Tuesday, March 31, 2009

The BEST Business Entity to suit

If you are about to start a business (for Foreign Investors if you are about to start a business in Malaysia), it is very critical to have good professional advice on getting the right business organisation form i.e. incorporated or not incorporated. The answer depends on your specific concern on personal liability, tax implication, business requirement, future plan, cost and other factors. There are also other issues that need to be considered such as tax matters and business plan.


There are so many ways to incorporate a Company. Normally when people decide to incorporate a Company, the following issue will be raised to the Company Secretary:

1. Can we get the name of our choice?
2. When can we get the Company?
3. When the Company will be ready to be used?
4. What are the “Dos” and “Don’ts” of the Directors and Shareholders?


Persons wishing to embark on any business operation will have three options to choose from as to what they want their business entities to be. These are:

• A sole trader;
• A partnership; or
• A limited company.


This form of business is solely owned by one person. Management rests on that one person and his liability is unlimited. If such a business fails or is declared bankrupt, the creditors can sue him for all debts incurred. They can obtain a court order to claim against his personal assets. These can even include his house if such other assets are insufficient to cover the debts.

One of the advantages of this form of business is that there are fewer formalities in terms of its formation and registration. It also involves less paper work.


In a partnership, a person trades jointly with one or more persons to carry out a business. Partnership must comprise at least two members. The maximum number allowed is twenty. Partnership is governed by the Partnership Act 1961. If the partners do not make their own agreement, or if their own agreement does not cover any particular matter specified in the Partnership Act, provisions of the Partnership Act dealing with that particular matter will become applicable.

The advantages of operating sole proprietorship and partnerships are that you are not required to disclose your financial statements to general public. It will be relatively easy if subsequently you wish to convert your business into a limited company Losses incurred by such business can be set off against other personal income such as interests, rent and dividend as well as employment income (if any).

A limited company is incorporated under the Companies Act, 1965. It can be :-

• A company limited by shares; the liability of a member’s contribution to the company’s assets is limited to the amount specified, unpaid on his shares if any. Once the shares are fully paid up there is, in general, no further liability, i.e. if the company becomes insolvent, or falls into liquidation, the members are not required to make any further contribution to discharge its debts.

In other words, the personal assets of a shareholder would not be available to the creditors of the company unless a personal guarantee had been given by the shareholder.

A company limited by shares can be divided into :-

(a) A private limited company (Sendirian Berhad)
A private limited company is one which by its articles :-
(i) Restricts the right to transfer its shares (the transfer may be
subject to the approvals of the directors);
(ii) Limits the number of its members to fifty (the minimum beingtwo);
(iii) Prohibits any invitation to the public to subscribe for any shares in
or debentures of the company; and
(iv) Prohibiting any invitation to the public to deposit money with the
company for fixed periods or payable at call.

(b) A public limited company (Berhad)
A public limited company is any company other than a private company
whose shares may be offered to the public for subscription. Such shares
are freely transferable. The company may apply to the Stock Exchange for
permission for its shares to be listed, thus, providing an effective market
for such shares.


No comments:

Post a Comment