Podcast
Questions and Answers
What is the nature of a Sole Proprietorship?
What is the nature of a Sole Proprietorship?
A business structure wholly owned by one person
What must a Sole Proprietorship be registered with?
What must a Sole Proprietorship be registered with?
Sole proprietors have unlimited liabilities for the debts of the business.
Sole proprietors have unlimited liabilities for the debts of the business.
True
Partnerships refer to the relationship which subsists between persons carrying on business in common with a view of ______.
Partnerships refer to the relationship which subsists between persons carrying on business in common with a view of ______.
Signup and view all the answers
Match the type of partner with their description:
Match the type of partner with their description:
Signup and view all the answers
What is the held opinion about the borrowing done by the plaintiff's husband?
What is the held opinion about the borrowing done by the plaintiff's husband?
Signup and view all the answers
Partners are bound by acts on behalf of the firm according to Section 8. True or False?
Partners are bound by acts on behalf of the firm according to Section 8. True or False?
Signup and view all the answers
Which document must be lodged for the registration of a company?
Which document must be lodged for the registration of a company?
Signup and view all the answers
Each partner is individually assessed on their share of the partnership ____.
Each partner is individually assessed on their share of the partnership ____.
Signup and view all the answers
According to Section 36 of the Companies Act 1965, if any business of a company is carried out with an intention to defraud the creditors, who will be personally liable for any debts or liabilities of the company?
According to Section 36 of the Companies Act 1965, if any business of a company is carried out with an intention to defraud the creditors, who will be personally liable for any debts or liabilities of the company?
Signup and view all the answers
According to Section 121 of the Companies Act 1965, what is required to appear on any letters, cheques, and documents issued by a company?
According to Section 121 of the Companies Act 1965, what is required to appear on any letters, cheques, and documents issued by a company?
Signup and view all the answers
A holding company and a subsidiary company are always treated as separate legal entities.
A holding company and a subsidiary company are always treated as separate legal entities.
Signup and view all the answers
If a person has been prevented or restricted from doing something by law, he cannot use his company to do what he is prevented from doing, for example, ________ of trade.
If a person has been prevented or restricted from doing something by law, he cannot use his company to do what he is prevented from doing, for example, ________ of trade.
Signup and view all the answers
In what situation may the foreign nationality of members affect the national status of a company according to the content?
In what situation may the foreign nationality of members affect the national status of a company according to the content?
Signup and view all the answers
What type of companies limit the liability of its members to the amount unpaid on the shares?
What type of companies limit the liability of its members to the amount unpaid on the shares?
Signup and view all the answers
Members of a company are responsible for the debts of the company.
Members of a company are responsible for the debts of the company.
Signup and view all the answers
Which of the following statements about a company's ability to own property is true?
Which of the following statements about a company's ability to own property is true?
Signup and view all the answers
A company may impose restrictions on the transfer of its shares in its memorandum of __________.
A company may impose restrictions on the transfer of its shares in its memorandum of __________.
Signup and view all the answers
Match the following exceptions to Salomon's Principles with their descriptions:
Match the following exceptions to Salomon's Principles with their descriptions:
Signup and view all the answers
Study Notes
Business Organisation
Sole Proprietorship
- A business structure wholly owned by one person
- No separate legal entity from the person who conducts the business
- No special legal documents required for its creation
- Must be registered with the Registrar of Business under Registration of Businesses Act 1956
- Limit on size: 1 Person
- Management and ownership: sole proprietor is the only boss, no need to report to the Board of Directors or Shareholders or to Partners
- Formalities: easy to set up, minimal requirement
- Property: business property is owned by the sole proprietor
- Transfer of interest or shares: easily transferred to another person
- Liability for debt: unlimited liabilities, owner is responsible for all debts of the business
- Legal rights and legal actions: can sue and be sued in own name
- Disclosure of accounts and other documentation: no public disclosure of accounts is required, business affairs can be kept private
- Capital and raising of capital: main source of funds is usually savings, can raise capital by way of loans and utilizing properties
- Audit: no need to appoint an auditor
- Income tax: has to maintain account books and to render accounts, has to submit income tax returns
- Duration and dissolution: once the owner dies, the business ceases
Partnership
- Governed by the Partnership Act 1961
- Characteristics:
- More than one person (minimum 2, maximum 20)
- Partners pool their capital and work together in business
- Associations and charitable organizations cannot be partnerships
- Not a legal entity separate from its members
- Must be registered
- Relationship among partners is governed by the Partnership Act 1961 and partnership agreement
- Types of Partners:
- General Partner
- Active Partner
- Dormant or Sleeping Partner
- Quasi Partner
- Management and ownership: all partners take part in management of partnership business
- Formalities: minimal legalities required to set up, can be formed with or without a written agreement
- Property: partnership property is owned by all partners collectively
- Transfer of interest or shares: a partner can assign his share in the partnership
- Liability on debts: unlimited liabilities, each partner is personally liable for debts of the partnership
- Relationship between Partners and 3rd Party:
- Partners are agents of the partnership firm
- Acts done by one partner binds the rest of the partners
- Legal rights and legal actions: partnership can sue and be sued in its firm name
- Disclosure of accounts and other documentation: no need to publish or disclose any financial records
- Capital and raising of capital: all partners are entitled to share equally in the capital and profits of the business
- Audit: no need to appoint an auditor
- Income tax: each partner is individually assessed to tax on his share of the partnership profit
- Rights and duties of Partners:
- All partners are entitled to share equally in the capital and profits of the business
- Firm must indemnify every partner in respect of payments made and personal liabilities incurred
- Partners may agree to renew the partnership for another fixed period
- Duration of Partnership:
- May exist for a fixed period and comes to an end at the expiry of the period
- May be dissolved by agreement, death or bankruptcy of a partner, illegality of partnership, or court order
Company
-
Artificial person created by law
-
Exists independently of the individuals who are the members of the corporate body
-
Law applicable is the Companies Act 1965
-
Limit on size:
- Minimum number of members – 2 Persons
- Public limited company – No Limit
- Private limited company – Maximum of 50 Members
-
Registration of A Company:
- Memorandum of Association (Company’s Constitution) must be lodged
- Contains the company’s name, its objects, the amount of its share capital and whether the company is limited or unlimited
- First directors must be named in the MOA and Articles of Association
- MOA must be signed by persons called the ‘Subscribers’ in the presence of witnesses
- Upon registration of the MOA, the Registrar will issue a Certificate of Incorporation### Company Incorporation
-
A company's birth certificate is its Certificate of Incorporation.
Management and Ownership
- The Companies Act 1965 separates the management and ownership of a company.
- A company must appoint directors to manage the company, with at least 2 directors at all times.
- Directors' powers are outlined in the Articles of Association (AOA).
- Directors are accountable to shareholders and have wide management powers.
- Retirement or removal of directors does not affect the company's existence.
- Members do not have the power to participate in company management.
Formalities
- Prescribed procedures must be followed for company incorporation, involving expenses.
- During a company's existence, formalities related to accounting, registers, and minutes must be complied with.
- An approved auditor or auditing firm must be appointed to report to shareholders on company accounts.
Transfer of Interest or Shares
- Shares are freely transferable, but the company may impose restrictions in its Memorandum of Articles.
- Examples of restrictions include transfer at the discretion of the Board of Directors or offering shareholders the first option to buy shares.
- If a shareholder dies, their shares may pass to their beneficiary.
Liability for Debt
- Company members are not responsible for company debts, depending on the type of company (public limited, private limited, unlimited, or by guarantee).
- Unlimited companies have full liability for members.
Legal Rights and Legal Actions
- A company's rights can only be enforced by the company itself.
- A company can sue or be sued by its own members or anyone else.
Disclosure of Accounts and Documents
- A company must file copies of its balance sheet, profit and loss account, and other documents with the Registrar.
- These documents are available for inspection by anyone paying the appropriate search fee.
Capital and Raising of Capital
- A company can raise funds by borrowing, issuing shares, or debentures.
- The Companies Act regulates raising funds from the public.
- A registered prospectus must accompany any public offer of shares or debentures.
Audit
- All companies must appoint an independent auditor.
Income Tax
- Every company resident in Malaysia must deduct income tax at the prevailing rate from dividends paid to shareholders.
Duration and Dissolution
- A company has perpetual existence and is not affected by the death or incapacity of one or more members.
- Members may come and go, but the company's existence remains unaffected.
Company as a Body Corporate
- A registered company is considered a body corporate with a separate legal personality.
- The concept of separate legal entity is that the corporation is distinct from its members and controllers.
Salomon's Principle
- A company exists independently and separately from its members.
- Effects of incorporation include:
- Separate legal personality.
- Ability to sue and be sued in its own name.
- Perpetual succession.
- Ability to own property.
- Limited liability for members.
Exceptions to Salomon's Principles (Lifting the Corporate Veil)
- Numbers of members below 2.
- Fraudulent trading.
- Publication of name.
- Holding and subsidiary companies.
- Evasion of legal obligations or abuse of legal rights.
- Taxation and nationality rules.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
This quiz covers the legal aspects of business organisation, specifically focusing on sole proprietorship. Learn about the nature of sole proprietorship and its characteristics.
