Unconventional Partnerships: Limited Liability Partnerships
by Jason Yong Kok Yew ~ 23 June 2023
11 years ago, Malaysia saw the introduction of Limited Liability Partnerships (“LLP”) as an alternative business vehicle in addition to the conventional choices of sole proprietorships, conventional partnerships, and companies.
However, the concept of LLPs still appears to be shrouded in mystery. In this article, we take a look at the characteristics of LLPs in Malaysia.
Main Characteristics of LLP
- Regulation and Conception
LLPs are regulated by the Limited Liability Partnerships Act 2012 (“LLPA”) and is governed by the Companies Commission of Malaysia (SSM)[1]. LLPs combine many of the attributes of a body corporate such as a company, while retaining the internal flexibility of a conventional partnership.[3] - Liability
Similar to the limited liability enjoyed by the shareholders of a company, LLPs also provide the protection of limited liability to its partner coupled with flexibility of internal business regulation through partnership arrangement similar to a conventional partnership. - Legal Entity
Any debts and obligations of the LLP will be borne by the assets of the LLP and not the partners. An LLP is a legal status of a body corporate which is capable of suing, being sued in its own name, holding assets, and doing such other acts and things in its name.[4] - Account Audit Requirement
Unless provided in the partnership agreement, there is no statutory auditing requirements for LLP.[5] - Number of Partners
There is no limit as to the maximum number of partners in an LLP, but the minimum number is 2 partners.[6]
What types of organisations are most suitable user or beneficiaries of LLP?
An LLP business structure is designed for all lawful business purposes with a view to make profit.[7] However, it appears that a combination of limited personal liability and less rigid compliance requirements may be beneficial to growth-oriented organisations like start-ups and SMEs.[8]
Differences between LLP and the conventional partnership and a Sdn Bhd?[9]
|
|
LLP
|
Sdn Bhd
|
Conventional Partnership
|
|
Issuance of share
|
No
|
Yes
|
No
|
|
Formal requirement for Annual General Meetings (AGM)
|
No
|
Yes
|
No
|
|
Formal requirements to submit financial Statement to SSM
|
No
|
Yes
|
No
|
|
Formal Requirement to have audited accounts |
No
(*unless required in partnership agreement) |
Yes
|
No
(*unless required in partnership agreement) |
|
Formal Requirement to have company secretary |
No
|
Yes
|
No
|
|
Minimum Paid-in Capital (also known as Paid up Capital)
|
No
|
RM1 and above
|
RM2 and above
|
|
Liability to creditors |
Liability of partners of the LLP is limited to capital originally invested
|
Liability is limited to share capital injected
|
Unlimited liability to their creditors
|
|
Number of partners/ shareholders |
2 and above (No maximum)
|
1-50
|
2-20
|
|
Difficulties in obtaining bank loan |
Low
|
Low
|
High
|
|
Administrative costs |
Low
|
High
|
Low
|
|
Legal entity |
Separate legal entity
|
Separate legal entity
|
No separate legal entity
|
|
Continuity of business |
Perpetual
|
Perpetual
|
Terminate of business upon the death or bankruptcy
|