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7
Chapter
BUSINESS OWNERSHIP
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BUSINESS OWNERSHIP
AT THE END OF THIS CHAPTER, YOU WILL BE ABLE
TO:
– Explain the factors to consider when selecting the form of business
ownership.
– Discuss the four types of business ownership.
– List the advantages and limitations of each type of ownership.
– Describe the procedures involved in registering each type of
ownership.
– Highlight the critical factors that need to be taken into
consideration in starting a new business venture.
– Discuss the various ways to establish a new venture.
– Explain the advantages and disadvantages of each alternative in
starting a new venture.
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INTRODUCTION
One of the first things an entrepreneur must decide on
before embarking on his venture is the proper form of
business ownership.
Selecting the right form of business ownership is
important because the form of business ownership will
determine how the business is organized.
They should also be aware of the rules and regulations
governing business organizations and the business
support system available for them.
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FACTORS IN SELECTING A
BUSINESS OWNERSHIP
Capital
Personal assets
Span of control
Sharing of information
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TYPES OF BUSINESS
OWNERSHIP
In Malaysia, there are four popular types of
business ownership for an entrepreneur to
choose from:
– Sole proprietorship
– Partnership
– Private limited company
– Public limited company
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SOLE PROPRIETORSHIP
It is owned by one individual, but it need not be
carried out by that individual alone.
Can have a large number of employees.
Examples of sole proprietorship: Tailors, beauty
salons, restaurants and mini markets. Only
Malaysian citizens who are permanent residents
can register a business as a sole proprietor.
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PARTNERSHIP
A partnership refers to a business owned by at
least two or more individuals but not exceeding
the maximum number of 20 persons.
Only Malaysian citizens or permanent residents
can register partnerships.
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PRIVATE COMPANY
The most common type of company or corporation
formed by small or large-scale entrepreneurs is the
Corporation limited by shares. This corporation can be
categorized as a Private Company or Private Limited
Company if they meet the following regulations:
– members must not less than 2 but not more than 50 persons.
– Must have authorization to transfer its members' shares.
– Not allowed to have the option of selling or subscribing shares or
debentures to the public.
– The public is not allowed to deposit money with the corporation
for a certain period.
– The corporation or company must use the words "Sdn. Bhd." or
"Sendirian Berhad" or Private Limited Company at the end of the
words.
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PRIVATE COMPANY
Other than the regulations mentioned, a
Private Limited Company or Corporation must
have a clear documentation of internal
regulations for references in performing their
business activities and guidance for further
implementation.
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THE REQUIREMENTS OF A PRIVATE LIMITED
COMPANY OR CORPORATION
6. Registered office 1. Memorandum of
association
[Link] secretary 2. Articles of association
3. Capital shares
8. Corporation auditor
4. Board of directors
9. Corporation seal
10. Power of attorney 5. Shareholders
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ADVANTAGES OF A PRIVATE
COMPANY
Limited Liability
– The stockholder's liability is limited to the individual's
investment. This is the most amount of money the
person can lose.
Transfer of Ownership
– Ownership can be transferred through the sale of
stocks to interested buyers.
Unlimited Life
– The Company has a life separate and distinct from
that of its owners and can continue for an indefinite
period.
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ADVANTAGES OF A PRIVATE
COMPANY
Increased Ability and Expertise
– The corporation is able to draw on the expertise and
skills of a number of individuals, ranging from major
stockholders to the professional managers who are
brought on board.
Relative Ease of Securing Capital in Large
Amounts
– Capital can be acquired through the issuance of
bonds and shares of stock and through short‑term
loans made against the assets of the business or
personal guarantees of the major stockholders.
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DISADVANTAGES OF A
PRIVATE COMPANY
Restriction of Activities
– Corporate activities are limited by the charter and by
various laws
Lack of Representation
– The majority stockholders in the corporation outvote
the minority stockholders.
Regulations
– Extensive governmental regulations and reports
required by the state and federal agencies often
result in a great deal of paperwork and red tape.
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DISADVANTAGES OF A
PRIVATE COMPANY
Organizing Expenses
– A large amount of expenses is involved in forming a
corporation.
Double Taxation
– Income taxes are levied both on corporate profits
and on individual salaries and dividends
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PUBLIC LIMITED COMPANY
A public limited company is a company limited by
shares with at least seven or more individuals and
there is no maximum limit in terms of membership.
Public limited companies are very large in size.
The companies raise or source their capital by selling
shares to the public and are run by a board of
directors elected by the shareholders.
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Factors to Consider When Starting
a New Entrepreneurial Venture
Capital
Location of business
Interest, knowledge and experience
Size of business
Competitors
Laws and regulations
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Alternatives in Starting a New
Entrepreneurial Venture
Start-up
Buying a business
Franchise
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START-UP BUSINESS
A start-up company is a venture whereby
an entrepreneur creates a completely new
business starting from scratch.
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START-UP BUSINESS
Advantages Disadvantages
Complete freedom Long process
Tendency to be creative Maximum risk
Authority Difficulty in obtaining funds
Free from government intervention Extra effort
Immediate operations No historical record
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Buying Existing/ Acquisition
Buying an existing business involves
purchasing an existing business by buying
or acquiring either the shares of the existing
company or all the assets in the company.
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Buying Existing/ Acquisition
5 factors need to be considered before buying
an existing business:
– Conducting self-assessment
– Evaluating business opportunities
– Reviewing a potential target
– Exploring financing options
– Ensuring a smooth transition
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Buying Existing/ Acquisition
7 steps to begin the acquisition process:
– Identify type of business
– Sign non-disclosure document
– Sign letter of intent/make an offer
– Conduct due diligence/investigation
– Draft/preparation of purchase agreement/formal
agreement
– Close the final deal/matters
– Begin the transition/ready for business
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Buying Existing/ Acquisition
Advantages Disadvantages
– Immediate operations – Business may be
– Existing intangible overpriced
assets/equipment – Equipment and goods
– installed and may be obsolete or
productive capacity is inefficient
known – ‘Inherited’ employees
– Employees may be unsuitable
established – Uncollectible receivables
– Supplier relationships – Outstanding contracts
– Less competition – Inherent problems
– Easier financing – Location may have
– Quick cash flow become unsatisfactory
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FRANCHISE
A business structure comprised of semi-
independent business owners
(franchisees) that pay fees and royalties
to a parent company (franchisor)
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TYPES OF FRANCHISE
Trade name franchising
Product distribution franchising
Pure/business format/system franchising
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Franchise
The following steps help entrepreneurs to
buy a franchise:
– Self evaluation
– Conduct market research
– Consider the franchise options
– Ask the franchiser some tough questions
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Franchise
Advantages Disadvantages
– Proven track record on – Unsatisfactory training
products and business programmes
formats – Franchise fees
– Standardized quality of goods – Strict franchisor control
and services – Limited product line
– Management training and
support
– Brand name appeal
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