There are many types of business entities which exist in Malaysia and one of the more popular ones is Partnership. For Partnerships, they are governed by the Companies Commission of Malaysia – Suruhanjaya Syarikat Malaysia (SSM) and Registration of Businesses Act 1956.
Definition of a Partnership
A partnership is a business entity owned by two (2) persons but not exceed to twenty (20) persons at one time. An identity card name is not allowed to be used as a business name such an entity. Only a local Malaysian or Permanent Resident (PR) is allowed to register a Partnership to run their business.
Some of the unique features a Partnership includes:
The aim for Partnerships is for start-up businesses to test their business strategy and explore a new market. The partnership agreement is normally drawn up by an appointed legal counsel, which outlines the responsibilities and liabilities of each partner, conditions of termination, and the means of resolving intra-partner disputes.
All partners involved are required to share the profits and liabilities in the business depending on the percentage that they have invested.
Types of Partnerships in Malaysia
Advantages of Starting a Partnership in Malaysia
The reasons why a Partnership is the preferred entity for business owners in Malaysia are as follows:
Disadvantages of Starting a Partnership in Malaysia
Of course, there are also certain disadvantages when it comes to establishing a Partnership in Malaysia.
Partnership Agreements
A partnership agreement is a formal contract which legally binds the partners. This agreement serves to delegate their respective rights, duties, and the division of profits and losses. Additionally, it establishes fundamental guidelines governing the partnership, encompassing aspects like capital contributions, withdrawals, and financial reporting. While the Partnership Act 1961 does not make partnership agreement mandatory, having a written partnership agreement is strongly recommended to formally lay down operational guidelines, promotes business efficiency, and mitigates potential disputes and misunderstandings among partners.
Partnership agreements commonly include among others – the partners’ assumptions, assets and capital accounts ownerships, profit and loss sharing, practice management, dispute matters, expulsion, and death, disability or resignation.
In preparing a partnership agreement, the Malaysian Bar has created a checklist of details to be included.
Rights and Liabilities in a Partnership
Section 26 of the Partnership Act 1961 outlines the obligation of partners. Partners must adhere to the obligations listed below unless there are specific exceptions entailed in the partnership agreement.
Guidelines on termination of Partnership in Malaysia
When it comes to Partnership laws, every country has its own set of regulations – Malaysia is no exception. A Partnership in Malaysia can be dissolved for any of the reasons below:
The procedure to proceed with the termination is as follows:
The registration fees:
Once everything is in order, partners can proceed with the termination of the partnership in Malaysia as below:
We know that incorporating a company in Malaysia can be challenging and choosing the right business entity is crucial to set up your business to success. Speak to us for a business consultation or for more information on company incorporation in Malaysia!
FAQs
It is possible to convert partnerships to other business structures in Malaysia. The most common course of action taken is that of converting a partnership to a limited liability partnership. The criteria to convert a partnership to a limited liability partnership include the following: the partners are to be the same after conversion, the partnership to be converted must be financially solvent, and a letter of approval from any relevant governing bodies will be required. After conversion is completed, the partnership is considered to have been dissolved. As conversion is a complex and difficult process, this change is one which should only be done after receiving the advice of both a legal advisor and a tax advisor.
The industry in Malaysia which has the most partnerships is the construction industry. Malaysia has a large construction industry which is worth over RM102.2 billion (US$24.3 billion). The areas of the construction industry in which partnerships are most prevalent are those related to construction of non-residential buildings, civil engineering, residential buildings, and special trades.
Other industries in Malaysia with many partnerships that contribute in the economy of the country include the electronics industry, defense industry, and automotive industry.
Foreigners who plan to start a business in Malaysia should note that they are not allowed to start unlimited companies, sole proprietor companies, partnerships, enterprises, or limited liability partnerships in Malaysia. Foreigners are only allowed to register private limited companies, also known as Sendirian Berhad (Sdn Bhd) companies. Companies of this business structure can be owned by foreigners.