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Question 1: Problem Set 2, Question 1
There are several choices of form of business organization that Mal and Lisa can opt to do their graphics business. If they are to conduct the Smallco Graphics business through a company, a very significant of the advantages will be the separate legal entity, which means that from the view of the law, a company is treated as a separate person. Hence, the debts of the company will be limited to the amount remaining unpaid on the members’ shares. This is also called “limited liability” of the members. Apart from the limited liability, a company has a perpetual succession, meaning that it is a continuing entity in law with its own identity regardless of changes in its membership. Membership of a company can be transferred from one individual to another upon death, resignation or other circumstances. Its existence can be assured until it is decided to be winded up or deregistered. Another advantage of a company is that it is easier to borrow from financial institutions such as banks, so a company can grow and expand very fast compared to sole proprietor and partnership. Professional managers and staffs can be employed to manage the business as well, whereby this will lead to higher efficiency of a company’s operations. The disadvantages will be that companies are difficult to maintain secrecy of the business, since their accounting details are open to the public, especially for the public listed companies. Besides that, the companies are required to keep proper records of accounting and they need to submit all financial records to the authorities, meaning that companies are tightly controlled and regulated by the government. Companies especially those public listed have the risk of being taken over by other companies, this is because their shares are listed on the Stock Exchange. Another disadvantage is that in a company, especially the big company, the shareholders who are the actual owner of the company do not get involved in the day to day matters of the business and therefore they do not have much personal loyalty to the business. The decision making for companies is rather slow if compared to other forms of business, this is due to the many management levels in the company structure. Those stated above are some of the advantages and disadvantages for a formation of company to run a business. Mal and Lisa will need to consider from many aspects in order to get a most appropriate way to run their business.
Question 2: Problem Set 2, Question 5
The main advantage of setting up a business through company is the limited liability of its members. The obligation and the debt incurred by the company will not be the responsibility of its members. In Smallco, both Mal and Lisa as the shareholders are entitled to this protection. In the first case, where Smallco executes a one year lease for new premises for the business, however, after six months after the agreement are entered into, the company was not able to make the payments required under the agreement. In this case, Lisa and Mal are not liable to the landlord. This is reflected in the definition of “company limited by shares “ contained in Sec 4 of the Companies Act, as “ a company formed on the principle of having the liability of its members limited [by the memorandum] to the amount (if any) unpaid on the shares respectively held by them.” In the second case, whereby Smallco borrows RM30,000 from LargeBank to fund expansion of the business. At the bank’s request, Lisa and Mal agreed to give the bank a charge over their house to secure their obligations under the guarantee. This is when the members of a limited company agree separately with a creditor to assume responsibility for a...
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