Understanding Limited Liability Partnership (LLP) in Malaysia

1. Limited Liability Partnership (“LLP”) is a new corporate vehicle introduced by the enactment of Limited Liability Partnerships Act 2012. LLP combines the features and benefits of a private limited company and a conventional partnership. In understanding the characters of LLP, differences in between a conventional partnership with a private limited company must be explained.

2. A conventional partnership is a legal entity which has two or more partners who share the responsibilities and profits of the business and it has unlimited liability. This means that should the partnership ever be sued by third-party, the partners’ assets can be used to settle debts or fines which may have been imposed through a court order.

3. For this reason, the existence of conventional partnership and the financial status of the partners who own the partnership are closely linked because any matter which has a significant effect on the partnership will significantly affect the individual partners and vice versa.

4. While for a private limited company, it has several shareholders who hold varying amounts of shares in the company. In some instances, a private limited company has only a single shareholder. Despite the number of shareholders of a private limited company, it is particularly important to note that it is a legal entity which has limited liability. This means that any third-party or the shareholders of the company may sue the company and vice versa. For this reason, the assets of a private limited company’s owners or shareholders may not be used to pay for any debts which the company may owe.

5. Considering salient points above, an LLP incorporation in Malaysia combines two important business concepts; that of limited liability and that of a partnership. In an LLP, the partners who own it are independent of the partnership itself. Thus, the partnership operates in a similar manner as does a limited liability company; however, the key difference lies in the fact that the ownership terms are to adhere to the Partnership Act as prescribed by Malaysian Companies Act 2016.

6. Any business owners planning to establish an LLP in Malaysia must create a partnership agreement that contains the details of the partnership. Such details include but are not limited to partners’ responsibilities as well as how the LLP’s profits are to be shared.

7. In Malaysia, an LLP may either have limited or general partners. A limited partner does not have any liabilities with the partnership, and this would cause a limited partner’s personal assets not to be used to settle the debts owed by the partnership. On the other hand, a general partner is liable for any debts which may have been incurred by the partnership and ultimately lead to a general partner’s assets to be used to pay for any debts which partnership may owe. In this regard, an LLP possesses characteristics of both partnerships and limited liability companies alike.

8. Unlike conventional partnerships, partners in an LLP are not personally liable for any debts which may have been incurred by the LLP. Besides, the decision-making process of an LLP is fairly flexible as due to the fact that there are no minimum voting rights required for the passing of a decision in an LLP as may be required by the Constitution of a private limited company. LLPs also able to avoid being burdened by any legal and mandatory requirements which compels the partners of an LLP to submit audited financial statements to SSM which means that LLPs are not required to undergo any mandatory audits as imposed on other business entities.

Nazmi Mohd Zaini, Partner of Nazmi Zaini Chambers is a licensed company secretary and has advised clients in the incorporation of Malaysian private limited companies, LLP, Labuan Investment Holding companies and companies in foreign jurisdictions i.e. Malta, Hong Kong & Singapore.