TYPES OF BUSINESS

ORGANISATIONS
SOLE PROPRIETORSHIP
—> sole trader
—> owns & controls the management of the business by his own & can be assisted by family members or few employees
—> he assumes unlimited liability to the business
—> trader is responsible for all the profit, failure, and losses
—> brings his own money for the capital (can be borrowed from relatives or loaned from the bank)
EXAMPLES:
⁃ In Retail trade - market stalls/ bookshops
⁃ In Service trade - hair salon/ laundry service

ADVANTAGES DISADVANTAGES
 SIMPLE SETUP - inexpensive, only needs to be registered at the LIMITED CAPITAL - since business scale is small, he may not
Registrar Of Business, easy to dissolve when business fails have bargaining power for purchases from the wholesaler or
contractors

PERSONAL MOTIVATION - trader is driven by his passion to UNLIMITED LIABILITY - personally liable for all debts incurred
succeed & he does not have to consult anyone to make decisions, thus & must bear all the risks by himself
things are done quickly

OWNERSHIP & CONTROL - has direct ownership of the business LACK ON CONTINUITY- not have anyone to continue his
& he personally supervises his employees. He has personal contact business after he retires/dies.
with costumers; thus he can adopt to their needs.

LOWER TAX - lower personal income tax compared to bigger

companies

PARTNERSHIP
—> business owned by 2 or max 20 ppl.
—> EXAMPLES: doctors & dental clinics/accountants

Characteristics:
1. OWNERSHIP - The business is formed by with parters signing the Partnership Agreement where roles & duties of each partner are stated.
 2. LIABILITY OF BUSINESS - The partners assume unlimited liability. If the business fails, partners may need to let go of their personal
possessions in order to settle business debts.

3. TYPES OF PARTNERSHIP
⁃ Ordinary partnership - partners assume unlimited liability
⁃ Limited partnership - partners liability is limited to the amount of capital invested in the business. One partner must assume unlimited
liability. A limited partnership must be registered with the Registrar of Companies

4. CONTROL - limited partner enjoys limited liability, but has no say in the management of the business

5. CAPITAL CONTRIBUTION- capital is contributed with accordance with the Partners Agreement. Partners capital comes from loans/ hire
purchases & earlier business profits. Partners receive interest on their capital contribution which rate is agreed under the partnership agreement.

6. DISTRIBUTION OF PROFITS - among the terms of the Deed of the Partnership Agreement. If no agreement exists, the Partnership Act
will share all the profit and loss equally among the partners.

ROLES OF PARTNERS
⁃ Partners contribute differently. Some put large sums of money, others contribute time, effort or all combined

ACTIVE PARTNERS - most active in their contribution who put effort for success but not much of capital into the business & who receive
sales commission or bonus if there generate revenue for the partnership.
SLEEPING PARTNERS - contribute capital to the business but do not have time to manage it. Usually they only vote and make decisions.

NOMINAL PARTNERS - allow their name to be used in the partnership. They do not hold any role and manage the business, thus have no
share in the profit and loss of the business.

ADVANTAGES DISADVANTAGES
SIMPLE SETUP - does not require a lot formality to establish and UNLIMITED LIABILITY - All partners except the limited partners
operate business have unlimited liability.

AVAILABILITY OF CAPITAL - more owners to the business — GROUP AGREEMENT/ COMMITMENT- difficult to get
more capital is available to expand business. everyone to agree on a decision affecting efficiency of business
operation. Disagreement may lead to dissolution of the partnership

EXPERTISE - may bring networks of business and contacts. Some LACK OF CONTINUITY - death, insanity, bankruptcy or
bring reputation increasing the profitability of the business retirement —> partnership is dissolved.

TEAM EFFORT - business efficiency improves with contribution LIMITED CAPITAL CONTRIBUTION- max. of 20 partners
from all partner capital contribution.

LIMITED LIABILITY - limited partners do not need to worry

about losing personal possessions if business fails

CONTINUITY ENSURED - if partner dies, other partners can draw

out a new partnership agreement to continue business

LOWER TAX - partners are subjected to a lower personal income

tax compared to company tax
LIMITED COMPANIES
⁃ formed under Companies Act
⁃ Company must send: — to the Registrar of Companies upon its registration
◦ Prospectus

◦ Memorandum of association
⁃ STATES: name, address, objectives, liability of shareholders, amount of capital registered

◦ The Article of Association:

⁃ Copy of rules governs the internal management of the business
⁃ STATES: different classes of shares, their respective rights, appointment, the powers & duties of board of directors.

WHAT IS PROSPECTUS?
⁃ informs the general public about companies history, capital & the classes of shares. Like a reassume.
⁃ published when company wishes to raise capital through shares to the public.

WHAT HAPPENS UPON INCORPORATION (when everything gets together)

⁃ company is legal entity
⁃ it can sue or be sued, can own assets & enter into contracts

Examples:
◦ Manufacturing industry
◦ Industrial business
◦ Business that requires large amount of capital to be invested

WHAT ARE PROFESSIONAL BODIES?

⁃ non-profit organisations that helps a group of people in a certain profession

LIABILITIES OF LIMITED COMPANIES

—> most companies are registered as limited liability
—> professional bodies & charitable organisations registered as unlimited liability

◦ Liability is limited to the amount of registered capital. Shareholders can only be liable to the amount of shares they have.
◦ Shareholder who has fully paid for his shares is subjected to loose only the amount invested, not personal possessions.
TYPES OF LIMITED COMPANIES

◦ PRIVATE LIMITED COMPANIES

⁃ Shareholder cannot transfer their shares without the consent of other shareholders.
⁃ Registration formalities are easier and less costly
⁃ Num. of shareholders is 2-50
⁃ Num. of shareholders is restricted- amount of capital that can be raised is limited
⁃ Allows control of operations of the business to be kept within a family
⁃ Director must be a shareholder
⁃ Not required to publish balance sheet, unless shares are held by other companies or it issues debenture loans.

◦ PUBLIC LIMITED COMPANIES

⁃ can invite public to subscribe to shares. Shares are transferable and can be bought or sold through Stock Exchange.
⁃ Costs more & many formalities have to be followed
⁃ 2-unlimited num. of shareholders
⁃ Can raise more capital
⁃ Control of shares is with those who have the largest amount of shares.
⁃ Directors are not required to be shareholders
⁃ Balance sheet has to be published to general public & to Registrar of Companies

COMMON FEATURES
⁃ Registered with words “Ltd” & “Sdn Bhd” under the Companies act
⁃ Shareholders and company are separate entities.
⁃ Shareholders have limited liability
⁃ Board of directors is selected my shareholders. Replacement of directors I’d done by void during the general meeting.
⁃ Salaried managers are employed to manage business.
⁃ Profits earned at the end of the year are subjected to corporate taxes.

ADVANTAGES DISADVANTAGES
AVAILABLE SOURCE OF CAPIATAL – public listed company MORE RESTRICTIONS – more restrictions & controls on
can raise large amount of capital through public shares and funds operation which involves more expanses on company
through bank loans

EXPANSION OF BUSINESS – large capital expands business LACK OF COMMITMENT

which allows greater discounts on bulk goods & services.

CONTINUITY – Ability of owners to transfer shares allows greater TAX LIABILITY – Heavier corporate tax compared to the sole
continuity. proprietor and partnership.
LIMITED LIABILITY – If the company fails, investors loose only
what they have invested into business
TRANSFER OF OWNERSHIP – ownership rights are transferable
through the stock exchange.

TYPES OF SHARES OF LIMITED COMPANIES

 Company under the memorandum of association has to register the max. amount of shares (authorised/nominal capital) they can raise
through public offer.

PREFERENCE SHARES
- get a fixed dividend (salary) for their investment, regardless of the profit earned.
- If business fails they have first claim in the distribution of the companies assets
- Have no voting rights & control of the business operation

ORDINARY SHARES
- get dividends at a rate declared by the companies directors
- receive dividend after preference shareholders
- last to claim of the distribution of the companies assets
- have voting rights and control over the business operation

DEFERRED SHARES
- held by the directors of the company
- do not have voting rights and control over business management
- are in the middle to claim their investments