Entrepreneurship

CIB0243

Chapter 2: Choosing a Forms of Business

Ownership and Franchising

❖ The sole proprietorship

❖ The partnership

❖ The corporation
Learning Objectives

1. Describe the advantages and disadvantages of sole

proprietorships.
2. Explain the different types of partners and the importance of
partnership agreements.
3. Describe the advantages and disadvantages of
partnerships.
4. Summarize how a corporation is formed.
5. Describe the advantages and disadvantages of a
corporation.
3 Forms of Business Ownership
classified by legal perspective

1 Sole
Proprietorship

2 Partnership

3 Corporation
 Chapter 2:
Forms of Business Ownership

The sole proprietorship

❖ What is sole proprietorship?

❖ Advantages of sole proprietorship

❖ Disadvantages of sole proprietorship

 Chapter 2:
Forms of Business Ownership
The sole proprietorship

It is a business owned and managed by only one individual. It is also known

as sole trader. A sole proprietorship can have large number of employees.

The simplest business structure with minimal legal requirement under the
Business Registration Act 1956 and the Procedures of Business Registration
1957.

Only Malaysian citizens who are permanent residents can register a business
as a sole proprietorship.

Examples: tailors, beauty salons, restaurants and mini market.

 3 Forms of Business Ownership
classified by legal perspective

• A business that is owned by one

1 Sole person
Proprietorship • The simplest form
• Many large businesses began as a
small
2 Partnership

3 Corporation
 Chapter 2:
Forms of Business Ownership

The sole proprietorship

Advantages of sole proprietorship

✓ All profits are subject to the owner.

✓ Most simple to begin sole proprietorship business. Fewer documents

are needed for registration.

✓ Least expensive form of business ownership to establish.

 Chapter 2:
Forms of Business Ownership

The sole proprietorship

Disadvantages of sole proprietorship

✓ The sole proprietor is personally liable for all of the business’s debts.

✓ The business stops if the sole proprietor dies or withdraws from the
business.

✓ Equity is limited to the owner’s personal resources.

 Chapter 2:
Forms of Business Ownership

The partnership

❖ What is partnership?

❖ Advantages of partnership

❖ Disadvantages of partnership
 Chapter 2:
Forms of Business Ownership

The partnership

A partnership is formed by 2 or more individuals but not exceeding the

maximum number of 20 persons.

A partnership is formed under the Business Registration Act 1956 and

the Procedures of Business Registration 1957.

The partners share the business’s assets, liabilities and profits

according to partnership agreement.

Example: Accounting & Audit Firms, Law firms, Clinics

3 Forms of Business Ownership
classified by legal perspective

• A voluntary association of two or

1 Sole more persons.
Proprietorship • No legal limit on the maximum number
of partners; most have only two
• Partnerships are usually a pooling of
2 Partnership special talents

3 Corporation
 Chapter 2:
Forms of Business Ownership

The partnership

Advantages of partnership

✓ There is a bigger range of skills and abilities compared to sole

proprietorship.

✓ There is a bigger pool of capital compared to sole proprietorship.

✓ Each partner shares the total profits of the company.

 Chapter 2:
Forms of Business Ownership

The partnership

Disadvantages of partnership

✓ An entrepreneur can lose his personal assets due to a partner’s

bad business decision.

✓ The business stops if one of the partners dies or withdraws.

✓ Selling the business is difficult - requires finding new partner

 Chapter 2:
Forms of Business Ownership

The corporation

❖ What is corporation?

❖ Advantages of corporation

❖ Disadvantages of corporation
 Chapter 2:
Forms of Business Ownership
The corporation

A corporation is a separate entity apart from its owners.

The profits generated by a corporation are taxed as the “personal

income” of the company.

Any income distributed to the shareholders as dividends or profits are

taxed again as the personal income of the owners.

Examples: SEG International Berhad, Public Bank Berhad, Malaysia

Airlines Berhad.
3 Forms of Business Ownership
classified by legal perspective

The business entity that separates

1 Sole ownership and control
Proprietorship • Ownership: Stockholders
• Control: Board of director

2 Partnership

3 Corporation
3 Forms of Business Ownership
classified by legal perspective

The business entity that separates

1 Sole ownership and control
Proprietorship • Ownership: Stockholders
• Control: Board of director

2 Partnership

3 Corporation
Hierarchy of Corporate Structure
 Chapter 2:
Forms of Business Ownership

The corporation

Advantages of corporation

✓ Owners (shareholders) are not personally liable for the debts of the
business.

✓ The business does not dissolve when owners (shareholders) die or

change.

✓ Can be transferred to new owners fairly easily.

 Chapter 2:
Forms of Business Ownership

The corporation

Disadvantages of corporation

✓ Establishing a corporation is costly.

✓ It is time consuming to establish a corporation. More effort and more

documents are needed to register a corporation.

✓ A corporation must pay taxes at the corporate tax rate.

 Example
Proctor and Gamble
 Proctor and Gamble

1. About company: The Introduction

An American corporation headquartered
in Cincinnati, Ohio
manufactures a wide range of consumer
goods
widely recognized as the industry’s global
innovation leader.

P&G headquarter
2. Product Categories or Product Lines
Proctor
There are and
two product Gamble
lines
1. Beauty and Grooming
2. Household Care
 Proctor and Gamble

Product Categories: 1. Beauty and Grooming

 Proctor and Gamble

Product Categories: 1. Beauty and Grooming

 Proctor and Gamble

Product Categories: 2. Household Care

 Proctor and Gamble

Product Categories: 2. Household Care

 Proctor and Gamble
3. History
WAS FOUNDED IN 1837 BY TWO MEN WHO MET BY
CHANCE

William Procter James Gamble

•from England •from Ireland
•Candle maker •a soap maker

• The two might never have met had they not married sisters Olivia and Elizabeth Norris,
whose father convinced his new sons-in-law to become business partners.
• After several years, the sons agreed and on October 31, 1837,
 Proctor and Gamble
4. Form of Business Ownership
 As a partnership in 1837
 They signed the partnership agreement that founded the Procter & Gamble
Company.
 Corporation:
 Jan. 02, 1970, P&G stocks are traded in New York Stock Exchange (NYSE
)

 Separation of ownership and control

 Chapter 2:
Forms of Business Ownership

1.
(a) What is sole proprietorship? Explain.
(b) Explain TWO (2) advantages of sole proprietorship.
(c) Explain TWO (2) disadvantages of sole proprietorship.

2.
(a) What is partnership? Explain.
(b) Explain TWO (2) advantages of partnership.
(c) Explain TWO (2) disadvantages of partnership.
 Chapter 2:
Forms of Business Ownership

3.
(a) What is corporation? Explain.
(b) Explain TWO (2) advantages of corporation.
(c) Explain TWO (2) disadvantages of corporation.