CHAPTER 3 FORM OF BUSINESS ENTITIES

AND BUSINESS SUPPORT SYSTEM

LEGAL FORMS OF BUSINESSES IN MALAYSIA

Before registering a business, entrepreneurs need to identify the legal structures that will best suit the demands of the venture. Three primary legal forms of organisation are;

Sole Proprietorship

Partnership

Corporation

SOLE PROPRIETORSHIP
A business is owned and operated by one person To become a sole proprietor, a person need to obtain whatever local and state licenses necessary to begin the operations The most widely used legal form of organisation

Advantages
1. Ease of formation; less formality with fewer restrictions 2. Sole ownership profits 3. Decision making and control vested in one owner 4. Relatively freedom from governmental control 5. Freedom from corporate business taxes

Disadvantages
1. 2. 3. 4. 5. Unlimited liability including own assets Lack of continuity Less capital available Relatively difficult to obtain long term financing Relatively limited viewpoint and experience

PARTNERSHIP
Is an association of two or more persons acting as co owners of a business for profits Agreement clearly outlines the financial and managerial contribution of the partners and carefully delineates the roles in the partnership relationship Partner contributes money, labour, skills, profits or losses

Advantages
1. 2. 3. 4. 5. Ease of formation Direct rewards; direct sharing of profits Growth and performance facilitated Flexibility in carrying the business; quick action Relatively freedom from governmental control and regulation 6. Possible tax advantage (individuals tax only)

Disadvantages
1. Unlimited liability; at least one partner decisions or actions and may involve personal assets 2. Lack of continuity 3. Relatively difficult to obtain large sums of capital 4. Bound by the acts of just one partner 5. Difficulty of disposing of partnership interest

CORPORATION
There are three types of corporation provided by the Company Act 1965;
a1 1. Corporation limited by share 2. Corporation limited by guarantee 3. Corporation unlimited by share

Advantages
1. 2. 3. 4. Limited liability; limited to individuals investment Transfer of ownership; through sale of stock Unlimited life as long as the company exist Relative ease of securing capital in large amounts, through issuance of bonds and shares. 5. Increased ability and expertise from stockholders who invest in the venture

Disadvantages
1. Activities restriction by various laws 2. Lack of representation; majority stockholders outvote minority stockholders 3. Extensive government control and regulations 4. Organising expenses are large in forming corporation 5. Double taxation; taxes are levied both on corporate profits and individual salaries n dividends

TYPES OF VENTURES
An entrepreneur has several ways to start a new venture. 3 forms available;
Buying An Existing Business Franchising

Start Up

START UP
A start up company is a company that recently formed. It is a process where the entrepreneur creates a completely new business starting from scratch Use their own funds from their saving or borrowing from others Needs a lot of experience, knowledge, skills and interest in the field involved

Advantages
1. Freedom of making own decisions 2. Opportunity of using ones idea and developing own image 3. Freedom to select the ideal location, plant, equipment, products/services, employees, suppliers and bankers 4. Ability to make changes to business 5. Will not affect the reputation of the business as it is a new venture

Disadvantages
1. Time consuming and costly 2. At the initial stage (1-2 years), obtain only minimal profits or losses 3. No business record to forecast sales, expenses and profits 4. No ready customers 5. Difficulty of obtaining loans from financial institutions

BUYING AN EXISTING BUSINESS

Buying or acquiring either the shares or all of the assets of an existing company or businesses It is safest and most effective way for entrepreneurs to go into business Need to put time effort into finding the right business It allows the company to expand and provide the opportunity to enter new market

Advantages
1. 2. 3. 4. 5. 6. 7. Immediate operations Easier financing Existing inventory Existing customer Existing employees Less competition Can resell the business

Disadvantages
1. 2. 3. 4. 5. 6. Costly to buy Outstanding contracts Problem of the business Personal conflicts Obsolete goods Uncollectable receivables

FRANCHISING
Any agreement in which the owner of a trademark, trade name or copyright has licensed others to use and sell its goods or services A franchisee can operate as an independent businessperson but still realise the advantages of regional or national organisations

Advantages
1. 2. 3. 4. Training and guidance provided Brand name appeal Proven track record Financial assistance

Disadvantages
1. Franchise fees 2. Franchisor control 3. Unfulfilled promises

PROCEDURES AND LEGAL ASPECTS

License

Permit
Letter Of Authority Others

PROCEDURES AND LEGAL ASPECTS

Entrepreneurs need know and abide by the procedures and rules governing business entities in Malaysia 1. Licence Business licence Wholesaling licence Manufacturing licence Food manufacturing licence Sales tax licence Excise licence

2. Permit Foreign workers entry permit Transportation permit

3. Letter of authority The certificate of fitness

OTHER PROCEDURES TO BE CONSIDERED

1. 2. 3. a) b) c) Assembling of machinery and equipment Pollution control Business right; Trademark protection Patent protection Copyright

Cont
4. 5. 6. 7. 8. Standard and quality Hire purchase act Workers social needs Infrastructure needs Import and export regulation

BUSINESS SUPPORT SYSTEM

1. 2. 3. 4. Courses, seminars and workshops MEDEC,PUNB,MARA,MPC,SEDC etc Technical assistance SIRIM,MARA,MARDI,RRI,MPOB etc Marketing assistance MITI,MATRADE,FAMA,GUTHRIE etc Infrastructure assistance MARA,SEDC,SIRIM,UDA,KKLW,MIDA etc

6. Research & Development MARDI,SIRIM,UTP,UiTM,UKM,UPM etc 7. Financial assistance Banks, government agencies etc 8. Advisory assistance Government agencies, private consultant etc 9. Extension assistance MEDEC,MITI,SIRIM,MARA,MATRADE etc 10.Information assistance MITI,MATRADE,MARDI,MIDA,FRIM etc

SOURCES OF CAPITAL
Personal funds Family and friends

Retirement account

Bank and financial institutions

Government loans

Stock markets

1. Personal funds Savings account, current account, money safe at home or cash in hand
2. Family and friends Parents, sibling, son or daughter, other relatives Friends officemate, school mate,

3. Retirement account Insurance plan, KWSP/EPF, unit trust etc

4. Bank and other financial institutions Loan money to those who have assets that can serve as collateral for the loan Long term 5-25y, medium term 2y, short term below 12 months

5. Government loans To assists businesses and industry as a whole MARA, KBS, 1MDF, 1AZAM, TEKUN etc
6. Stock markets Obtain by offering stock in the venture to the public and must comply with federal regulations (issuing prospectus) Bank Rakyat, UEM, POS Malaysia etc

CHAPTER 4

BUSINESS PLAN

WHAT IS BUSINESS PLAN?

A BP is a written document that serves as a blueprint and guide for a proposed business project that one intends to undertake A business plan must communicate ideas and goals clearly Is an ideal tool to check facts and to comprehensively examine the practicality of an idea before putting it into action

THE IMPORTANCE OF A BP
1) 2) 3) 4) 5) 6) Increase opportunity for success Develop mission and vision Identify barriers to business As a performance tool Identify the main competitors Identify the right way of managing the business 7) Increase stakeholders confidence

AUDIENCE OF A BP
Management Team Shareholders

Bankers Or Creditors

Customers

Suppliers

Employees

ELEMENTS OF A GOOD BP
a) b) c) d) e) f) g) h) Executive summary Market analysis Market and sales strategies Services or product line Organisation and management Funding request Financials Appendix

GUIDELINES IN PREPARING BP
1. 2. 3. 4. 5. 6. Keep the BP short Be focused Reveal people involved and their roles Avoid the use of jargon Information should be based on study Be realistic and objective

BUSINESS PLAN FORMAT

1. 2. 3. 4. 5. 6. Cover letter Cover page Table of contents Executive summary Main body of a business plan appendices

5. Main body of business plan

a. b. c. d. e. f. g. h. i. j. Introduction Purpose Company background Owner or partners background Location of business Administrative plan Marketing plan Operations plan Financial plan Conclusion

GROUP ASSIGNMENT
You are required to set up a new business. In the early stage, you need to identify certain items The items discussed should be supported by realistic and relevant data and information Be creative and professional to get the best marks items that you need to cover are;

1. 2. 3. 4. 5. 6. 7. 8. 9.

Name of the company Organisational structure Role/responsibility of each member Nature of business Industry profile Location of the business Date of business commencement Factors in selecting the proposed business Future of the business

 Date of submission; session/class # 5