LECTURE 1 – INTRO
TYPES OF BUSINESS
ORGANISATION
IN MALAYSIA
Sole
proprietors
hip
COMPANY Partnership
Types of
Business
Organization
Limited Limited
liability partnership
partnership Labuan
FACTORS TO BE CONSIDERED BEFORE DECIDING WHICH TYPES OF
BUSINESS ENTITY
PROCEDURE
LIABILITY
REQUIRED
CONTINUITY TRANSFERABILITY
TAXATION
SOLE-PROPRIETORSHIP
Owned
by 1
person
Responsible for
capital required
Individually
responsible for
loan repayment
May employ
other people
SOLE PROPRIETORSHIPS (SP)
• Is the oldest & simplest of the different business
structures available in Malaysia
• It is relatively easy for an individual to launch a SP
as start up costs are not expected to be
prohibitively high.
• Although the term SP refers to an individual in
business for himself, it does not necessarily follow
that the SP is a ‘one man show’ since the single
owner may of such a venture may employ staff to
assist him in the running of routine operations.
REGISTRATION OF BUSINESS
FOR SOLE-PROPRIETOR
Registrar of Businesses
- ROB Act 1956(Revised Personal details
1978)
Within 30 days of
must be given
commencement
Certificate must be
Upon registration –
displayed at the
Certificate of
principal place of
Registration
business
EFFECT OF NON-
REGISTRATION
Section 12 of ROB Section 8:
Act: Cannot enforce
An offence, sole- any right but
proprietor liable,
fine not exceeding
can be sued.
RM50,000, OR
Imprisonment not
exceeding 2 years,
OR
BOTH. 7
PARTNERSHIP
Definition: Partnership Act Must be at least 2
1961: persons who agree
“the relationship which to do business to
subsists between person make profit
carrying on business in
common with a view of
profit.”
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PARTNERSHIP (PS)
• 1. Conventional partnership – Partnership Act 1961
• 2. Limited Liability Partnership Act 2012 (LLPA
2012)– introduced a new form of business entity
called limited liability partnerships
• LLPA 2012 permits a conventional PS and a private
company to convert to a LLP
• LLP provides an alternative form of business entity to
a conventional partnership and a company
• A LLP provides the benefits of limited liability
normally associated with companies whilst allowing
its partners the flexibility of adopting an internal
structure akin to a conventional partnership
MAXIMUM NO OF PARTNERS
S47(2) Partnership Act BUT, for professional
1961 & S13 Companies p/ship: can be more
Act 2016: than 20
20 partners
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REGISTRATION OF PARTNERSHIP BUSINESS
Must register ANY CHANGE,
with ROB Must notify
Section 5, ROB: Registrar within
details of partners 30 days
& their
agreement must
be given
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LIMITED LIABILITY PARTNERSHIP
Definition: S6 Limited At least 2
Liability Partnership Act persons
2012: Liability of
“any 2 or more members partners is ltd
associated for carrying on Partners will not
any lawful business with a be personally
view to profit may form a liable
LLP”
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Partnership (PS)
• In the context of PS the term ‘firm’ refers
collectively to those who entered into partnership
with one another and the name under which
partners carry on their business is referred to as the
‘firm name’.
• Despite having a firm name the PS does not have
any separate legal existence apart from the co-
owners who are personally liable for the debts and
obligations of the business.
• In fact each partner may lose personal property
should the accumulated liabilities exceed the firm’s
assets.
PS
• The number of partners is limited to 20 (except
partnership engaged in professional practice).
• The PS agreement is essentially a private
agreement among the partners who thus have
the flexibility of deciding on their own internal
management arrangement.
• Entitled to share equally in the capital & profits
of the business and equally contribute to the
losses (unless they agree otherwise).
Limited Liability
Partnership (LLP)
• LLP is a hybrid business vehicle between a
partnership & a limited company & enjoys the
following features;
A body corporate
Separate legal entity
Limited liability of partners
Flexibility in the internal management
procedure
Limited Liability Partnership (LLP)
• LLP effectively combine the features of general
partnerships & companies
• Offers the internal flexibility of a partnership -
by allowing its members to adopt whatever
form of internal organisation they prefer)
whilst limiting their liabilities to what they had
contributed in terms of capital to the venture.
• Their relationship are governed by the LLP
agreement.
S9, CA 2016:
A corporation or A name,
body corporate - is 1 or more members having
a legal person limited or unlimited liability
created & for obligations of the co,
In the case of co limited by
recognised by the
shares,
law
An 1 or more shares; &
1 or more directors
incorporated
association
DEFINTION OF
COMPANY
DIFFERENCES BETWEEN A SP, P/SHIP & CO
(1)Number of members
SP PARTNERSHIP COMPANY
• only one • 2 – 20 • CA2016 –
member members, allow 1
professional member
p/ship – • Private co –
more than max: 50
20. members
• Ltd co – no
limit
DIFFERENCES BETWEEN A SP, P/SHIP & CO
(2) Ability to hold property
SP PARTNERSHIP COMPANY
• business • assets • assets are
assets are his owned by not legally
assets. partners owned by
collectively. members,
co holds its
own
property,
members
have no
interest.
DIFFERENCES BETWEEN A SP, P/SHIP & CO
(3) Members’ liability for debts
SP PARTNERSHIP COMPANY
• members are • members are • member’s
ultimately ultimately liability can
responsible responsible be limited.
for all of the for all of the
debts of the debts of the
firm, firm,
member’s member’s
liability can’t
liability can’t
be limited.
be limited.
DIFFERENCES BETWEEN A SP, P/SHIP & CO
(4) Mode of taking legal proceedings
SP PARTNERSHIP COMPANY
• any legal • any legal • may sue &
proceedings proceedings be sued in its
are brought are brought own name.
or defended or defended
in the name in the name
of members of members
of the firm,
of the firm,
not in the
not in the
firm’s name.
firm’s name.
(except LLP)
DIFFERENCES BETWEEN A SP, P/SHIP & CO
(5) Duration & Dissolution
SP PARTNERSHIP COMPANY
• minimum of • may b dissolved • may not be
fuss by agreement dissolved except
among partners in accd with due
process of laws
as set out in the
Act, may live on
regardless even
without a
business,
without
directors,
without
members.
Company
• A company is a type of corporation –section 4 of
Companies Act
• The term ‘corporation’ is wider than ‘company’ as
it includes foreign companies & various other
corporate bodies.
• A corporation is a legal person created &
recognised by law.
• Being a body corporate/corporation it is an artificial
legal entity that has this attribute of a separate legal
personality.
SOURCES OF COMPANY LAW IN
MALAYSIA
Prior –
Companies Act New
1965 and the amendment:
Companies The Act is modeled Companies Act
regulations 1966 on the English
form the core in 2016
Companies Act
the regulation of
companies in
1948 and the
Malaysia. Australian Uniform
Companies Act
1961
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Only applied, if there
no conflict with the
provision of the Act or
Msian ct also give due
any other written law.
regard to Australian co
From English common law cases – as the Act
law principles by is modeled upon the
virtue of Civil Law Act Australian Uniform Co
1956. Act 1961
COMMON LAW
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SP - Advantages
• Lack of formality –unlike the others which are
governed by specific legislation like Companies
Act or Partnership Act
• But the sole proprietor still has to register his
business with Companies Commission of Malaysia
under the Registration of Business Act 1956.
• Registration can be done via electronic filing
• Upon registration, certificate of registration will
be issued
• Registration – to prevent fraud
SP - Advantages
• Is spared from having to maintain accounts for
auditing purposes-minimum rules to observe
• Free from any requirement to consult
partners/boards
• Retains the right to make decisions concerning
the business
• He can hire & fire; raise funds/loans ; enter into
contracts (in his own name); sue or be sued (as
an individual) and own property
SP - Disadvantages
• Have to bear all responsibilities under the law
which does not view the SP as a legal entity
separate from the owner of the business.
• Will be held responsible to an unlimited extent for
all the debts & obligations of the business
• Any losses incurred must be borne by him alone
(even to the extent of personal bankruptcy) as the
law does not draw any distinction between the
assets of the business and his personal property
SP - Disadvantage
• Limited access to the capital –get his own
funds or rely on his credit worthiness to
secure loans
• Ceases to exist upon the bankruptcy or death
of the owner
Disadvantage of PS
• A PS will still bound by the acts of a partner when
those dealing with the firm do not have notice of
any agreement restricting the power of one or
more partners to bind the firm.
• Partners are liable jointly for the debts &
obligations that the firm incurred
• PS is not a separate entity , partners would be
liable for the wrongful acts committed by any
partner(s) done in the ordinary course of business.
LLP - Advantages
• By virtue of its separate legal personality, the
LLP can sue, be sued & own property in its
own name.
• Its liable for its own debts & the partners can
not be made liable for such debts.
• A minimum of 2 partners but no upper limit
on the total number of partners in a LLP.
LLP- Advantages
• A partner is an agent of the LPP not his co
partners.
• His co-partners are not liable for the wrongs
committed by him . If a wrong is committed by
a partner of the LLP, he together with the LLP
are liable, his co partners are not liable
• The liability of the partners of an LLP is limited
LLP - Advantages
• The obligations of the LLP whether arising from
contract or otherwise are solely that of the LLP
• LLP’s liabilities are solely borne out of the LLP’s
assets. The partners will not be personally liable.
• An LLP is required to keep proper accounting
records for at least 7 years.
• It must prepare true & fair financial statements
but such statements need not be audited or
lodged with Registrar of LLP
