Business Entities in Malaysia - Doc

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Title of the Paper: Identify and discuss the features of business entities in Malaysia,
explained the concept of separate legal entity and evaluate the application of section 181 (1)
of the Companies Act, 1965.
Student Name:
Institute:

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Contents
Introduction................................................................................................................ 2
Sole proprietorship.................................................................................................. 2
Partnership.............................................................................................................. 3
General partnership............................................................................................. 4
Limited partnership.............................................................................................. 4
Company.................................................................................................................... 5
Company limited by shares..................................................................................... 5
Sendirian Berhad.................................................................................................. 6
Berhad................................................................................................................. 6
Companies limited by guarantee............................................................................6
Unlimited companies............................................................................................... 7
The concept of separate legal entity..........................................................................7
Section 181(1) Companies Act, 1965.........................................................................8
Conclusion.................................................................................................................. 8

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Introduction:
A business entity can be described as a voluntary organization that has been formed and
organized for the purpose of carrying on the trading of goods or services to the consumers for a
profitable or altruistic purpose. This is decided by the business plan of the entity as the result of
its operations and its major activity. Nearly all business entities are owned privately and are
controlled by an individual or comprise a few persons. In case of Malaysia, generally the
common types of business entities are sole proprietorship, partnership and private limited
companies. There is a difference in all these types of business entities regarding the level of
control that is exercised by the ultimate owner of the business on the business. However in all
these types of business entities, the private transactions of the owners are not mixed up with the
transaction and the business accounts.
Sole proprietorship:
As is the case with several other countries, in case of sole proprietorship, one individual solely
owns the business. In case of Malaysia, only the citizens of Malaysia or the permanent residents
of the country can register as the owners of sole proprietorship. The law allows personal
name/trade name to be used as the name of the business. The applicant of the business name
should be filled in the associated entity, which is Registrar of Business (ROB) acting under the
Companies Commission of Malaysia (CCM) prior to the registration of business. In case of sole
proprietorship, the liability of the owner of the business is unlimited. Consequently, in case the
business fails or it has been declared bankrupt, the curators of the business have the option to sue
the owner of sole proprietorship regarding all the debts of the business. The effect of this

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situation is that the personal income and the personal assets of the owner of sole proprietorship
are also liable.
However, it is the easiest way to start a business. As compared to private limited companies,
only annual fee is payable by the sole proprietors to the Companies Commission of Malaysia for
the purpose of renewing the business from year to year. In case of a sole proprietorship, there is
no annual audit filing requirements. As mentioned above, the most significant danger present in
case of sole proprietorship is that of unlimited liability. This means that if the sole proprietorship
fails to fulfill its liabilities, the creditors have the option to recover from the personal assets of
the owner. In this way, the personal assets of the owner of a sole proprietorship do not have any
protection. The reason is that in case of a sole proprietorship, no distinction is made by the law
between the owner of the business and his personal assets. The profit made by the business in
case of sole proprietorship is treated as the business income of the individual.
Partnership:
A partnership can be described as a legal form of business in which there are two or more
owners. In this case, there should be a legal agreement between the partners which mentions the
way profit will be shared, decisions will be made, how the disputes will be resolved between the
partners, how the partners can be added to the business in future and so on. Although it is
difficult to break up a partnership when the business has just started but it has been seen that
many partnerships come to an end during a crisis (Aghion, Bolton and Tirole, 2000,). Therefore,
in the absence of a defined process, it could result in greater difficulties to dissolve the
partnership. Generally, the business structure of a partnership is used for the purpose of
establishing professional firms like auditors and lawyers. In case of a partnership, the liability of
all the partners is unlimited.