explain type of business entity to start your business

1. CHAPTER1SHAPING
ANDCREATING
BUSINESSVENTURES
PREPARED BY DR. AMALIYA

2. FORMATIONOF
BUSINESS
ENTITY
The type of legal structure you choose for your
business is among the most crucial decisions you'll
make when you're just starting out. This choice will
effect not only how much tax you pay, but also
how much paperwork your company must
complete, how personally liable you are, and how
much money you can earn. The type of business entity you choose will
depend on three primary factors:
• Liability
• taxation and
• record-keeping.
Types of Business Entity:
1. A sole proprietorship
2. A partnership
3. A corporation
4. A hybrid form of partnership known as Limited
Liability Corporation (LLC)

3. Selecting a
Business Entity
When making a decision about the type of
business to form, there are several criteria
you need to evaluate
• Legal liability
• Tax implications.
• Cost of formation and ongoing
administration.
• Flexibility.
• Future needs
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4. SoleProprietorship&Advantages
Control
make all important
decisions and are
generally responsible
for all day-to-day
activities
Financial
all the income earned
by the business.
Profits earned are
taxed as personal
income, so you don’t
have to pay any
special federal and
state income taxes.
Trust
Trust on your Self
Cost
Self finance means all
profit and loss under
the owner of
business/founder
Margins
Each margin setup by
founder and no need
to involve others
(stakeholder or co-
partner like other
business entity)
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5. SoleProprietorship&Disadvantages
Control
it can be hard to take
holidays
feel stressful and
daunting,
Financial &
Liability
your capacity to raise
capital is limited.
you have unlimited
liability for debts as
there’s no legal
distinction between
private and business
assets
Trust
all the responsibility
for making day-to-day
business decisions is
yours
Employees
retaining high-calibre
employees can be
difficult
Taxed
you’re taxed as a
single person the life
of the business is
limited.
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6. Partnership&Advantages
Control
lack of formality
compared with
managing a limited
company
Have various idea and
skill to run the
business
Ownership and
control are combined
Financial
More partners, more
capital
Profit shared between
the partners.
Responsibility
Compared to
operating on your
own as a sole
business, by working
in a business
partnership you can
benefit from
companionship and
mutual support
Access to knowledge,
skills, experience and
contacts
Self finance means all
profit and loss under
the owner of
business/founder
Better decision-
making
Each margin setup by
founder and no need
to involve others
(stakeholder or co-
partner like other
business entity)
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7. Partnership&Disadvantages
Control & Legal
the business has no
independent legal
status
share decision
making, and many
people aren’t
comfortable with that
situation
Slower, more difficult
decision making
Financial &
Liability
does not have a
separate legal
personality (Unlimited
Liability)
Limited access to
capital
Trust
lose your autonomy,
so there have trust
issues between
partner
Profit
Profit must be shared
and conflict arise
while have partners
feel unfair on the
rewards received.
Taxed
Profits can’t be
retained in the
partnership to be
drawn as income in a
later year
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8. Corporation&Advantages
Control
.
Financial
personal liability
protection, business
security and
continuity, and easier
access to capital
Trust
Business security and
perpetuity
Taxed benefit
taxed at different
rates
Margins
Each margin setup by
founder and no need
to involve others
(stakeholder or c
o-partner like other
business entity)
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9. Corporation&Disadvantages
Control & Legal
having rigid
formalities and
protocols to follow
Lengthy application
process
Financial &
Liability
does not have a
separate legal
personality (Unlimited
Liability)
Limited access to
capital
Trust
time-consuming
Cost
expensive to form and
operate
Taxed
Double taxation
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10. Private limited company (Sdn Bhd)
• A private limited company (Sendirian Berhad or Sdn Bhd) is a separate legal entity from its owners, meaning that it can
buy or sell property, enter legal contracts and sue or get sued in courts.
• The owners are liable only to the amount they have contributed to the company, and their personal assets or wealth
will be left untouched if something happens to the company.
• The private limited company is the most common type of entity for foreign investors. Foreigners are permitted to own
100% of the company. However, for some industries, they will need 50% Malaysian ownership. These industries include
agriculture, banking, education, oil and gas.
• To establish a private limited company, you would need a minimum of one member and a maximum of 50 members.
The shares of this type of entity is issued to the individuals or corporate bodies.
Public limited company (Bhd)
• A public limited company is similar to a private limited company, but the shares of the public limited company can be
offered to the public. Public limited companies are usually listed on the stock exchange and is governed by the
Securities Commission of Malaysia.
• This entity must have a minimum of two shareholders, and the number of members is unlimited. The public limited
company must hold annual general meetings and make reports on their financial statements.
• There are two types of limited companies in Malaysia: Limited by shares & Limited by guarantee
SdnBhdandBhd
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11. SendirianBerhad(SdnBhd)
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12. SendirianBerhad(SdnBhd)
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13. Berhad(Bhd)
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14. • Business owners can form a nonprofit corporation for religious, charitable, political, educational, literary, scientific,
social or benevolent purposes.
• nonprofit corporation is prohibited from distributing profits to members, directors or officers; however, this does not
preclude nonprofit corporations from paying wages or reasonable compensation for services rendered
• organization formed to serve some public purpose rather than for financial gain. As long as the organization’s activity is
for charitable, religious, educational, scientific, or literary purposes, it can be exempt from paying income taxes.
• 1.5 million not-for-profit organizations in the United States
• Example: Bill and Melinda Gates Foundation
• Can you name one of the Non Profit Corporation you know internationally or local?
Nonprofitcorporation
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15. • owners (called members rather than shareholders) are not personally liable for debts of the company, and its earnings
are taxed only once, at the personal level (thereby eliminating double taxation)
• A limited liability partnership combines the characteristics of a partnership and a company. It is a body corporate and is
a separate legal entity from its partners.
• provides asset protection to its partners if the company goes bankrupt or in debt.
• provides asset protection to its partners if the company goes bankrupt or in debt.
• less compliance requirements compared to other business entities and is more affordable
Limited-LiabilityCompanies
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16. Limited-LiabilityCompanies
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17. • What do you really understand on this concept in business strategy?
• joining of two or more business entities - entails a restructuring of their corporate order.
• The different between both
MergersandAcquisitions
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Mergers Acquisitions
Vs
• A merger occurs when individual organizations
decide to join their forces and give rise to a new
business entity – Example?
• two or more individual businesses consolidate to
form a new enterprise
• new name, ownership, and management
• Motive/objective - to expand market share, gain
entry into new markets, reduce operating costs,
increase revenues, and widen profit margins
• an acquisition is a situation wherein a larger, financially
stronger organization takes over a smaller one
• at least 51% of the target company’s stock in order to
gain absolute control over it
• the acquired company ceases to exist in its previous
name and operates under the name of the acquiring
company but only in some cases does the acquired
company gets to retain its original name
• to gain a better competitive advantage by combining
resources with another organization.

18. Merger Acquisition
Procedure Two or more individual companies join to form
a new business entity.
One company completely takes over the
operations of another.
Mutual Decision A merger is agreed upon by mutual consent of
the involved parties.
The decision of acquisition might not be mutual;
in case the acquiring company takes over another
enterprise without the latter’s consent, it is
termed as a hostile takeover.
Name of Company The merged entity operates under a new
name.
The acquired company mostly operates under the
name of the parent company. In some cases,
however, the former can retain its original name if
the parent company allows it.
Comparative Stature The parties involved in a merger are of similar
stature, size, and scale of operations.
The acquiring company is larger and financially
stronger than the target company.
Power There is dilution of power between the
involved companies.
The acquiring company exerts absolute power
over the acquired one.
Shares The merged company issues new shares. New shares are not issued.
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MergersandAcquisitionsMajorDifferent

19. OPERATINGANDMARKETINGBUSINESSVENTURES
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20. • the start-up process involve the entrepreneur’s initial motivation to found a new business venture
• emerges as a raw idea that may exist within the nascent entrepreneur’s consciousness for periods of years prior to a
determined commitment to launching the business
• The idea must first be validated through the entrepreneur testing their concept against the hard reality of the market place
• Business start-up support agencies are often focused on the development of a formal business plan as a first step in the
creation of a new enterprise.
• most successful enterprise start-ups do not involve formal plan preparation.
• The key issues for consideration by anyone launching a new business venture for their idea are:
● Does the entrepreneur have the required capability or experience to launch the business?
● Why should anyone buy the product or service?
● What might increase the chance of success and what gives the new venture a competitive edge (unique
selling proposition)?
● Can the entrepreneur run the venture alone or do they need assistance?
● Is there sufficient capital for sustained growth?
● Will the venture yield an acceptable return?
● Is this really the venture the entrepreneur wants to run?
● Does the venture have a future?
StartupNewVenture
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21. END….
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