost.
c. Not able to accurately estimate sales, cost and
profit as zero business history (i.e. sales record,
costing and so on)
d. No track record hence difficult to convince the
financial institutions in getting the financing
 2. Buying Existing Business
Entrepreneurs start a new venture buy taking
over an existing business either buying the
whole business or partial shares in the existing
business.
Entrepreneurs must “investigate” before
buying. previous owners have reasons why
they wanted to sell their business. So, it is the
entrepreneurs’ responsibilities to “investigate”
the business that they want to buy as well the
“background” of the existing owners.
 Buying Existing Business
Advantages
a. The time entrepreneurs spent to start the
business is faster compared to starting a
new venture form scratch
b. The probability of getting the financing is
greater if the existing business has a good
track record.
c. Existing market and loyal customers of
existing business.
d. Established networking with suppliers,
supporting agencies and communities.
 Buying Existing Business
Disadvantages
a. Buying existing business requires bigger amount of
capital either to buy the whole business or part of
the business.
b. If the existing business is not well managed by the
previous owner, entrepreneurs need to put in a lot of
efforts, money and time to improve the situation.
c. Entrepreneurs have to respect and abide the
agreements that have been made by the previous
owner with related parties (suppliers, agencies etc.).
d. Conflicts could arise between the new owner and
existing employees.
 3. Family Business Succession

Entrepreneur is the successor of the

business which was started by the
earlier family members (predecessors).
Entrepreneur did not face the
difficulties of starting-up a new venture.
 Family Business Challenges
a. Financing – debt financing versus equity financing.
b. Liquidity/Cash – family’s need for cash versus business’s
needs for cash.
c. Transition period – older generation versus new
generation (to let go or not to let go – ownership &
management power).
d. Succession - finding the right successor (competent,
motivated, and the most important getting consensus
from all family members).
e. Emotion – family interest versus business interest.
f. Rivalry – siblings, cousins.
 Family Business Advantages
a. Freedom and flexibility in decision making.
b. Pride of family culture, high commitment
and motivation lead to business stability.
c. Family members willingness to “sacrifice”
their time and money (e.g. no salary taken
for 1st year of operation).
d. High possibility of achieving great
monetary success due to high
commitment.
e. Family members have good exposure to
business environment.
 Family Business Disadvantages

a. Unstructured early-stage business organization.

b. Early-stage limited financial resources.
c. Family conflicts such as siblings and/or cousins
rivalry.
d. Nepotism among family members (e.g.
incompetent family member is given a better
management position).
e. Traditions practiced by older generation
passed on to new generation could lead to
resistance to change.
f. Difficulty in getting the right successor.
 4. Acquiring 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.
 Operating a franchise includes selling and marketing the
products and/or services using the trade name and trade mark,
as well as a set of systems developed and owned by the
franchisor.
The right to operate the franchise granted by the
franchisor to the franchisee involves a few
payments made by the franchisee agreed upon
the signing of a franchise. These fees are:
 Franchise Fee – one-off payment made by the
franchisee to purchase the right to operate the
franchise
 Royalty - an on-going payment made by the
franchisee to the franchisor based on the
percentage of sales as agreed upon the
signing of franchise contract (monthly or
yearly)
 Advertising and Promotional Contribution - an
on-going payment or contribution made by
the franchisee to franchisor’s advertising and
promotional fund.
 Franchising Advantages
Franchisee
❑Lower business risks as franchisee shares the business
risks with the franchisor.
❑Better market acceptance of products and/or
services offered as they are established products
and/or services of the franchisor.
❑Benefits of economies of scales
❑Guidance by the franchisor’s management team
❑Continuous support from the franchisor and
government agencies that involved in the
development franchise industry.
 Franchising Advantages
Franchisor:
❑The franchisor’s business expansion can be done
through recruitment of new franchisees.
❑Benefits of economies of scales
❑Lower business risks as shares business risks with the
franchisees.
❑Problems related human resource management is
reduced.
❑More focus on product research and
development since business expansion is done
through franchise system.
 Franchising Disadvantages
Franchisee:
❑ Limited freedom and flexibility to manage the
business according to franchisees’ desire
❑ The franchise right granted by the franchisor has its
price to pay; the franchise fee, royalty and
advertising & promotional contribution
❑ Limited product varieties; the franchisees are
allowed to market and sell only the franchisor’s
products
❑ 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.
 Franchising Disadvantages
Franchisor:
❑ Difficult to manage the franchisees
especially in ensuring the conformity of the
operational methods of all franchisees in the
system.
❑ May have different business objectives with
franchisee.
❑ “Wrong” franchisee as some franchisees
want an “easy-ride” in an attempt to gain
instant popularity for the business.
❑ Competition through imitation of business
concept and model
BUSINESS SUPPORT
SYSTEM
 WHAT IS BUSINESS SUPPORT
SYSTEM??
Business support system is an aid or
assistance provided by the government
and other private agencies to an existing
and new entrepreneur.
These assistance and services are
provided to help entrepreneurs to start a
new business or to develop an existing
one.
 Technical &
Technological

Information,
Marketing Infrastructure
& Advisory

BUSINESS
SUPPORT
SYSTEM
Research &
Financial
Development

Entrepreneurs &
Management
Marketing Assistance
Technology & Technological
Information, Infrastructure & Advisory
Financial Assistance
Entrepreneurs & Management
Research & Development