In Malaysia, business owners have a choice either to operate under sole proprietorship, partnership, public limited company or as a public listed company. This article will discuss about another form which a business can be incorporated, that is limited liability partnership (LLP).
1. Background and Nature of Limited Liability Partnership (LLP)
LLP is a business form that fuses the benefits of a standard partnership and a company limited by liability. The Limited Liability Partnerships Act 2012 (LLP Act) was introduced and came into force on 26 December 2012.
According to section 6 of the LLP Act 2012, LLP requires at least two partners, with the maximum number of partners not being imposed.
However, section 7 of the same Act imposes that if the number of partners falls below two, the remaining partner is obligated to increase the number of partners to at least two within the next six months.
2. Benefits of Limited Liability Partnership Compared to Conventional Partnership
By virtue of section 3 of the LLP Act 2012, an LLP possesses a separate legal entity from its partners and possesses perpetual succession.
In contrast to a conventional partnership, the existence of an LLP will not be affected if the partners are changed.
This means that an LLP may do or take actions of which a conventional partnership is refrained from.
3. Conversion of an Existing Partnership to an LLP
If an existing partnership wishes to convert its business to an LLP, they may do so. The guideline for the conversion is explained in section 29 of the LLP Act 2012.
A conventional partnership may convert to a limited liability partnership if all the partners of the conventional partnership and no one else is named as the shareholders.
4. The Tax Benefits of an LLP
According to the Inland Revenue Board of Malaysia (LHDN), an LLP is taxed similarly to a company, where 24% of their chargeable income will be taxed generally. In comparison to a conventional partnership, the partners of an LLP do not have their share of the profit taxed. But the partners are taxed on their remunerations and benefits received from the LLP. Moreover, the payments of tax from parts excluding their share of the profit are subject to their individual income tax and charged on the partners concerned.
As the days go by, LLP will continue to grow and may potentially be the first choice among business owners in Malaysia.
Aiman Nariman Mohd Sulaiman, E. O. (2018). Malaysia Company Law: Principles and Practices 2nd edition (Part 2). Kuala Lumpur: Commerce Clearing House (Malaysia) Sdn Bhd.
Chan, W. (2017). Essential Company Law in Malaysia. Sweet & Maxwell
Shih, L. (2015, 11 5). Limited Liability Partnerships for Lawyers – A Long Wait. Retrieved from The Malaysian Lawyer.com: https://themalaysianlawyer.com/2015/11/06/limited-liability-partnerships-for-lawyers-a-long-wait/