Chapter 4

Business Management: A Malaysian Perspective All Rights Reserved
Oxford University Press Malaysia, 2008 4 1

CHAPTER FOUR
Different Forms
of Business Ownership
BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Oxford Fajar Sdn. Bhd. (008974-T), 2012 4 2
LEARNING OUTCOMES
In this chapter, you will learn to:

Discuss the legal aspects involved in registering a
business in Malaysia.
Explain the advantages and disadvantages of three
major forms of business ownership: sole proprietorship,
partnership and corporation.
Describe the advantages and disadvantages of setting
up a franchise business.
Discuss the setting up of joint ventures.

REGISTERING A BUSINESS IN
MALAYSIA
A business can be any form of trade, commerce,

craftsmanship, occupation, profession or other activities
that is carried out for the purpose of maximizing profit.
Before deciding to start a business it should be
registered according to the choice of business, and
necessary licences and permits need to be obtained.
Any business would need to be registered with the
Companies Commission of Malaysia (SSM) under the
Companies Act 1965 and the Registration of
Businesses Act 1956.

DIFFERENT FORMS OF BUSINESS
Three most common forms of setting up a

business:
Sole proprietorship/sole trader
Partnership
Corporation

SOLE PROPRIETORSHIP
Sole proprietorship is considered to be the

simplest form of business organization.
Does not need to be operated by one person
solelycan have large numbers of employees.
Represents the largest number of businesses in
most countries and typically the smallest in size.

ADVANTAGES OF A SOLE
PROPRIETORSHIP
Total independence in making decisions

Sole ownership of profits
Only pay personal income tax and not business
tax
Cheap set-up cost

DISADVANTAGES OF A SOLE
PROPRIETORSHIP
Entirely responsible for debts and risk

Unlimited personal liability
Limited access of capital
Limited skills and capabilities
Feeling of isolation
Short life of business

PARTNERSHIP
Business owned by two or more persons in a common

view of sharing the profits and losses of the business.
Partners are joint owners of the business and therefore
will share the profits and risks.
The law does not require a partnership agreement but it
would be wise to develop one that spells out the exact
status and responsibility of each partner.
In the absence of a formal partnership agreement, the
provision of Partnership Act 1961 shall be applied.

CONTENTS OF A PARTNERSHIP
AGREEMENT
Name of the partnership

Purpose of the business
Location of the principal business
Duration of the partnership
Names of the partners and their address(es)
The capital to be contributed by each partner
The ratio in which profits/losses are to be shared

CONTENTS OF A PARTNERSHIP
AGREEMENT (cont.)
The rate of interest, if any, to be paid on capital before

the profits are shared.
The rate of interest, if any, charged on partnership
drawings.
Salaries to be paid to partners.
Arrangements for admission of new partner(s).
The procedures to be carried out when a partner
retires or dies.

TYPES OF PARTNERSHIP
There are two types of partners:

GENERAL PARTNER
One partner must be a general partnerresponsible
for the debts of the enterprise and has unlimited
liabilities.
Takes an active role in managing the business.

TYPES OF PARTNERSHIP
(cont.)
LIMITED PARTNER
Not liable for the partnership debts.
Personal properties will not be affected to cover the
partnership unpaid liabilitieslimited to the capital they
have put in.
Can lose the capital but they are not required to pay
partnership debts.
Not allowed to take part in the management of the
partnership.
ADVANTAGES OF PARTNERSHIP
Easy and cheap set-up cost

Able to raise more capital
Tax advantage

DISADVANTAGES OF
PARTNERSHIP
At least one partner has unlimited liability

Lack of continuity
Difficulty in raising large sum of capital
Bound by the act of one partner

CORPORATION
Considered the most complex form of business in

comparison to sole proprietorship and partnership.
It is an artificial legal entitya legal entity separate
from its constituent members.
It is formed by several persons who are able to own
property, draw contracts and employ people.
All companies in Malaysia are governed by the
Companies Act 1965.

TYPES OF CORPORATIONS
Three different types of corporations under the

Corporation Act 1965:
Corporation limited by shares
-A private limited
- A public limited
Corporation limited by guarantee
Unlimited corporation
CHARACTERISTICS OF A
CORPORATION
The company has separate rights and responsibilities whereby

it is independent from its members and shareholders.
The members liabilities are limited to the amount of shares
subscribed shareholders are not liable if the corporation were
to incur bankruptcy.
The companys operation is governed by the Companies
Commission.
There are various taxes that must be paid by a company that is
corporate profits and individual salaries and dividends.
Companies must publish financial reports checked by
authorized auditors.
ADVANTAGES OF A
CORPORATION
Limited liability
Easy to raise capital through sale of shares
Able to transfer ownership
Relative permanence of existence
Able to delegate authority

DISADVANTAGES OF A
CORPORATION
Activities limited by law

Costly incorporation process
Double taxation
Loss of control by the founder
Extensive governmental regulations and reports
required

FRANCHISING
An alternative way of starting a business from scratch.

A system where companies (franchisee) are granted the
right to operate a business according to a special contract
with a parent organization (franchiser).
Need to pay certain amount of fees and royalties to the
parent company.
The Malaysian franchise system is incorporated under the
Franchise Act 1998.
To operate a franchise business, one has to be registered
with the Registrar of Franchise, Ministry of
Entrepreneurial and Cooperative Development.
TYPE OF FRANCHISING
1) Product Distribution franchise

* The franchiser licensing to the franchisee to
selling specified product under franchisers
brand name. eg:pepsi,petronas,toyota
2) Trade name franchise
*involves brand name.
eg: General motor established to sell GM cars
and use GM trademark in advertising and
promotion.
TYPE OF FRANCHISING
3) Business format franchise

*Most popular used
*Franchiser provide the formula for business
to the franchisee include training , advertising
etc
eg: fast food outlet (Nandos,Pizza Hut)
convenience store (7-eleven, Watson)

ADVANTAGES OF FRANCHISING
Provide training and support

Possess brand name appeal
Standardized quality of goods and services
Possess proven track record
Financial assistance

DISADVANTAGES OF
FRANCHISING
Initial high cost

Stifles creativity
Lack of franchise commitment

JOINT VENTURE
A joint venture (JV) is similar to a partnership but it is

limited for a period of time or a single project.
It is an entity formed between two or more parties to
undertake economic activity togetherseen as a very
viable business alternative, companies can complement
their skills in achieving the business objective.
Both parties would agree to create a new entity by
contributing in terms of equity and the revenues, expenses
and control of the enterprise would be shared.
JV is considered to be a good way for companies to
partner without having to merge.
BENEFITS OF JOINT VENTURES
Partners save money and reduce their risks through

capital and resource sharing.
Joint ventures also give smaller companies the chance
to work with larger ones to develop, manufacture, and
market new products.
Provides companies of all sizes the opportunity to
increase sales, gain access to wider markets, and
enhance technological capabilities through R&D
underwritten by more than one party.


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Business Management: A Malaysian Perspective All Rights Reserved

Oxford University Press Malaysia, 2008 4 1

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

In this chapter, you will learn to:

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

A business can be any form of trade, commerce,

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Three most common forms of setting up a

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Sole proprietorship is considered to be the

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Total independence in making decisions

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Entirely responsible for debts and risk

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Business owned by two or more persons in a common

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Name of the partnership

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

The rate of interest, if any, to be paid on capital before

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

There are two types of partners:

Takes an active role in managing the business.

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Easy and cheap set-up cost

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

At least one partner has unlimited liability

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Considered the most complex form of business in

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Three different types of corporations under the

The company has separate rights and responsibilities whereby

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Activities limited by law

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

An alternative way of starting a business from scratch.

1) Product Distribution franchise

3) Business format franchise

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Provide training and support

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Initial high cost

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

A joint venture (JV) is similar to a partnership but it is

Partners save money and reduce their risks through

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

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