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Introduction to Business
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Olympia College
In additions, a business trader has to concern few exterior factors that influence the business: 1. Economy status: unemployment rates, income rates and natural resources of the area 2. Government policies: relevant government taxation, policies and subsidy for the business 3. Consumer taste: latest trend directions, consumer desires and demand of the products
Introduction to Business
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Olympia College
Introduction to Business
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Olympia College
Introduction to Business
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Olympia College
Disadvantages of sole proprietorship: 1. Large-scaled of liabilities: The sole proprietor takes care of all the important decision on business. The sole trader has to bear with the risks of the business alone and take the responsibility of all the decision made. 2. Income Taxation: The complete amount of profit earned will fully added into the owner individual income tax. The sum of money to hand over for income taxation will be larger as it cannot distribute to other shared-owners. 3. Lack of specialist and professional: The sole proprietor has to deal with all specialskilled requirements in the business such as the sole proprietor has to manage financial, accounting and marketing decision by himself 4. Business depends on the owner: if the owner is not available, sick or away from the business. No one else can make a decision for the business. The business will collapse if the owner passed away and does not make a will for anyone to inherit the business. 5. Limited capital and resources: Sole proprietor has limited capital and resources to run the business. All the resources and money depends on the owner himself. If the owner has limited capital or resources, he cannot extent the business to larger scale. 6. Debts and Assets rely on sole trader: When the owner does not have enough capitals, he needs to get creditors to invest in his business. The sole proprietor has to mortgage his own assets to apply loans for the business. If the owner cannot payback the debts, the creditors might take over the assets mortgaged and even the business itself.
Introduction to Business
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Olympia College
1.5 Partnership
Definition of Partnership: A business owned by two and more people which do not exceed the amount fixed by the government. Although the formation of a partnership business is not as easy as sole proprietorship, it still considers easy to setup and registered to get a legal license. In order to start a partnership business, involved parties have to prepare and signed an agreement which bounded by partnership law. This agreement is signed to secure involved parties benefits and stated the obligations of each involved parties. The agreement stated the total amount of sum invested by each partner, duties of each partner (whether each partner assigned with certain obligations), clause when any partner want to withdraw from the partnership and profits and dividend distribution for each partners. The partnership in Malaysia is bounded by the partnership law, Partnership Act 1961(Revised 1974). Generally, partnership is common for specialist, professional business, such as lawyer firms, accountant firms, clinics, architecture firms and etc.
Introduction to Business
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Olympia College
Generally, there are three types of partnership: 1. General Partnership: All the partners get involved in the decision making and share the responsibilities of the business operations. 2. Limited Partnership: Some partners have the responsible to run the business while the other partners have no full rights and liabilities in the business operations. It commonly formed when sole proprietor expend the business and get partners to raise capital. The one who contribute or invest more money in the business have priority in decision making while the other invest lesser sum have lesser liabilities on the business. 3. Limited liabilities Partnership: This kind of partnership often formed by the professionals, specialist expert such as lawyers, accountants, architects, engineers and etc. Although they registered under the same license and agreed with the partnership. Each partner has independence business operation. They are similar with the sole proprietor; they enjoy the profits of their own business operation. They also not responsible for other partners negligence
Advantages of partnership: 1. Easy to startup: Although partnership is not as simple as sole proprietorship, it is still easy to setup. The partners just have to sign a partnership 2. Few government policies imposed: similar with sole proprietorship, partnership has less government business regulation imposed. 3. Diversity: The partners may provide variety of business ideas and these ideas help to operate the business better. 4. Professional consultancy: The partners can afford to hire specialist in relevant sectors of the business.
Introduction to Business
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Olympia College
5. Larger capital: Partnership may have greater capital to run the business as to compare with sole proprietorship. 6. Income Taxation: The income taxation imposed individually and profits/dividend distribute to each partners. Therefore, the partner pays lesser income taxation as to compare with sole proprietorship. 7. Absence one of the owners: The business is not fully depends on sole owner. When one of the partners is not available, the other partners can still operate the business. Disadvantages of Partnership: 1. Unexpected liabilities: Partnership differ from sole proprietorship, one has to bear the consequences of the other partners negligence, wrong decision and mistakes. If the other partners actions causing a great loss, the rest of the partners also have to share the loss (expect for limited liabilities partnership). 2. Shared control of the business: One does not have the full control of the business. Every business decision made with the agreement of the other partners. However, different people might have different ideas. Therefore, partnership sometimes is difficult to avoid argument and conflict between each partner. 3. Shared profits: Sole proprietor may enjoy the complete amount of profits while the partnership has to share the profits. The profits distribute to each member according the sum invested in the business. 4. Dissolves of partnership: If one of the partners withdraw or pass away might terminate the partnership unless they made an agreement with a clause to resolves this issue before they started the business.
Introduction to Business
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Olympia College
1.6 Corporation
Definition of Corporation: A corporation is a legal entity which separate from all its members. In other word, a corporation like a person by itself while all the other members even the original owner is completely separated from it. A corporation can be owned by shareholders, creditors and investors. Normally, a corporation formed by medium company who decide to raise capital and extent the The company offering the new common stocks to the public though the financial market, Initial public offering (IPO) market. After the first offering in IPO, the corporation is established. Then, the corporation can deal with investors to trade stocks, bonds and other financial instruments through capital market. The common stockholders have the right to vote for the board of management to operate the business. The power of ownership admeasure according to the total rates owned by each stockholder. Generally, the owner started the business will have primary shares of the corporation which ensure his priority benefit in the business. The dividend will distribute to the stockholders according to the percentage of stock owned. In Malaysia, the formation of corporation is governed by the company law, Companies Act 1965. The Companies Act 1965 states that the corporation may sue and be sued in its own name; it may own land and the liabilities of its members may be limited. The corporation must enter an agreement with the Kuala Lumpur Stock Exchange (KLSE) to list their stocks on the Listing Agreement. The Corporation must registered under the following bodies: Companies Commission of Malaysia (CCM), Kuala Lumpur Stock Exchange (KLSE), Securities Commission (SC) and Pengurusan Danaharta Nasional Berhad.
Introduction to Business
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Olympia College
Advantages of Corporation: 1. Limited liabilities: The liabilities of each stockholder are limited. When the corporation facing a loss, stockholders do not bear the full loss. Besides, when the corporation bankrupt, stockholders personal assets will not affected. 2. Large capital: The corporation usually has largest capital compare with sole proprietor and partnership. The corporation can always raise capital by offering shares to investors 3. Rich of professional: As the corporation has large-scale of capital, it can afford to hire many specialists. 4. Permanent operation: The corporation will continue even one of the stockholders passed away or withdrawn. 5. Easy to transfer: The stocks of the corporation are transferable. Disadvantages of Corporation: 1. Conflicts: It is difficult to meet all the desires of both board of management and stockholders. Usually, the board of management may concentrate on enlarge the business scale while the stockholders concerns only on the profits gain. 2. Difficult to setup: In order to setup a corporation, it has to go through a lots of procedures and takes a very long time to get a license. 3. Lots of government policies imposed: Due to the size of the business, which is large and may influence the countrys economy. There are many regulations imposed to the corporation and causing lots of limitation to the business operation 4. Extra Taxation: The corporation is imposed with taxation by both state government and federal government. In other words, the corporation has to pay twice for the taxation.
Introduction to Business
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Olympia College
1.7 Conclusion
Before one getting starts with his business, he has to decide whether he want to form the business in sole ownership, partnership or run the business with corporation. It is impossible that one form of ownership can have all the advantages and without disadvantages. Therefore, there are few issues that might influence the one to choose what kind of ownership he wants for his business: 1. Control of the business: The owner has to figure out whether he willing to share the control power with other or he prefer complete control on the business operations.
2. Profits of the business: It is also important to understand whether the owner wants to have all the income alone or he willing to share profit earns from the business to the other.
3. Capital of the business: If the capital and resources available to the entrepreneur is not enough to startup the business. The entrepreneur has no choice but get a partner to raise capital to start the business.
4. Specialist of the business: The needs of professional and specialist in specify performance of the business also one of the factors that influence form of ownership of a business.
5. Scale of the business: The scale of the business desired also influenced the decision of ownership formation. The larger number of owners leads to larger amount of capital. As a result, the business also can expend to a larger scale.
Introduction to Business
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Olympia College
Introduction to Business
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Olympia College
Introduction to Business
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Olympia College
Introduction to Business
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Olympia College
Introduction to Business
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Suggestion: Get Business owner policy (BOP), a kind of business insurance for small business owner. Explanation: Business owner policy is an insurance policy which designed for small business trader. This policy consists of: 1. Property insurance: recover business property losses such as equipment breakdown 2. Fire insurance: recover business losses which caused by fire in the shop 3. Premise liability insurance: recover injuries and damage of owner in business environment 3. Problem: Lack of skilled employees Suggestion: As Mrs. Lam had more than 25 years of experience in hairdressing field and qualified with SKM1-3 which approved by government, she can transform her business into hair studio academy. Explanation: A hair studio academy is form of hairdressing business which function like general hair salon while it is legally to takes apprentices who wants to learn hairdressing and charged each apprentices with a tuition fee. As a result, Mrs. Lam can get free apprentices who even have to pay her for teach them in hairdressing skills. In the other hand, Mrs. Lam can use the tuition fee collected from apprentice to hire more senior hairstylists.
Introduction to Business
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Olympia College
2.5 Conclusion
Sole proprietor is still considers the best choice to form a business. It is more flexible compare with partnership. Although it has smaller capital and business size, it often easier to survive no matter how the economy condition had changed. Sole proprietorship also can avoid unnecessary arguments as to compare with partnership. This is very important because sometimes if partners could not solve the disputes, it might leads to termination of partnership. Furthermore, there are few minor negatives of a sole proprietorship that can be easily resolved. In Malaysia, a developing country, in order to increase economy growth, the government encourage business trader by providing subsidy to many small business trader while bankers provide services and loans which able to settle sole proprietors financial difficulties. In conclusion, a sole proprietor is an easiest, simplest and cheapest form of ownership. It is more flexible and suit most of the businesses whether it is restaurant, cinema, salon, firms and etc.
Introduction to Business
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