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Limited Liability Partnership (LLP) Draft Issue in Malaysia

Limited Liability Partnership (LLP) Draft Issue in Malaysia

For those who are not familiar with the term “Limited Liability Partnership” (LLP), here’s a scoop. It’s not a new business entity anymore (many other countries have adopted it, to as close as Singapore), and it gives small businesses potential like never before. Its regulatory spectrum is between the Companies Act 1965, which regulates administration for public and private limited companies (Sdn Bhd) and; the Partnership Act 1971 (Revised 1974) and Registration of Business Ordinance 1956, regulating sole proprietorships and partnerships.

It’s right in the middle of both. Don’t understand? Here’s how it goes:

1. LLP provides the best of both worlds – Association freedom (partnership) and limited liability (as per Private Limited companies).

2. However though in an LLP, should there be a misconduct of one partner, the other partner is not responsible or liable for damages.

3. And for the investors who take part in day-to-day operations, this could be a cost-effective alternative.

And what cost?

LLP’s structure allows for the entity itself to do away with audits, annual general meetings (AGM), the company secretary and simplified financial reporting (annual returns). For small businesses, these reductions could reward them with better financial liquidity, so to speak.

What’s the catch?

1. A separate legal entity LLPs’ can own properties and sue or be sued. Partners can come and go depending on agreements.

2. Must hire one legally capable Company Secretary as a partner (Compliance Officer). All LLPs’ are required to appoint a person qualified to be a Company Secretary.

3. File an Annual Declaration 30 days following the anniversary of the business, to see if the business’s ability to pay its debts in normal cause.

4. Prepare accounts Do not require an auditor as compared to private limited (or Sdn Bhd) companies.

5. Must have a registered office Every LLP is required to have a registered office, where all statutory records are kept.

6. Exclusion of Partnership Act 1961 (Revised 1974) Rules governing the relationship and dealings with external parties of partners are solely governed by the LLP Act.

Issues to ponder

One of the partners in an LLP has to be a legally capable Company Secretary (the Compliance Officer). Although this ‘partner’ only performs duties like publication of the LLP’s name at the registered office, register any changes in particulars of the LLP and file an Annual Declaration, there’s a catch – If you may have already wondered:

1. The Compliance Officer (or the ‘Partner’ cum Company Secretary) is liable personally for any contravention of his duties.

2. The LLP’s partners can appoint an auditor if there’s mutual agreement or if stated in the Partnership agreement. But in Section 29 of the Draft Bill, it specifically says that LLPs’ do not necessarily need to appoint an auditor.

3. Now look back at No. 1 and see if the burden of this Compliance Officer cum Company Secretary is heavy. Accounts have to be prepared based on accepted accounting standards showing ‘true and fair view’ and solvency of the LLP has to be declared.

4. LLPs with banking facilities or applying may be required to have their accounts audited by bankers.

5. Conventional partnership and private limited companies (Sdn Bhd) can convert to LLP, but the Draft Bill does not have conversions out of LLP. “Dissolution”, termination of legal contract or a legal relationship could be the only answer.


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