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Registration of Business Entities - Coggle Diagram
Registration of Business Entities
Introduction
Business Registration
~ mandatory for operators carrying out activities for profit.
~Make business actvities legally valid.
~Most entities are registrered with the companies Commision of Malaysia (SSM).
~ Cooperatives are registered with the Malaysian Co-operative society Commision (SKM).
~ Choosing an entity requires considering its characteristics, benefits, weakness,capital requirements and registration procedures.
A. Sole Proprietorship
Characteristics
Owned, financed, and managed by one single owner
Simplest and most popular business form in Malaysia
Governed by the Registration of Businesses Act 1956
✅ Advantages
Easy to set up and manage
Low establishment cost
Owner retains full control
All profits belong to the owner
Quick decision-making
❌ Disadvantages
Unlimited liability — personal assets may be used to pay business debts
Limited capital and expertise
Management burden falls entirely on one person
Business continuity depends entirely on the owner
B. Partnership
Characteristics
2 to 20 partners; professional practices may have up to 50 partners
Examples: accounting, law, architecture, and engineering firms
Governed by the Registration of Businesses Act 1956
✅ Advantages
Larger capital from contributions of multiple partners
Shared skills, experience, and workload
Easier to establish than a company
Risks and responsibilities are shared
❌ Disadvantages
Usually unlimited liability
Profits must be shared
Risk of conflict or disagreement
One partner’s actions may impose liability on all others
Continuity affected if a partner leaves or passes away
C. Limited Liability Partnership (LLP)
Characteristics
Governed by the Limited Liability Partnership Act 2012
Combines features of a conventional partnership and a private company
Has a separate legal entity distinct from its partners
Perpetual succession; minimum 2 partners, no maximum limit
Suitable for startups, SMEs, joint ventures, and venture capital
✅ Advantages
Partners’ personal liability is better protected
Personal assets are separated from LLP assets
Continues to exist despite changes in partners
More flexible management
Lighter compliance and reporting requirements compared to a company
❌ Disadvantages
More complex and costly than an ordinary partnership
Must comply with specific LLP legislation
Required to maintain proper records and submit certain reports
Partners remain liable for their own wrongful acts or misconduct
D. Private Company (Sendirian Berhad / Sdn Bhd)
Characteristics
Has a separate legal entity distinct from its founders and shareholders
Minimum 1 member/director, maximum 50 shareholders
Capital contributed according to ownership percentage
Shareholders’ liability is limited to the amount of shares held
Cannot invite the general public to subscribe to its shares
Company name must end with "Sendirian Berhad" or "Sdn Bhd"
More complex establishment with legal formalities
Note: Older references to the Companies Act 1965 and Memorandum & Articles of Association have been superseded by the Companies Act 2016; current requirements include a constitution, mandatory company secretary, and appointed auditor.
✅ Advantages
Limited liability for shareholders
Perpetual succession
Easier to raise capital
Ownership transferable via shares
Stronger image and credibility
Well-suited for growth and expansion
❌ Disadvantages
Higher setup and operational costs
More complex registration process
Subject to greater regulation and compliance
Mandatory maintenance of accounting records and financial statements
E. Cooperative Society
Characteristics
Voluntary, autonomous association of persons
Established to meet shared economic, social, and cultural needs
Collectively owned and democratically controlled
Has separate legal entity status
Minimum membership: 100 persons for general cooperatives; 50 persons for farmers’ cooperatives
Registered and regulated by SKM
Distribution of profits to members is limited by statute
Liability
Members, directors, managers, and employees are generally not personally liable for cooperative debts
Liability may arise in cases of negligence, fraud, or reckless conduct
Members may also be liable if they act as guarantors for cooperative loans
✅ Advantages
Prioritises the collective interests of members
Democratic ownership and management
Generally limited personal liability for members
Collective pooling of resources and capital
Separate legal entity status
❌ Disadvantages
Requires a large number of members
Decision-making may be slower due to democratic processes
Restricted distribution of profits
Subject to SKM oversight and statutory requirements
Potential for conflicts of interest among members