SMP21503

ENTREPRENEURIAL FINANCE

Organizing and
Financing a New
Venture
WEEK 2

DR. JURAINI ZAINOL ABIDIN

 Learning 01

Objectives Discuss how we will be progressing through the venture life

cycle.

02
Describe the proprietorship, partnership, corporate and limited
liability company forms of business organization.

03
Discuss the use of patents, trade secrets, trademarks and
copyrights to protect intellectual property

04
Describe seed, startup, and first-round financing sources
 Form of
Business
Organization
 Forms of Business Organization
Proprietorship No of Owner Unlimited liability
Business venture
Personal obligation to
Sole owned by an
pay a venture’s
individual who is Single Owner.
Proprietorships personally liable for liabilities not covered
by the venture’s
the venture’s
liabilities. assets

Partnership No of Partners Joint Liability

Business venture
owned by two or more 2 to 20 partners Legal action treats all General
individuals who are partners equally as a Partnerships
jointly and personally group.
liable for the venture’s
liabilities.
 Forms of Business Organization
LLP No of Partners Limited Liability
Combines the
Limited Liability characteristics of a Limits limited partner
partnership and a Minimum 2 and no liabilities in a partnership
Partnership company. LLP’s are maximum limit. to the amount of their
common for business like capital contribution to the
(LLP) law firms, accounting partnership.
firms, and wealth.

Corporation No of Shareholders Limited Liability

A legal entity that Creditors can seize the
Minimum 1 and corporation’s assets but
separates personal
assets of the owners
maximum 50 in private have no recourse Corporations
company. against the
(shareholders) from the
assets of the business. shareholders’ personal
assets.
 SOLE PROPRIETORSHIP
ADVANTAGES DISADVANTAGES

Does not need to submit 01 Unlimited liability. Any losses from the
01
audits or annual filling. business will impact your personal
assets. Sole proprietors are liable for
Simplest form of business. 02 all risks undertaken by the business.
Easiest setup.
02 Difficult to secure funding to sustain business
life.
No corporate business tax. 03
Personal tax rate
03 Limited to life of owner.
Single owner keeps all the 04
profits.
04 Difficult to sell ownership interest.
 PARTNERSHIP
ADVANTAGES DISADVANTAGES

Just like sole proprietorship, it has unlimited

01
More capital available 01 liability. Any losses from the business will
impact the partners personal assets.
Relatively easy to start 02 Profits made in the business have to be spilt
02 between the partners according to the
Losses of the business are
partnership agreement.
shared amongst partners 03
based on the partnership
03 Disagreement and conflict might occur
agreement.
among partners.
Income taxed as 04
personal income Partnership dissolves when one partner
04
dies or wishes to sell
An extra set of hands to
help run the business. 05
05 Difficult to transfer ownership
 LIMITED LIABILITY PARTNERSHIP
ADVANTAGES DISADVANTAGES

Limited liability. Partners 01 01 More paperwork. More filing formalities than

assets are protected the general partnership
Less compliance
requirements in 02 Limited partners can lose their limited
comparisons to other 02
liability if they take on management roles
incorporations. Suitable for
start-ups and small
companies. 03 Disagreement and conflict might occur
among partners
Ability to easily bring
new partners in and 03 Establishment costs and ongoing
04
retire existing partners maintenance costs of organizing as a
corporation are high.
 CORPORATION
ADVANTAGES DISADVANTAGES

Limited liability. Owners are Monthly Company Secretary Retainer Fee

01 (Ranges from RM50 to any amount
only responsible for the 01
amount they contributed. depending on company size and Company
Personal assets and wealth secretary rate)
are not affected if something Non-compliance can lead to a penalty and/or
02
happens to the company imprisonment
Transfer of ownership is 02
easy Mandatory Annual General Meeting and
03
Audited Accounts
Unlimited life 03
Double taxation (income taxed at the
Favored by banks and is
04 04 corporate rate and then dividends taxed at
the only incorporation
the personal rate)
eligible to apply for any
government tax incentives
CHOOSING THE FORM OF ORGANIZATION
Intellectual Property
IP is a venture’s
intangible assets
and human capital,
including inventions
that can be
protected from
being freely used or
copied by others
Protecting Valuable Intangible Assets
To obtain a patent in Malaysia, the inventor must make an application to
the Intellectual Property Corporation of Malaysia (“MyIPO”)

Patents Trade Secrets Trademarks Copyrights

▪ Intellectual ▪ Intellectual
▪ Intellectual Intellectual
property rights property rights to
property rights property rights that allow firms writings in
granted for in the form of to differentiate printed and
inventions that inventions and their products & electronically
are useful, information, not services through stored forms.
novel, and non-01 generally the use of ▪ Copyright in
known to 02 unique marks. 03 literary, musical
04
obvious. ▪ Trademark
others, that and artistic works
▪ A patent is registration will
convey subsists during
protected 20 expire every ten the life of the
years from the economic (10) years from creator and
date of filing. advantages to the date it is continues 50
the holders. registered or years after
renewed his/her death.
 Types of Patents

Design Business Method

Utility Patents Plant Patents Patents
Patents
• Cover most • Cover the • Protect discoveries • Protect specific ways
inventions pertaining appearance of items of asexual of doing business
to new products, such as sports reproduction and the underlying
services, and uniforms, electronic methods of new computer codes,
processes. products, and plant varieties. programs, and
• A new idea by itself automobiles. • Eg: African violet technology.
cannot be patented. • Generally easier and (#5,383), a variety of
• The idea must be less expensive to almond tree
part of an invention obtain than are utility (#5,382), & a
that has a “physical patents. chrysanthemum
form” such as a • Eg: ordinary plant named
product. combined toothbrush Organdy (#5,278)
• Eg: artificial heart holder/tumbler
valve (#4,490,859) (#278,586) and a
and microwave seaweed plate
clothes dryer garnish for a sushi
(#4,490,923). dish (#278,565).
 TRADE SECRETS
Intellectual property rights in the form of inventions & information (e.g., formulas, processes, customer
lists, etc.) not generally known to others.

Eg: Trade Secrets information – financial data, technique, formula, pattern, program, method, drawing,
process, technical data, list of customers.

Trade secrets are not generally known to others & convey economic advantages to the holders.

What are Drawbacks of Seeking Protection under Trade Secrets Law?

- there is no formal procedure for obtaining protection as a trade secret.
- protection is established by the secret’s characteristics and efforts to protect it.
- holders do not have exclusive “rights” to what comprises the secret (someone could independently
replicate the secret).

Malaysia does not have specific regulation to govern and administer the trade secret protection.
However, one can take a legal action again others if their trade secret has been exploited/used/retrieved
without their permission. Trade secret protection is enforced through legally binding contracts.
 TRADEMARKS
Intellectual property rights that allow firms or others to differentiate their products and
services through the use of unique “marks”.

“Marks” allow consumers to easily identify the source and quality of

products/service.

Most trademarks take the form of names, words, or graphic designs.

Trademarks also can be on the shape of packages, colors, odors, and sounds.

Trademarks are the most valuable form of intellectual property for many firms.

a trademark can be lost if

A trademark should be suggestive of (but not describe) a product or product line
the mark becomes a
generic term or label
(eg: Colgate, Panadol,
ownership is established by being first to use the mark on products.
Bata)
COPYRIGHTS

Intellectual property rights to “writings”

in written and electronically-stored
forms
Protects the “form of expression of an
idea” and not just words themselves
Traditional way to establish a copyright
is to “publish” your book or other work
accompanied by a copyright notice
using the word “Copyright” or the
symbol ©
Eg: a novel, a poem, a photograph, a
movie, lyrics to a song, a musical
composition in the form of sheet music, a
sound recording, a painting.
SEED, START-UP AND
FIRST-ROUND
FINANCING SOURCES
 FINANCING DURING
EARLY LIFE CYCLE STAGES

LIFE CYCLE STAGE TYPES OF FINANCING MAJOR SOURCES

Development Stage Seed Financing Entrepreneur’s assets

Family and friends

Entrepreneur’s assets
Family and friends
Start-up Stage Start-up Financing Business Angels
Venture Capitalists

Business Operations,
Suppliers and customers
Survival Stage First-round Financing Government assistance
programs
Commercial banks
 Seed
SEED& Startup FINANCING
& START-UP Financing
Financial Bootstrapping
▪ Minimizing need for financial capital and finding unique ways of financing a new venture.
▪ Minimize investment in physical assets and live “on a shoestring” during the development and
start-up stages.
▪ In the short run – less expensive to rent or lease physical assets and start the new venture in the
garage or basement.
▪ Owner source of capital – savings, credit card of cash advance.

Business Angels
▪ Wealthy individuals who invest money in fledgling ventures in exchange for the excitement of
launching a business and a share in any financial rewards.
▪ Making faster-than-venture capitalists investment decisions and providing valuable expertise to
ventures.

Venture Capitalist
▪ Typically concentrate their investing efforts on later-stage companies.
▪ Provide first-round financing and participate in later financing rounds for ventures that are making
good progress.
 CROWDFUNDING

What is
Crowdfunding?
22
ATTENDANCE
THANK YOU