A comprehensive insights about Limited liability partnership in Malaysia

Malaysia, with its dynamic business environment, offers various business structures for entrepreneurs and investors. One such option is a Limited Liability Partnership (LLP) in Malaysia. In this comprehensive article, we will explore what an LLP is, provide examples, and delve into the advantages, disadvantages, and the registration process for LLPs in Malaysia.

See more: Setting up a company in Malaysia for foreigners

Limited liability partnership in Malaysia (LLP)

The Limited Liability Partnership (LLP) in Malaysia serves as an alternative business structure that combines elements of a private company and a traditional partnership. It grants partners limited liability protection while allowing internal flexibility through a partnership agreement. This blend provides entrepreneurs and business owners with a more organized business structure compared to a sole proprietorship or conventional partnership. It allows for operational control based on the partnership agreement while enjoying the protection of limited liability, unlike a company that often faces stringent regulatory requirements under the Companies Act 1965.

LLP offers a business structure with straightforward and adaptable procedures for formation, upkeep, and dissolution, making it competitive both domestically and internationally. Notably, the concept of LLP has been introduced in various countries, including the United States of America, the United Kingdom, Singapore, India, and Japan, as an alternative business model. Under Malaysian law, the Limited Liability Partnerships Act 2012 governs the establishment and operation of LLPs.

An example limited liability partnership in Malaysia (if)

This is an example if entrepreneurs choose a limited liability partnership in Malaysia. All information is hypothetical.

Demographic

John and Sarah are experienced architects who decide to join forces and establish their own architecture firm. They choose to structure their business as an LLP, combining their skills and resources while protecting their personal assets.

Operating the LLP

John focuses on project design and client interactions, while Sarah manages the firm's finances and administrative tasks. Their partnership agreement specifies that profits will be shared equally.

Some potential benefits will have

• Limited Liability: By opting for an LLP, John and Sarah protect their personal assets. In case their architecture firm faces financial issues or legal claims, their personal savings and assets remain separate.
• Flexibility: They have the flexibility to design their partnership agreement, outlining the division of responsibilities, profit-sharing, and other important aspects of their collaboration.
• Tax Efficiency: As an LLP, their architecture firm is taxed transparently at the partner level, reducing their tax burden compared to some other business structures.

Some challenges will face

While operating as an LLP provides various advantages, John and Sarah must ensure they adhere to annual compliance requirements, including filing annual returns and financial statements with the relevant authorities. Additionally, they should maintain clear records of their partnership agreement and any amendments made over time.

Conclusion

This example demonstrates how an LLP structure can benefit professionals like John and Sarah, allowing them to collaborate while safeguarding their personal assets and enjoying tax efficiencies.

An example limited liability partnership in Malaysia

Advantages and disadvantages of LLP in Malaysia

7 impressive advantages of LLP in Malaysia

The Limited Liability Partnership (LLP) offers numerous benefits, particularly if you aim to safeguard your personal assets and only be liable for what you've invested in your business. The advantages of an LLP include the following:

1. Independent Legal Entity

This business structure is recognized as a "legal entity" or "juristic person" established under the Limited Liability Partnership Act 2012. It possesses the autonomy to acquire its assets, establish corporate bank accounts, hire personnel, secure business licenses, and function as a self-reliant corporate entity.

2. Personal Asset Protection

The personal wealth of individuals involved is shielded, and they are not personally accountable for the debts accrued by the business over time.

3. Property Ownership

As a "legal entity" or "juristic person," a Limited Liability Partnership can procure various assets, including real estate, vehicles, and more, in its own name. Partners do not possess rights to stake a claim on assets owned by the company, as long as the business is ongoing.

4. Simplified Ownership Transition

Partners within the LLP hold the authority to appoint or remove partners according to their preferences. Any adjustments, such as modifications in profit-sharing or partner remuneration arrangements, can be determined during monthly partner meetings or specified in a new partnership agreement.

5. Continual Existence

Similar to a Private Limited Company (Sdn. Bhd.), a Limited Liability Partnership also enjoys perpetual succession. In essence, it remains in existence until it undergoes a legal dissolution. The business remains uninterrupted even if existing partners depart.

6. Ease of Compliance

Once a Limited Liability Partnership is established, there is no mandatory requirement to appoint a certified Company Secretary, unlike a Private Limited Company (Sdn. Bhd.). However, the appointment of a compliance officer, typically one of the business partners, is necessary.

Another compliance aspect for a Limited Liability Partnership is the submission of an annual declaration of accounts without the obligation to appoint an auditor or file an audited financial statement.

7. Favorable Income Tax Rate

The highest income tax rate applicable to a Limited Liability Partnership is a flat rate of 24%, in contrast to traditional partnerships, which incur a higher rate of 28%.

4 Potential disadvantages of LLP in Malaysia

While entrepreneurs may recognize the advantages of establishing a Limited Liability Partnership (LLP) company, it's crucial to also acknowledge the disadvantages before making a final decision.

1. Limited Funding Access

LLPs may encounter challenges in accessing funds. Although these companies can establish corporate bank accounts in their own names, many bankers remain skeptical about such business structures, resulting in limited loan options.

2. Limited Third-Party Investment

Third-party investors may show little interest in investing in or financing LLPs, potentially restricting the avenues for capital infusion.

3. Complex Decision-Making

While the initial setup of an LLP may be straightforward, as the business expands, additional partners may become involved in decision-making. This can lead to decision-making complexities, particularly if disputes arise among the partners.

4. Lack of Share Options

Unlike companies that rely on share options, LLPs do not have the option to offer shares to the public as an alternative means of raising capital.

Registration of LLP in Malaysia

The registration of an LLP in Malaysia involves several key steps:

• Name Reservation: Begin by reserving a unique name for your LLP through the Companies Commission of Malaysia (SSM).
• Partnership Agreement: Draft a comprehensive partnership agreement outlining the roles, responsibilities, and profit-sharing arrangements among partners.
• Registration Documents: Prepare the necessary registration documents, including Form 1 (Application for Registration of an LLP) and Form 2 (Statement of Compliance).
• Fees and Submission: Pay the required fees and submit the registration documents to the SSM.
• Certificate of Registration: Upon successful registration, you will receive a Certificate of Registration, making your LLP a legally recognized entity.
• Annual Compliance: LLPs are required to fulfill annual compliance requirements, including filing annual returns and financial statements.

Registration of LLP in Malaysia

Conclusion

A Limited Liability Partnership (LLP) in Malaysia is a strategic choice for professionals and entrepreneurs looking to combine the benefits of a partnership with limited personal liability. Its flexibility, tax efficiency, and protection of personal assets make it an appealing business structure. However, the registration process can be intricate, and LLPs may be limited to certain professions. It's advisable to consult with legal and business experts to navigate the registration process and ensure compliance with Malaysian regulations. With the right approach, an LLP can provide a solid foundation for professional and entrepreneurial endeavors in Malaysia's thriving business landscape.