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Limited Liability Partnership (LLP) in Malaysia: A Complete Guide
Updated on: Apr 2nd, 2024
|
8 min read
Limited Liability Partnership (LLP) in Malaysia is a unique business structure, offering an amalgamation of features from a Private Company and a conventional partnership firm. This concept is particularly advantageous for startups, small and medium enterprises (SMEs), as well as professionals like lawyers and accountants. In this blog article, we'll delve into the intricacies of LLPs in Malaysia, providing you with comprehensive knowledge about their characteristics, benefits, drawbacks, and the registration process.
What is Limited Liability Partnership (LLP) in Malaysia?
An LLP in Malaysia is an alternative business vehicle that is regulated under the Limited Liability Partnerships Act 2012. It combines the characteristics of a Company and a Conventional Partnership firm, offering limited liability status to its partners. This structure is suitable for various lawful business purposes with a profit motive and is also ideal for professionals carrying out their practice.
Key Features of LLPs
Limited Liability Partnerships (LLPs) in Malaysia offers a blend of features. Here are the expanded key features:
Separate legal entity: LLPs are legally distinct from their partners. This means that an LLP can own property, enter into contracts, and be involved in legal proceedings in its own name.
Limited Liability Protection: One of the most significant advantages is the limited liability offered to the partners. The personal assets of the partners are protected against business debts and obligations. This is not the case in a conventional partnership.
Perpetual succession: An LLP continues to exist regardless of changes in partnership. This means that the admission, resignation, or death of partners does not affect its existence, rights, or obligations.
No minimum or maximum limit on partners: LLPs can be formed with any number of partners without an upper limit.
Flexibility in operation and management: LLPs provide flexibility similar to a partnership, especially in terms of internal management structure, which is determined by the LLP agreement among partners.
Compliance and regulatory requirements: LLPs have fewer compliance requirements compared to Companies, making them a simpler and more cost-effective option for small businesses and professionals.
Taxation: The taxation of LLPs in Malaysia is at an entity level, offering a simpler tax structure compared to corporations.
Benefits and Disadvantages of LLP
The table of advantages and disadvantages below highlights the balance between the flexibility and protection offered by an LLP along with the operational and administrative aspects that need consideration. Businesses need to weigh these factors based on their specific needs and goals when choosing their business structure.
| Advantages of LLPs | Disadvantages of LLPs |
|---|---|
| Limited Liability Protection: Partners have their personal assets protected against business debts and obligations. | Complex Setup: Establishing an LLP can be more complex compared to sole proprietorships or conventional partnerships. |
| Operational Flexibility: LLPs allow partners to define roles and responsibilities in the partnership agreement, offering greater management flexibility. | Limited Public Understanding: There's a general lack of public awareness and understanding about the LLP structure, which can affect business dealings. |
| Ease of Formation and Cost-Effectiveness: Setting up an LLP is relatively straightforward and less expensive than forming a corporation. | Transfer of Ownership Restrictions: There can be certain restrictions or complexities in the transfer of ownership or partnership interests. |
| Tax Efficiency: Taxation at the entity level is simpler compared to corporations, and some tax benefits may apply. | Limited Capital Raising Options: LLPs may face challenges in raising capital since they cannot issue shares like a corporation. |
| No Audit Requirement for Small LLPs: Smaller LLPs are not required to audit their accounts if their annual revenue falls below a certain threshold. | Professional Recognition: Some industries or sectors may prefer dealing with incorporated companies over LLPs due to perceived stability and credibility. |
| Credibility and Professionalism: Being a registered business entity, an LLP can enhance the professionalism and credibility of the business. | Financial Reporting Requirements: LLPs are still subject to certain financial reporting and disclosure requirements, which might be a burden for small businesses. |
| Perpetual Existence: Changes in partners do not affect the LLP’s existence, ensuring business continuity and stability. |
Examples of LLPs in Malaysia
In Malaysia, Limited Liability Partnerships (LLPs) are a popular choice for a variety of business fields, particularly among professionals and small to medium-sized enterprises (SMEs). While specific examples of LLPs operating in Malaysia are not readily available in public domain sources, we can look at the types of businesses and professions that commonly adopt the LLP structure based on the nature and benefits of LLPs.
LLPs in Malaysia are often favoured by:
Professional Service Providers: This includes legal, financial, and company secretarial firms. Professionals in these fields choose LLPs for their flexibility and limited liability features.
Startups and Small to Medium Enterprises (SMEs): The LLP structure is beneficial for smaller businesses due to its lower compliance requirements compared to corporations and the protection of personal assets.
Joint Stock Companies and Venture Capital Businesses: These entities may also find LLPs advantageous for their operational flexibility and ease of managing internal arrangements through partnership agreements.
How to register an LLP in Malaysia
Registering a Limited Liability Partnership (LLP) in Malaysia involves a straightforward process, primarily managed through the MyLLP Portal of the Companies Commission of Malaysia. Here is an elaboration on the steps involved:
Preparation: Before starting the registration process, you need to gather necessary information such as the proposed name of the LLP, nature of business, details of all partners, details of the compliance officer, and a registered office address.
Name reservation: The first step is to reserve a name for your LLP. This involves checking the availability of the desired name and submitting a Name Reservation Form to the SSM for approval. There's a fee associated with this process, and the name, once approved, is reserved for a certain period.
Online registration: After name approval, the next step is to register the LLP online through the MyLLP portal. This involves filling out the LLP registration form with all required details, such as partner information, business nature, and compliance officer details.
Compliance officer: The LLP must appoint a compliance officer, who can be one of the partners or someone qualified under the Company Act 2016. The compliance officer must be a Malaysian citizen or a Permanent Resident (PR) and reside in Malaysia.
Submission of documents: Along with the online application, you need to submit relevant documents such as partner details, the compliance officer's information, and approval from a professional body, if applicable (especially if the LLP provides professional services like legal or auditing).
Payment of fees: The registration process includes a fee, which is MYR 500 as of the latest information. This fee is paid upon submission of the application.
Approval and registration: Once the application and payment are processed, which typically takes about 4-7 business days, a notice will be issued at the time of registration. This document serves as proof of the existence of the LLP.
Post-registration compliance: After the LLP is registered, it must comply with ongoing requirements, such as filing annual returns and maintaining proper financial records.
Conclusion
Limited Liability Partnerships in Malaysia offer a flexible and efficient business structure, especially for SMEs and professional services. With the benefits of limited liability and operational flexibility, it's an attractive option for many business owners.
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