Business Structure: Sole Proprietorship & Partnership

Vocabulary flashcards summarising key terms, statutes, partner types, duties, advantages/disadvantages, and dissolution rules for sole proprietorships and partnerships in Malaysia.

Sole Proprietorship

A one-person business in which the owner provides capital, manages operations, enjoys all profits, and bears unlimited personal liability.

Partnership

Relationship between two or more persons carrying on business in common with a view of profit (s.3(1) Partnership Act 1961); not a separate legal entity.

Unlimited Liability

Owner(s) are personally responsible for all business debts; creditors can claim personal assets.

Registration of Businesses Act 1956 (ROBA 1956)

Malaysian statute requiring businesses to register with the Registrar/SSM within 30 days of commencing operations.

Companies Commission of Malaysia (SSM)

Statutory body (formed 2002) that regulates companies and businesses after merging ROC and ROB.

Registrar of Companies (ROC)

Former body merged into SSM; previously regulated companies.

Registrar of Businesses (ROB)

Former body merged into SSM; previously regulated sole proprietorships and partnerships.

Factors in Choosing a Business Structure

Procedure, liability, continuity, transferability, and taxation considerations used to select an entity type.

Continuity of Business

Ability of a business to continue after an owner’s death; absent in sole proprietorships, limited in ordinary partnerships.

Transferability

Ease with which ownership interests can be transferred; restricted in partnerships without unanimous consent.

Active (General) Partner

Partner who participates in management and has unlimited liability.

Sleeping (Dormant) Partner

Partner who invests capital but does not take part in management; still bears unlimited liability.

Salaried Partner

Partner receiving fixed remuneration regardless of profit share; still treated as a partner in law.

Apparent (Quasi) Partner

Person held liable as partner due to ‘holding out’—representation that he is a partner (e.g., Bevan v National Bank).

Holding Out

Situation where a person represents or allows himself to be represented as a partner, creating liability to third parties.

Section 4 PA 1961

Lists relationships that resemble profit-sharing but are not partnerships (e.g., joint tenancy, lender receiving installments).

Fiduciary Duty of Partners

Obligation of honesty, full disclosure, avoidance of conflicts, and no unauthorized personal profit among partners (s.21 PA).

Law of Agency in Partnerships

Each partner is both principal and agent of the firm; acts of one bind all partners to outsiders.

Merbok MDF v Shuhaiza Shuib

Case confirming that misappropriation by one partner makes other partners civilly liable to clients.

Section 34 PA 1961

Automatic dissolution of partnership by expiry of fixed term, completion of a single venture, or notice in partnerships of undefined duration.

Section 35 PA 1961

Dissolution triggered by death or bankruptcy of any partner, subject to agreement.

Section 36 PA 1961

Dissolution when it becomes illegal for the firm to carry on its business.

Section 37 PA 1961

Court-ordered dissolution on grounds such as lunacy, permanent incapacity, misconduct, persistent breach, continual loss, or just and equitable reasons.

Pathirana v A. Pathirana

Illustrates breach of fiduciary duty where a partner used the firm’s Caltex agency for personal benefit.

Stekel v Ellice

Established that receiving a salary alone does not prove partnership; salaried partner may lack profit share.

Chooi Siew Cheong v Lucky Height Development

Held that a land-owner/developer joint venture lacked ‘business in common’; no partnership existed.

Soh Hood Beng v Khoo Chye Neo

Loan association case; court held activity was not ‘carrying on a business’, thus not a partnership.

Limited Liability Partnership (LLP)

Hybrid entity providing partners limited liability while allowing partnership-style flexibility; mentioned as an alternative structure.

Procedure to Retire from Partnership

Retiring partner must secure agreement releasing existing liabilities and give actual or public notice to avoid future liabilities.

Pooling of Capital

Advantage of partnerships where partners combine funds and expertise, enhancing business capacity.

Dilution of Management Control

Disadvantage in partnerships where adding partners reduces individual decision-making authority.

Minimal Capital Requirement

Advantage of sole proprietorship: can start with small funds and few formalities.

No Public Disclosure of Accounts

Privacy benefit for sole proprietorships and partnerships, unlike companies that must file audited statements.

ezbiz.ssm.com.my

Online portal for Malaysian citizens/permanent residents (18+) to register sole proprietorships or partnerships with SSM.