Business Law

Corporate and Partnership Law

Types of Business Organization

Introduction: In Malaysia, business activities are mostly conducted by sole traders, partnerships companies and trading trusts. Each of these business entities are subject to specific legal rules governing its organization. Many of these rules are simply derived from common law or from equity.

Corporate and Partnership Law

Types of business organization in Malaysia

Types of Business Organization: The following are types of business that operate in Malaysia: 1)Partnership 2) Sole Proprietorship c) Company Private & Public Company

Corporate and Partnership Law

What is a Partnership:
A partnership is defined in Section 3 (1) of the Partnership Act 1961 as

the relation which subsist between 2> persons carrying a business in common with a view of profit.
The definition provides three essential ingredients for partnership to exists, namely : 1. Existence of Business 2. carried on in common between the partners and 3. with a view of profit
Corporate and Partnership Law

 In the recent case of Chooi Siew Cheong v Lucky Height Development Sdn Bhd [1995] 1 MLJ 513, the Federal Court held that there was no partnership resulting from a joint venture agreement between landowner and a housing developer because each party to the agreement intended wholly separate business, there was no business in common with a view of profit.

Corporate and Partnership Law

 Cox v Coulson [1916] 2 KB 177 (English Court of Appeal ) The Court of Appeal held that sharing of gross returns did not create such a partnership. Partnership therefore are about business carried on by persons who intend to share in the net profits of that business.

Corporate and Partnership Law

Type Of Business
Partnership Advantages & Disadvantages

Advantages:

Easy to set up and operate @less formalities. Ideas, talents and skills can be pooled together from partners for better management. Equity can be increased from existing partners. Income tax is not imposed on the partnership business but instead on the individual partners.

Corporate and Partnership Law

 Disadvantages Business liabilities are unlimited. Personal assets can be seized by court order since no distinction between personal & business assets. The life span of the partnership business depends on the life spans of the business. If partner declared bankrupt, dies or become insane business has to be dissolved. Difference of opinion and conflict may lead to breakup of the partnership.
Corporate and Partnership Law

SOLE PROPRIETORSHIP
2) Sole Proprietorship Formed under the Business Act 1956, Registered with CCM ,Form A is for Registration This type of business is owned by an individual or sole person and has simple business structure. Some sole trader can operate as big business, e.g. Family run business. Example of Sole trader tailor, Beauty Saloon, restaurants, launderettes, mini market etc.

Corporate and Partnership Law

 Advantages
Easy to manage the business and all decision made by the owner- manager. Low start up capital, no heavy investment and flexibility in operation. Easy to form and dissolve with minimum formalities. Nobody shares the rewards of the business, all profit will go to the owner.
Corporate and Partnership Law

 Disadvantages Limited source of capital, lack of capital to expand the business further. The liability is unlimited Failing which all assets will be ceased by court order to be sold, and cash generated will used to pay all outstanding creditors.

Corporate and Partnership Law

COMPANY
3) Company
In Malaysia parent legislation in regards to companies is Company Act 1965 According to Company Act 1965, The types of company that can be form by an investor or prospector is as follows: Company Limited by Guarantee Company Limited by Share Company limited by both by Share and Guarantee. An unlimited company.

Corporate and Partnership Law

 Once a company is incorporated/ Registered it enjoys the benefits such as: Perpetual succession A Company may Own Property Separate Legal Entity ( Salamon v Salamon 1897) Section 16 (5) of CA 1965 A Company may be sue and sued A Company can act through its Agent.

Corporate and Partnership Law