2.2.1 BUSINESS OWNERSHIP (1)

Types of Business Ownership in Malaysia

Overview

  • Various forms of business ownership exist in Malaysia to suit different entrepreneurial needs.

1. Sole Proprietorships

  • Definition: Simplest business structure, owned and operated by one individual.

  • Legal Framework: Regulated by the Business Act 1956 (Amendment 1978) and Procedures of Business Registration 1957.

  • Characteristics:

    • Owned by a single individual.

    • Can employ a large workforce despite being individually owned.

  • Popularity: Most common form of business ownership (72.2% of all businesses).

  • Examples: Tailors, beauty salons, restaurants, mini markets.

Advantages and Disadvantages of Sole Proprietorships

Advantages:

  • Ease of formation.

  • Total independence in decision-making.

  • Full control of business operations and profits.

  • No need for authorization or disclosure of financial reports.

  • Tax advantages.

Disadvantages:

  • Unlimited liability for debts.

  • Lack of continuity if the owner dies or withdraws.

  • Difficulty in raising capital.

  • Long working hours and complete responsibility for business losses.

2. Partnerships

  • Definition: Owned by at least two individuals and a maximum of 20 partners.

  • Legal Framework: Governed by the Business Act 1956 (Amendment 1978) and Procedures of Business Registration 1957.

  • Eligibility: Only Malaysian citizens or permanent residents can register a partnership.

  • Types of Partnerships:

    • General Partnership: All partners manage the business and share profits and losses. Unlimited liability.

    • Limited Partnership: Limited partners share profits but do not manage the business actively.

  • Recommendation: Prepare an agreement on the articles of partnership.

  • Example: Klinik Dr. Zaini and Dr. Nadia.

Advantages and Disadvantages of Partnerships

Advantages:

  • Increased capital and resource sharing.

  • Distribution and sharing of business risks.

  • Combined expertise from partners.

  • Ease of formation compared to corporations.

Disadvantages:

  • Unlimited liability for all partners.

  • Lack of continuity in case of partner exit or death.

  • Potential for conflict among partners.

3. Corporations

  • Definition: A separate legal entity where ownership is through stockholders or shareholders.

  • Governance: Managed by a Board of Directors.

  • Types of Corporations:

    • Private Limited Company: Limited to 2-50 owners; indicates a restricted transfer of shares.

    • Public Limited Company: Unlimited number of shareholders; shares can be sold publicly.

Private Limited Company

  • Owned by at least two and not more than fifty people.

  • Characteristics:

    • Separate legal identity; owners have limited liability.

    • Name often ends with 'Sendirian Berhad' or 'Private Limited' (Sdn. Bhd. or Pvt. Ltd).

Public Limited Company

  • Owned by minimum of 7 and no upper limit of shareholders.

  • Characteristics:

    • Shares available to the public, either listed or unlisted on the stock exchange.

    • Name ends with 'Berhad' or 'Limited' (Bhd. or Ltd).

Advantages and Disadvantages of Corporations

Advantages:

  • Limited liability for owners, protecting personal assets.

  • Perpetual existence regardless of member changes.

  • Easier access to capital through share issuance.

Disadvantages:

  • Higher costs and complexity in formation.

  • Extensive regulations and continuing obligations.

  • Potential double taxation on profits.

Registration Procedures for Business Ownership

  • Types of Business:

    • Sole Proprietorship: Owned by a single individual, registered under their name.

    • Partnership: Owned by 2-20 persons, cannot use personal identity card name as business name.

Steps to Register a Business

  1. Complete the Business Registration Form (Form A) within 30 days of starting a business.

  2. Registration can be done via SSM counters or online through Ezbiz Online services.

  3. Choose a business name: personal name or trade name.

  4. Approval for trade names as per Rules of Business Registration 1957.

  5. Registration validity period: 1 to 5 years.

Fees for Registration

  • For Trade Name: RM60 per year.

  • For Personal Name: RM30 per year.

  • For Branch: RM5 per year for each branch.

Validity Certificate of Registration

  • Issued under the Registration of Businesses Act 1956.