ENTREPRENEURSHIP (MPU 2232)

CHAPTER 3:
BUSINESS ENTITIES AND FORMATION

Nurul Shahirah binti Haji Ishak

Lecturer/Coordinator
(Centre Of Excellence)
 Learning Outcomes

At the end of this class, students should be able to:-

• Identify and understand types of business entities and

business formation in Malaysia.

• Understand the advantages and disadvantages of the various

types of business entities.

• Understand legal aspects of business formation.

 3.0 TYPES OF BUSINESS VEHICLES

• Sole Proprietorship

• Partnership

• Limited Liability Partnership

• Limited Company
 3.1 SOLE PROPRIETORSHIP
• A business wholly owned by an individual using his/her
personal name or trade name.

• Example: Zainal Abidin Ali or New Town Kopitiam or Chong

Big Pau.

• Eligibility requirements :
i. Must be a Malaysian citizen or permanent resident; and
ii. Must be aged 18 and above.
 3.1.1 PROCEDURE TO REGISTER SOLE
PROPRIETOR
1) Filing of an application for approval of the proposed trade
name for the business.
a) If the proposed business is registered under the owner’s
name, there is no need to obtain prior approval from SSM.
2) Filing of Form A (Registration of a New Business).
(a) Form A shall contain the following information:
• The name of the business;
• The nature of the business;
• The date of the commencement of the business;
• The address of the place of business;
• Branch(es) of the business;
 3.1.1 PROCEDURE TO REGISTER SOLE
PROPRIETOR
• The following documents must be attached with Form A for
submission:
– Letter of approval of business name from SSM (if the trade
name is used);
– Photocopy of owner’s IC;
– Permit, license, approval or supporting letter from any
other agency (if any)
• Fee payable – RM30 for personal name, RM60 for trade name,
RM5 for each branch.
3.1.1 PROCEDURE TO REGISTER SOLE
PROPRIETOR
 3.1.2 AFTER REGISTRATION – CHANGES &
RENEWAL
• After registration, changes will be allowed by submitting:
• Borang B1 - Change of Business Address
• Borang B2 - Change in Type of Business
• Borang B3 - Changes of Particulars on Branches
• Borang B4 - Changes of Information of Owner
• ROBA requires the registration of changes in the business
particulars to be lodged within 30 days from the date of such
changes.
• Fee payable for above – RM20.00
• Renewal - The owner may register the business for up to five
(5) years. Application for renewal of Borang D must be made
within 30 days before its expiry by filing Borang A1 with SSM or
by renewing at the Pejabat Pos.
 3.2 PARTNERSHIP

• A partnership (perkongsian) is a business owned by two (2)

or more persons but not exceeding 20.

• Business includes every form of trade, commerce,

craftsmanship, calling, profession or other activity carried on
for the purpose of gain, but does not include any office or
employment or any charitable undertaking or any occupation
specified in the Schedule of the Registration of Businesses
Act 1956 (ROBA).
3.2.1 PROCEDURE TO REGISTER PARTNERSHIP
 3.3 TERMINATION OF BUSINESS
• Business may be terminated for the following reasons:
– Cessation (closure) of the business;
– Owner becomes an undercharged bankrupt;
– Death of the owner;
– Carrying out unlawful activities or activities which are
prejudicial to national security, public order or morality; or
– Pursuant to a Court Order.
• Procedure – file Borang C (Notification of Termination of
Registered Business) with SSM.
• Borang C shall contain:
– (a) The date of termination; and
– (b) Reason(s) for terminating the business.
 3.3 TERMINATION OF BUSINESS
• The completed Borang C must be signed by the business
owner and the following documents must be attached:
• (a) Certificate of Registration of Business (Borang D);
• (b) Copy of the Court Order if the termination is by an
Order of the Court;
• (c) Copy of the Death Certificate (if applicable) [must be
submitted within 4 months of death of owner]; or
• (d) Enclose relevant documents if the owner has become
a bankrupt.
• Form C must be filed within 30 days from the date of
termination of the business.
 3.4 LIMITED COMPANY
• The most common type of company incorporated for
purposes of carrying on business is a company limited by
shares. A company limited by shares may be incorporated as
a:

– Private Limited Company – identified through the words

‘Sendirian Berhad’ or abbreviation ‘Sdn. Bhd’ as part of the
company’s name.
– Public Limited Company – identified through the words
‘Berhad’ or abbreviation ‘Bhd’ as part of the company’s
name.
 3.5 LIMITED COMPANY - PROCESS

• The requirements to form a ‘Sdn Bhd’ or ‘Berhad’ company

are:
i. A minimum of two (2) subscribers to the shares of the
company (section 14 of the CA);
ii. A minimum of two (2) directors (section of the 122 CA);
and
iii. A company secretary
• Both the director and company secretary shall have their
principal or only place of residence within Malaysia (sections
122 and 139 of the CA respectively).
3.5.1 LIMITED COMPANY - PROCESS
 3.5.1 PRIVATE LIMITED COMPANY - PROCESS
• Form 48A (Statutory Declaration by a Director or Promoter
before Appointment)
• The director or promoter declares under oath that:
• he/she is not a bankrupt; and
• he/she has not been convicted and imprisoned.
• Memorandum & Articles of Association
• It defines the business of the company, share capital and the
subscribers. The Articles define the relationship between the
members and directors and constitute the internal rules of the
company.
• The first directors and secretaries must be named inside.
• The subscribers to the company’s shares shall sign the
Memorandum and Articles of Association in front of a witness.
 3.5.2 LIMITED COMPANY - BENEFITS
• Registered paid up capital can be as low as RM200 being the
shares taken by the initial promoters of the company.

• Private limited or public limited companies have all the

powers to hold properties, to enter into contracts and to do
everything within the objects stated in its Memorandum of
Association.

• Offers limited liability to its directors and shareholders as

outsiders can only sue the company and not the individuals.
Example – company sells an electrical item to a consumer.
Item is defective but causes damage to the consumer.
Consumer can only sue the company but not the directors or
shareholders.
 3.6 LIMITED COMPANY - DISADVANTAGES
• Costly – incorporation of companies starts from RM1,800.00
compared to RM70 for sole proprietorship & partnership.

• Legal compliance – limited liability companies are subject to

the Companies Act 1965 and are required to hold an Annual
General Meeting, to submit the audited accounts to SSM, to
submit prescribed forms where there are changes (such as
directors or their particulars) and to appoint a company
secretary and auditor.

• It is not easy to close down a limited company as the process

is called a winding up and costly.
 3.7 WINDING UP A COMPANY

• There are two (2) modes of winding up under section 211 of

the CA:
• Voluntary winding up; or
• Winding up by the Court (also referred to as compulsory
winding up).
• Voluntary winding up – the company must be solvent i.e. its
liabilities is less than the assets.
• Winding up by the Court – the Court will order the winding up
when the company is unable to pay its debts, when the
directors have acted in their own interests other than the
shareholders, where the company fails to commence business
within 1 year, etc.
 3.8 LIMITED LIABILITY PARTNERSHIP (LLP)

• Governed by the Limited Liability Partnerships Act 2012

(Akta Perkongsian Liabiliti Terhad 2012).
• A hybrid between company and conventional partnership
offering fundamentally:
– the privilege of limited liability accorded to the partners
of the LLP; and
– the flexibility of internal management.
• Suitable for small businesses, professionals, joint ventures &
venture capitals
• The LLP is a body corporate and shall have legal personality
separate from its partners, perpetual succession and
unlimited capacity.
 3.8 LIMITED LIABILITY PARTNERSHIP (LLP)

• LLP may be formed:

– by a minimum of two persons (wholly or partly individuals
or bodies corporate);
– for any lawful business with a view of profit; and
– in accordance with the terms of the LLP agreement.

• LLP formed for professional practice must:

– consist of natural person of the same profession; and
– have in force professional indemnity insurance as approved
by the Registrar.
 3.8 LIMITED LIABILITY PARTNERSHIP (LLP)
• Information required for registration:
• proposed name of LLP
• nature of business
• address of registered office
• name and details of partners
• name and details of compliance officer
• approval letter (in cases of professional practice).
• Flexible internal arrangement through:
• LLP agreement; or
• In the absence of agreement, default provisions covering
the mutual rights and duties of LLP and its partners.
 3.9 LIABILITIES OF PARTNERS

• Any individual or body corporate can be a partner.

• “Partner” means any person admitted as a partner in
accordance to the LLP agreement and includes salaried
partner.
• Any obligation arising from contract or tort will be the liability
of the LLP and not the partners.
• A partner however will be jointly and severally liable for his
own wrongful act or omission in the course of the business of
the LLP.
• Liabilities of LLP will be borne out of the property of the LLP.
 3.10 CESSATION OF PARTNER
• Automatic cessation:
• upon death/dissolution of a partner; or
• in the case of a professional practice, the partner has
been disqualified from carrying out the professional
practice.
• Voluntary cessation:
• a partner may cease to be a partner in accordance with
the LLP agreement; or
• in the absence of such an agreement, by giving a 30 days
notice to the other partners.
• Bankruptcy of a partner will not cause a partner to cease
being a partner.
 3.11 DISSOLUTION OF LLP
• Court Ordered Winding Up
• Divisions 2 and 4 of Part X of Companies Act 1965 and the
Companies Winding Up Rules 1972 will be applicable.
• Appropriate modifications.

• Voluntary Winding Up
• Application in writing to the Registrar when all assets and
liabilities have been discharged.
• Application must be preceded by notice to all partners
and advertisement of the intention to wind up.
• Registrar will order dissolution only if there is no objection
received.
 3.11 DISSOLUTION OF LLP

• Striking off - the Registrar will strike LLP off the register on the
following grounds:

• No longer carrying on business;

• Contravention of the Act;
• Prejudicial to national interests; or
• No liquidator acting in cases of court ordered winding up;
• Affairs have been fully wound up but no sufficient assets
to obtain court order.
SO….WHAT ARE YOU WAITING FOR??

• Have a business plan!

• Consult a company secretary, accountant or
lawyer for the best possible business vehicle
for you.
• Go ahead! The world is out there!
• A journey of a thousand begins with one step!