ADM 222 NOTE

BUSINESS ORGANIZATION

 Unincorporated organisation
Under unincorporated organization you have the sole traders, partnerships, societies
and trade unions.
 Incorporated organisation - An incorporated organisation is a company
Types of companies are public company, private company and statutory company.

FORM OF BUSINESS STRUCTURE IN MALAYSIA

BUSINESS FIRM REGISTERED COMPANY

Company limited by shares
 SOLE PRPPRIETORSHIP - Private (Sdn Bhd)
 PARTNERSHIP - Single member company
 LIMITED LIABILITY PARTNESHIP (LLP) -Exempt private company
- Public (Bhd)
SP AND PARTNERSHIP – REGISTERES WITH THE • Company limited by guarante
REGISTIRY OF BUSINESS (ROB ) UNDER - Public
Registration of Businesses Act 1956 • An unlimited company
- Public
*relationship between partners governed - Private
under Partnership Act 1961 • Incorporate with the Registrar of Companies
(ROC) under Companies Act 2016
LLP-Limited Liability Partnership Act 2012.

An Unincorporated Organisation

A. SOLE TRADER OR SOLE PROPRIETOR

 This is the simplest form of business to begin

 The business is owned and operated by one person
 He is regarded as a sole trader e.g. a contractor, a sundry shop owner, a food stall owner / a
hawker etc
 There is no separation between the business and his personal assets.
 As a sole trader, he is entirely responsible for the business.
 All the profits made belong to him exclusively but he also bears all the risk.
 He is the sole manager and makes all the decisions.
 Advantage, only minimal legal requirements for him to comply.
 He only requires a license to conduct his business.
 Who is eligible to registers a business as a sole proprietor?
 Only a Malaysian citizen or a permanent resident can register a business as a sole proprietor.

ADVANTAGE DISADVANTANGE

1. Easy to start 1. Unlimited liabilities

2. . Minimum capital is required. 2. Inadequate funds
3. All assets & profits belong to the 3. Limited skill or expertise.
owner. 4. Personally accountable for all business
4. Owner can exercise his decisions.
entrepreneurial skill to the full. 5. Responsible for all the work. No one to
5. Owner makes all decisions and share the workload.
operates the business the way he 6. No income if owner is incapacitated
wishes. e.g. sickness.
6. No need to disclose accounts to the 7. No continuity. Business ceases once
publiC owner dies.

B. PARTNERSHIP (Conventional Partnership)

Definition
 A partnership is an association of people carrying on business with a common
view to profit.
 Thus, s. 3 (1) of the Partnership Act 1961 defines partnership to mean a business
relation carried out between two persons or more with a common aim of
making profit.
 S 2 - ‘Business’ includes every trade, occupation or profession (and it involves
goods or services)

Advantages & Disadvantages of Partnership

Advantages Disadvantages
 It may be difficult to find suitable partners.
 Easy to form a partnership and commence Partners may not be able to work together.
business.  Not a separate legal entity – Boonchai
 Fewer formalities than to incorporate a Sompolpong v Chua Ka Seng (1962)
company with its many regulations  Unlimited liability to the point that private
 Capital - requires a low start-up cost to go into resources may have to be used to meet
business. partnership debts.
 Has a wider capital base compared to a sole  Capital may still be inadequate compared to a
proprietor company
 Ability to combining different skills, expertise  Limited to 20 persons for normal business
and resources of partners. A wider pool of partnership except Professional partnership
knowledge, skills and business contacts as where there is no limit on the number of
compare with a sole proprietorship. partners.
 Free to bring in more partners for additional  Partners are personally and jointly liable for all
investment capital debts of the firm even if caused by the actions
 Limited regulations by authorities of other partners.
 Each partner is taxed individually, meaning  Partners can legally bind each other without
 each partner includes business income on his approval
personal income tax return.

Incorporated organisations
COMPANIES
Basic features of a Company.
The legal framework of Companies:
· Legal sources:
 Companies Act 2016 (CA)
 Companies Commission of Malaysian Act 2001(CCM)
 Capital Markets and Securities Act 2007 (CMSA).
 Securities Commission Act 1993
 Common law and case laws
Non-legal sources:
 - Codes of conduct e.g. Malaysian Code on Corporate Governance (revised 2021)
 - Best practices e.g. Best Practices in Corporate Governance
Definition of ‘company’:
 A company is an artificial person created by law. It exists independently of the
members.
 The function of a company is to hold property and carry on business or other activities
as an entity separate from the participants.
 It comes into existence through a process of incorporation

Capital structures of companies:

 Commercial activities of a company require the use of fund. The sources of that fund
are referred to as the company’s capital.

 The sources of capital comes from:

i. Contributions of capital from members.

ii. Credits advanced to the company by creditors.
iii. Profits of the company (if any) and not distributed to members

What is Equity Capital?

This is capital contributed by members in the form of ordinary shares.
What is a share?
A share represents a number of rights that may or may not include controlling rights e.g.
voting rights, and distribution rights e.g. rights to receive dividends.
Borland’s Trustees v Steel Bros. & Co. Ltd. (1901)
 A share is defined as ‘an interest of a shareholder in the company measured by a sum of
money for the purpose of liability in the first place and of interest in the second, but also
consisting a mutual covenant entered into by all shareholders .

What does it mean to be a member of a company?

 A person who holds shares in a co. is a member of the company.
 Members have particular rights in relation to the administration of the company’s
affairs.
 Every person whose name is entered into the register of members shall be a member of
the company .
What is a debt capital?
 Debt capital is another important source of fund.
 companies are able to borrow money from bank or other credit providers to fund its
operations.
 The loan may be secured by a charge over the company’s assets or unsecured.
 Suppliers may also supply goods and services on credit.
- A debt capital represents rights against the company out of the relationship between
debtors and creditors

Consequences of Incorporation
· Separate legal entity
· Artificial legal person
· Members enjoy limited liability
· Perpetual succession
· Can sue and be sued in the company’s own name.
· Can enter into contracts in its own name

Reasons for registering a company

· Corporate personality – a separate legal entity from the owners.
· Concept of limited liability.
· Number of members – e.g. public limited co. no limit on number of members.
· Capital – funds available from the public

Management structure of companies

Managing a company involves decision making broadly in 2 areas –
 Deciding on the appropriate capital structure i.e. whether to borrow money, pay
dividends, increase or reduce number of shares on issue, and
 Deciding on the nature and form of company activities.
NB: The distinguishing feature of managing a company is the separation of responsibility for
decision between members and officers of the company
 Who are officers of the company?
 Officers are persons responsible for managing the company.
 Members – in general, are the proprietors of the company.
 S. 2 CA 2016 – an ‘officer’ includes directors, company secretary or employees of the
corporation, a receiver and manager and the liquidator.

THE LEGAL FRAMEWORK OF COMPANIES:

The Companies Act 1965 has been replaced with the new Companies Act 2016.

Companies Commission of Malaysia Act 2001

· Companies Commission of Malaysia (CCM) - a statutory body set up in 2002.

Its function:

 to administer and enforce mainly the Company Act 2016 and the

Registration of Business Act 1956.

 To regulate matters pertaining to the incorporation of companies

and business registrations;

 To promote ethical conduct amongst directors, co. secretaries,

managers and personnel directly involved in managing the

company or business