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* CHAPTER 3BUSINESS ENTITIES AND BUSINESS SUPPORT SYSTEMObjectives:Understand various forms of business entities in MalaysiaUnderstand the support support system available for businessesPEN2073 ENTREPRENEURSHIP

*There are three forms of business structure:Sole proprietorship/sole traderPartnershipLimited CompanyFORM OF BUSINESS ENTITIES AND BUSINESS SUPPORT SYSTEMSole Proprietorship/Sole Trader

Characteristics:Solely owned by one person/ownerUnlimited liability Easy to formNeed to register with SSMUsually formed with small capital/structure/businessManaged by owner itself or hire a few workersNo need to disclose the financial statement to outsider/publicPEN2073 ENTREPRENEURSHIP

*The advantages and disadvantages of sole proprietorship:Owners keep all the profitSmall capitalEasy to manageEasy to startNo need to disclose the financial statementEasy to form and dissolveMore freedom to manage the businessPay income tax based on the individual incomeLimited resourcesDifficult to expandLimited lifeUnlimited liabilityOnly enjoy limited profitLimited of mgmt abilityLimited skillsHigh responsibility toward business

Advantages:Disadvantages:PEN2073 ENTREPRENEURSHIP

*2. PartnershipA partnership is a business entity with two or more partners.In this form of business, a person jointly with one or more person to carry on a business with a view to making profit. Partnership is governed by the partnership Act 1961.A partnership is carried out by more than one person but not exceeding 20 persons.However, in professional businesses, such as legal firms, the members could number up to 50 persons.

Characteristics:Profits, losses and capital are shared among members.No interest is payable on partners capital.Every partners is entitled to participate in the management.No partners is entitled to a salary for participating in the partnership business.Expulsion of any partners must be in the the form of expressed agreement between the partners concerned introduction of a new partner must be by an unanimous consent from all existing partners.

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*The advantages and disadvantages of partnership:Losses are shared equallyEasy to startNo need to disclose financial statementBetter managementCapital contribution can be increaseIncome tax based on the individual incomeShared the responsibilityProfit shared equallyRisk of personal conflictEasy to dissolves the partnershipUnlimited liabilityUnethical or misconduct behaviour may happen.Difficult to withdraw investment Limitation on size

Advantages:Disadvantages:PEN2073 ENTREPRENEURSHIP

*Contract AgreementThe following are some of the important elements that need to be stated in a Contract Agreement:1. Name of the business2. The duration of the partnership3. Individual involved in the partnership business4. The account of the business and share capital that show the contribution of each partners.5. The properties are considered as assets of the business.PEN2073 ENTREPRENEURSHIP

*3. LIMITED COMPANYA limited company is incorporated under the Company Act 1965. It can be:I.Limited Company by GuaranteeII.Limited Company by Sharea) Private Limited Company (Sdn. Bhd.)b) Foreign Limited CompanyIII.Unlimited CompanyPEN2073 ENTREPRENEURSHIP

*PRIVATE LIMITED COMPANYCharacteristics:

1.Right and ResponsibilityA company has a specific right and responsibility. It can acquire assets under its own name. A company can also take legal action and face legal action under its own name. 2.Life SpanThe life span of a company is not dependent upon the death or resignation of its members.3. Liabilities The liabilities of the members in a company are limited to the total shares contributed to the companys capital

4. MembershipA company must have a least two member who are of Malaysian nationality.


*TERMS AND CONDITIONS i. The number of members does not exceed 50 people; ii. It has specific authority to transfer ownership of members shares with the approval of the companys Board of Directors; iii. A company is not allowed to offer or sell any share or debenture to the general public; iv. A company is not allowed to offer the general public to deposit money within a stipulated time frame; and V. A company must use the word Sdn. Bhd. or Sendirian Berhad at the end of its name.


*THE MECHANISM OF A PRIVATE LIMITED COMPANY1. Memorandum of AssociationDocument which stipulates the power and limitations of company. The items required to be included in the document are:I. The name of the companyII. A registered office address in Malaysia III. The objects and powers of a company iv. The name, address, and designation of the founders; v. Authorized capital of the company vi. A statement that acknowledges the intention of the founder of the company and agreement to take, in his own handwriting the number of shares promised.


*2.Article of AssociationThis document constitutes the internal regulations of a company. It contains: I. The name of the company II. The name of the directors III. The minimum and maximum qualifications of each director IV. The share qualifications of each director V. Name, address, identity card number and occupation of each subscribers.


*3. The Share Capital of a Company

a)Authorised capital is the maximum of the capital of a company. This capital must be recorded in the Memorandum of Association and the Article of Association.b)Paid-up capital is the actual share issued to the members. It is part of the authorised capital to the members to be paid by them. It is also a major of the companys financial requirements.PEN2073 ENTREPRENEURSHIP

*4. Members of ShareholdersMembers do not own a company but only the shares of the company. The functions as well as the rights of members are discharged through the Annual General Meeting as provided for in the Companies Act 1965 and the Article of Association.

5. Board of Directors.The responsibility to control the affairs of a company so that operates effectively depends on the board of Directors.Each company is required to have at least two directors whose nationality is Malaysian. PEN2073 ENTREPRENEURSHIP

*6. SecretaryEach company must appoint a secretary as specified in Section 139 of the Company Act 1965. The Board of Director has the power to appoint and terminate a person to this post.The responsibility of a secretary is to make sure the running of the company is in line with the requirement of the provisions of the Companies Act 1965, Memorandum of Association and Article of Association.

7. AuditorsUnder section 8 of the Companies Act 1965, it is compulsory for a company to appoint a qualified Auditors approved by the Finance Ministers.An auditor act as an agent for the members of a company to ensure every financial procedure is followed by the Board of Directors, and that the Balance Sheet as well as the Income Statement reflect the actual financial situation of the company.PEN2073 ENTREPRENEURSHIP

*8. Registered OfficeAccording to the provision in Section 119 Companies Act 1965, every company that is registered must posses an official address. This is to simplify every communication, notice and legal action sent to the company.

9. Company SealA company seal is a set of crystal crafted letters of the name of the company, which must made available by each company.

10. Authorised LetterAnother way in which the Board of Director can act in a business dealing.It can assure validity in any agreement signed by the companys representative and it is as good as being done on behalf of the company through a seal.PEN2073 ENTREPRENEURSHIP

*PROCEDURES AND LEGAL ASPECTS1.LICENCE

i. Business Licenceii. Wholesaling Licenceiii. Manufacturing Licenceiv. Food Manufacturing Licencev. Sales Tax Licence vi. Exercise Licence

2.PERMIT

i. Foreign workers Entry Permitii. Transportation PermitPEN2073 ENTREPRENEURSHIP

*3.Letter of AuthorityRelevant government Agencies issues the Letter of Authority. The Certificate Of Fitness (CF) is an example of a letter of authority by Law Authority and supported by the Fire Department. The CF is issued after a building is certified safe for use and adheres to fire safety procedures.

OTHERS PROCEDURES TO BE CONSIDEREDPollution ControlBusiness RightsTrademark ProtectionPatent ProtectionCopyrightStandard and QualityHire Purchase ActWorkers Social NeedsInfrastructure NeedsImport and Export RegulationPEN2073 ENTREPRENEURSHIP

*BUSINESS SUPPORT SYSTEMTechnical AssistanceMarketing AssistanceInfrastructure AssistanceInformation AssistanceResearch and DevelopmentFinancial AssistanceAdvisory AssistanceTraining, Seminars and WorkshopsExtension Services


*1.Technical AssistanceTechnical assistance is to offered to entrepreneurs or potential entrepreneurs to expose them to production methods and systematic management.Among agencies involved are SIRIM, MARA, MARDI,RRI

2.Marketing AssistanceThe purpose of marketing assistance is to help entrepreneurs distribute and market their products locally and internationally.There are a number of agencies involved such as MITI, MATRADE, FAMA and GUTHRIE.

3.Infrastructure AssistanceThese facilities are offered to assist entrepreneurs in getting business premises.Among the agencies involved are MARA, SEDC, SIRIM, UDA, KKLW, BPIMB and MIDA.PEN2073 ENTREPRENEURSHIP

*4.Information AssistanceInformational assistance is made available to entrepreneurs in the forms of business opportunities, statistics, new research findings, technology research, etc.Among government department and agencies providing the facilities are MITI, MATRADE, SIRIM, FRIM and local high learning institutions.

5.Research and DevelopmentThere are several agencies assisting entrepreneurs in conducting research and development.Among the research conducted are project feasibility studies, marketing research and technology related studies.Among the agencies involved are MARDI, SIRIM and local higher learning institutions.

6.Financial AssistanceMost financial institutions provide financing facilities to entrepreneurs in implementing their business idea.Financial facilities are provided by commercial banks, merchant banks, licensed financial companies and related government agencies.Financial assistance and facilities available vary from time to time.PEN2073 ENTREPRENEURSHIP

*7.Advisory ServicesThere are many agencies providing these services with certain charges depending on the area and scope of the services.However, rebate or tax reduction is given to certain services acquired under the training scheme recognized by Ministry of Human Resources.

8. Training, Seminars and WorkshopsThese services consist of management training, efficiency, skills, motivation, etc..Training programmes are provided to entrepreneurs for the purpose of expose of exposure to business management and to inculcate entrepreneurial characteristics or in form of upgrading courses.Various agencies are involved in providing these services, such as MEDEC, PUNB, MARA, NPC, SEDC and some financial institutions.

9.Extension ServicesOffered by MEDEC, MITI, SIRIM, MARA, MATRADE, MARDI and NPC to ensure the implementation of the proposed projects.


E-COMMERCEFRANCHISINGDIRECT SELLING

*CONTEMPORAY BUSINESS OWNERSHIPPEN2073 ENTREPRENEURSHIP

E-COMMERCE

Electronic commerce (EC) is the process of buying, selling, transfering, or exchanging products, services, and/or information via computer networks, including the Internet.Electronic Business (EB) refers to a broader definition of EC, not just the buying and selling of goods and services, but also servicing customers, collaborating with business partners, codnucting e-learning, and conducting electronic transactions within an organization.( Efraim Turban, 2006)E-business is the use of inernet and other information technologies to support commerce and imporve business performance. (McKay and Marshall, 2004)

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BENEFITS OF SELLING ON THE WEBThe opportunity to increase revenueFor many small business, launching a Web site is the equivalent of opening a new sales channel.Companies that launch e-commerce efforts soon discover that their sites are generating additional sales from new audiences of customer.The ability to expand their reach into global marketThe web is the most efficient way for small businesses to sell their products to the millions of potential customers around the world.The ability to remain open 24 hours a day, seven days a week.


The capacity to use the Webs interactive nature to enhance customer service.Although selling on the web can be highly impersonal because of the lack of human interaction, companies that design their sites properly can create an exciting, interactive experience for their online visitors.Customers can contact a company at any time of the day, can control the flow of information they get, and in some cases can interact with company representatives in real time.The power to educate and to informFor more than most marketing media, the web gives entrepreneurs the power to educate and to inform customers


The ability to lower the cost of doing businessThe web is one of the most efficient wars of reaching both new and existing customers.7.The ability to spot new business opportunities and to capitalize on themE-commerce companies are poised to give customers just want they want it.As the number of dual-career couples rises and the amount of available leisure time shrinks, customers are looking for ways to increase the convenience of shopping, and the web is fast becoming the solution they seek.8.The power to track sales result.The web give businesses the power to track virtually any kind of activity on their web sites, from the number of visitors to the click-through rates on their banners ads.


FRANCHISINGFranchising has come a long way from its beginning in the 1850s when the Singer Sewing Machine Company began licensing distributors to sell its sewing machines.Today, approzimately 251 franchisors operates in Malaysia.In AS, these industry has contributes AS$1 trilion (RM3.7 trilion) to their national income with expansion around 10 percent a year. It also generate 18 million job opportunities fot that country and give a positive impact to their economy development.In Malaysia, The Malaysian Franchise Association (MFA) was formed in 1994 to support the implementation of the Government program to promote entrepreneurship through franchising.The formation of MFA was indeed timely as to promote the development of franchising in Malaysia.


MFA will serve as a resource center for both current and prospective franchisors and franchisees, as well as for media and the public.With the formation of MFA, it is hoped that the environment, which is conducive to the expansion of franchising in Malaysia, can be created. MFA has a unique formula of its membership composition. Under one roof are franchisors, would-be franchisors, master franchisees, would-be master franchisees, government agencies and authorities, banks, accounting firms, franchise consultants, attorneys, suppliers and vendor of franchisesThrough the work of its committee, the MFA is committed to continue advancement of franchising in Malaysia into the twenty-first century in line with Vision 2020.


Franchising a system of distribution in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchisor) in return for the right to become identified with its trademark, to sell its product or services, and often to use its business format and system.Franchisor the party in a franchise conract that specifies the methods to be followed and the terms to be met by the other party.Franchisee an entrepreneur whose power is limited by a contractual relationship with a franchisor.


The Benefits of Buying a FranchiseManagement training and supportBrand-name appealStandardized quality of goods and servicesNational advertisement programsFinancial assistanceProven product and business formatCentralized buyinig powerSite selection and territorial protectionGreater change for success


The Drawback of Buying FranchiseFranchise fees and profit sharingStrict adherence to standardized operationsRestrictions on purchasingLimited product lifeUnsatisfactory training programMarket saturationLess freedom/loss of independenceInvestment costRoyalty paymentAdvertisement cost*PEN2073 ENTREPRENEURSHIP

DIRECT SELLINGA purchase situation involving a personal, paid-for communication between two people in an attempt to influence each other. (McDaniel, Lamb, Hair, Introduction to Marketing,2009)

Direct sellingis the marketing and selling products directly to consumers away from a fixed retail location. (Wikipedia, 2011)*PEN2073 ENTREPRENEURSHIP

entreprenuership

Documents

business entity

disadvantages of partnership

partners capital

forms of business structure

existing partners

partnership act

partnershipa partnership

partnership business4