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BAEB501 : ENTREPRENEURSHIPCHAPTER 4:Form of Business Entities
© 2010 Cosmopoint
Slide 2 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
Topic Outlines
4.1 Business Organization in Malaysia 4.2 Sole Proprietorship4.3 Advantages of Sole Proprietorship4.4 Disadvantages of Sole Proprietorship 4.5 Partnership4.6 Advantages of Partnership4.7 Disadvantages of Partnership 4.8 Corporation4.9 Advantages of Corporation4.10 Disadvantages of Corporation
© 2010 Cosmopoint
Slide 3 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
Learning Outcomes
After completing this chapter, student should be able to: Explain the main types of legal structure a business may operate
under Discuss the pros and cons of each type of legal structure Describe the various forms of intellectual property
Topics© 2010 Cosmopoint
Slide 4 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.1 Business Organization in Malaysia
Topics
Business in Malaysia can be registered under any of the following. Business Registration Act 1956 (Amendment 1978) and
Procedures of Business Registration 1957: There are two types of business that can be performed under this
Act:
Sole Proprietorship Partnership
Slide 5 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.1 Business Organization in Malaysia
Topics
Company Act 1965 There are 3 types of companies that can
be formed under this Act: Limited Company by Gurantee Limited Companny by Share
Private Limited Company (Sendirian Berhad)
Public Limited Company Foreign Owned Company
Unlimited Company Cooperative Act 1948 Parliamentary Act or State (Government)
Enactment
Slide 6 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.2 Sole Proprietorship
Topics
Solely owned by one person, where management rests on that person whose liability is unlimited.
The simplest business structure
Does not mean that the sole proprietorship has to be small.
May grow to any level in sales revenue
E.g: tailor shops, salons, restaurants.
Slide 7 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.3 Advantages of Sole Proprietorship
Topics
Simple to create
Least costly form of ownership to establish
Profit incentive
Total decision – making authority
No special legal restrictions
Easy to discontinue
Slide 8 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.4 Disadvantages of Sole Proprietorship
Topics
Unlimited personal liability
Limited access to capital
Limited skills and abilities
Feelings of isolation
Lack of continuity for the business
Slide 9 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.5 Partnership
Topics
A partnership is a legal business entity that carried out by more than one person but not exceeding 20 person.
However, in professional businesses, such as legal firms, architect and accounting firms, the members could number up to 50 person.
Partners carry out the business, share the capital, profits and losses.
Every partner is considered the company’s representative and acts on behalf of the company.
Slide 10 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.6 Advantages of Partnership
Topics
Easy to establish
Complementary skills
Division of profits
Larger pool of capital
Ability to attract limited partners
Little government regulation
Flexibility
Income tax is not imposed on the partnership itself but on the owners as individuals.
Slide 11 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.7 Disadvantages of Partnership
Topics
Unlimited liability of at least one partner
Capital accumulation
Difficulty in disposing of partnership interest without dissolving the partnership
Potential for personality and authority conflicts.
Partners should understand the law and regulation
Slide 12 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.8 Corporation
Obviously many corporations are big
Not only limits the liability of owners, it enables many people to share in the ownership (and profits) of a business without working there or having other commitments to it.
Corporate character
Establishment of years
Stockholders & Board of director
Topics
Slide 13 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.9 Advantages of Corporation
Limited liability of stockholders
Ability to attract capital
Ability to continue indefinitely
Transferable ownership
Topics
Slide 14 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
4.10 Disadvantages of Corporation
Cost and time involved in the corporation process
Double taxation
Potential for diminished managerial incentives
Legal requirements and regulatory
Potential loss of control by the founders.
Topics
Slide 15 of [11]
Chapter 4: Form of Business Entities
© 2010 Cosmopoint
Activity
Task: Select any three companies in any industry. Identify the advantages and disadvantages for 3 form of business entities.