Types Of Business Structures In Malaysia: Features, Registration, And Alteration Of Articles Of Association

Introduction covers identification of business entities in Malaysia.
Discussion on the features of all business entities.
Explanation on content of Articles of Association (AoA).
Explanation on alteration of Articles of Association (AoA).

A business incorporates each form of trade, craftsmanship, commerce, profession, calling or other operations used for the purpose of making profit but not employment, office, charitable undertaking, any specific occupation provided through the schedule of Registration of Businesses Act 1956 (ROBA 1956).  There are many structures which can be used for the purpose of carrying out business activities. These structures are chosen for the purpose of business operations with reference to their features. Each business structure has its own unique attribute which distinguishes it from the other (Lieberman et al., 2016). In Malaysia there are three types of business structures which can be used to carry out business activities. These features are namely sole proprietorship which is a form of business run by a single owner, a partnership which requires at least two or more owner and a company which can be further classified into public and private company which operates as an artificial legal person. The purpose of this paper is to identify the different types of businesses which operate in Malaysia and discuss their features. The paper also analyzes the content of the articles of association in relation to the company along with the process required to alter the articles.

A sole proprietorship is also known through the names of a proprietorship or a sole trader.  This is a kind of business which operates under the ownership of a single natural person. There is no difference between the identity of the owner and the business in case of a sole proprietorship and they are one and the same. The direct control of the sole proprietorship lies in the hand of the owner. All elements of the business are controlled by the single owner. The proprietor is therefore solely responsible for all the finances of the business along with other forms of accountability. These forms may include accountabilities such as losses, negligence and debt. In addition the proprietor is also entitled to all the profit made by the business. The liabilities of a sole proprietorship are therefore unlimited in contrast to the other forms of businesses.

With respect to a sole proprietorship business the proprietor has the right to use a different business name other than his or her legal or personal name. The owner in this form of business structure also has the right to legally trademark the business name but the name must not be similar to another business.

The registration process in relation to the sole proprietorship business is the easiest as compared to the other forms of business (Bain & Nowak, 2016). There is not much legal or procedural complexity involved when it comes to the process of registering a sole proprietorship business. In Malaysia a sole proprietorship can be registered within 30 days since the business has started. In Malaysia the registration can be completed online through Ezbiz online services or SSM counters. The registration can be done easily through filling up the business Registration Form (Form A). If a person chooses to run the business based his personal name the person would not need any approval for the name.  In case of a trade name the person would need to follow the rules of Rules 15, Rules of Business Registration 1957. This form of business is very useful for persons who are staring a small business as it is easy to set up but not for those who want to carry on large and complex business activities (Allen & Kraakman, 2016). As discussed above the kind of business provides unlimited liabilities which mean that the business own can be personally liable for the debts of the business. The form of business activity is allowed to employ employees for its activities who operate under the control of the owner. The business is not allowed to raise funds publically and therefore is not suitable for complex and large operations (Corwin & Ciampi, 2016).  

Sole Proprietorship

Partnership is a form of business which needs at least two members to be incorporated. The business is based on the terms and conditions provided in an agreement called the partnership agreement or the partnership deed. The registration of partnership is almost the same as that of a sole proprietorship however it requires a partnership name as well as the registration of the partnership deed. The owners of a partnership are known as partners who agree to carry on the business activities for mutual interest. These partners may be natural or artificial legal persons. The partnership firm operates on the principles of agencies where each partner is the agent of the other. The partners operate as joint owners and their liability is also unlimited like that of a sole proprietor except in case of a limited liability partnership.

The features of a partnership are somewhat similar to that of a sole proprietorship. The partnership business is based on the terms and conditions which are agreed upon by the partners before the business is formed. These terms and conditions may set out the rights, liabilities and powers of the partners. The partners are not expected to act outside their authority provided by partnership agreement (Rohatgi, 2016). However only because the partner has acted outside authority does not make the other partners evade the provisions of joint liability imposed on them through the partnership. The form of business is easy to set up and often useful when a single person lacks capital to form a business or to divide his or her liability. The profits in a partnership are divided equally or according to the terms of the partnership agreement. All assets which are owned by the business are also jointly owned by the partners.

A company is the most common form of business entity and is popular among the businessmen because of its distinct features. This form of business entity is largely useful for complex and large business activities (Heminway, 2013). In Malaysia the provisions in relation to a company are governed by the Companies Act, 1965. The rules have been derived from the Australian and United Kingdom company law. There are two types of companies’ namely private and public company. Public companies are subjected to strict compliance as compared to the private companies as they are allowed to raise money from the public (Abdulsaleh & Worthington, 2013).

The feature of a company distinguishes it from the other form of businesses. The principle unique feature of the company is that it is a spate legal entity. This means that the identities of the company and the identity of its owners are different (Cheeseman & Garvey, 2014). The company is a spate legal person in the eyes of law which has been created artificially. A company therefore enjoys perpetual succession which means that it does not come to an end with the death of its owners or members. It continue to exists an can only be concluded with the formal process of winding up. The company has the right to sue any other person or company or be sued by any other company or person in its own name. A company also has the right to enter into a contract with any other person or company through the use of its common seals. A company has many owners in from of its shareholders and therefore all of them cannot participate in the day-to-day functioning of the business. Thus the company appoints directors who have the responsibility of managing he operations the company. They have to abide by various legal obligations imposed by legislations as well as common law so that the interest of the shareholders who do not indulge in the governance of the company is protected. The public company in particular has to go through strict meeting, reporting and disclosure obligations.

Partnership

Section 29 of the COMPANIES ACT 1965 (REVISED - 1973) (CA) provides provisions in relation to a article of association. The document through which the regulations with respect to the operations of a company are set out is known as the articles of association. It is the document which forms the basis of the relationship between the company and its members.  The purpose of the organization is set out through the articles along with the process through which the objectives of the organization have to be accomplished within it. This includes how the directors are appointed along with how the handling of the company’s financial records is done. Through the Articles of Association the way in which a company is going to pay dividends, provide the power of voting rights, audit of financial records as well as the issues of shares are provided. The set of provisions provided by the Articles can be treated as a user manual with respect to the organization as the methodology through which the day-to day operations are concluded are stated through the articles.

 The content of the articles may vary from jurisdiction to jurisdiction but are fundamentally the same. The general provisions which are contained in the articles are the purpose of the company, the mane of the company, provisions related to shareholders meetings, the share capital and the organization such as address of office and name and number of directors. The share capital details constitute the type and number of shares issued by the company (Werth, 2014). The meeting provisions include rules in relation to organization the first annual general meeting as well as the subsequent meeting. The articles also include the details in relation to the name of the company which describes the type of company referring to its suffix such as “Inc” or “Ltd”. The article provides details about why the company has been incorporated and with is its specific purpose. A few jurisdictions may allow the incorporation of a very broad purpose such as management and on the contrary a few require detailed purpose such as dairy products (Goo 2016).

The provisions in relation to the alterations of the articles are provided through Section 31 of the CA. subsection (1) states that with respect to the legislation as well as any specific conditions provided in the memorandum an article of association can be altered or added to through the passing of a special resolution. Subjected to the provisions of the Act in relation to any addition or alteration to the Articles would be valid as if they were present from the day the article had been incorporated from the day the special resolution is passed or through any date as provided through the special resolution. The additions or alterations would also be subjected to available for future addition or alteration by passing a special resolution. A special resolution requires a vote of two third of the company’s members.

 According to subsection (2) every company has the authority and shall be deemed to have the power to always alter the articles through the process of adopting of any or all of the regulations which have been provided through Table A with reference to the regulations contained in the table or the number of specific regulations contained therewith by not making it mandatory in the special resolution giving effect to the alteration to provide the consent of the adopted regulation. In the case of Kwality Textiles (Malaysia) Sdn Bhd Vs Arunachalam & Ors (1990) MSCLC 90,575 the right to transfer shares can be restricted in a private company with respect to its shareholders in certain situations but such right cannot be absolute.

Conclusion 

Thus from the above discussion it can be concluded that there are mainly three forms of business structures which are used to carry on business activities in Australia. These include a sole proprietorship, a partnership and a public or private company. These structures have distinct features which are used to select the best suited framework for a business. A company has to go through strict legal compliance whereas compliance in case of sole proprietorship is Minimum. Each company has its own articles of association which provides the internal rules of the company. The articles can be altered by passing a special resolution. However there are certain restrictions imposed of the alterations.

References 

Abdulsaleh, A. M., & Worthington, A. C. (2013). Small and medium-sized enterprises financing: A review of literature. International Journal of Business and Management, 8(14), 36.

Allen, W. T., & Kraakman, R. (2016). Commentaries and cases on the law of business organization. Wolters Kluwer law & business.

Bain, P. L., & Nowak, K. (2016). Sole Proprietorships. NY Practice Guide: Business and Commercial, 1.

Cheeseman, H. R., & Garvey, J. R. (2014). Business law. Pearson.

COMPANIES ACT 1965 (REVISED - 1973)

Corwin, L. D., & Ciampi, A. J. (2016). Law Firm Partnership Agreements. Law Journal Press.

Goo, S. H. (2016). Contractual Effect of Articles of Association in Company Law. In The Fourth International Forum on Corporate and Financial Law-The Symposium on the Application of Corporate Law and Financial Law from the Perspective of Contract Law.

Heminway, J. M. (2013). Teaching Business Associations Law in the Evolving New Market Economy.

Kwality Textiles (Malaysia) Sdn Bhd Vs Arunachalam & Ors (1990) MSCLC 90,575

Lieberman, J., Siedel, G., Warner, D., & Mayer, D. (2016). Business law and the legal environment.

Rohatgi, N. K. (2016). 29_Goyle's the Law of Partnership.

Werth, P. (2014). Articles of association: Determiners and context. The Semantics of Determiners (RLE Linguistics B: Grammar), 250.