Limited Liability Partnerships (LLP) in Malaysia

Introduction to Limited Liability Partnerships in Malaysia

Malaysia offers a wide range of business entities for entrepreneurs to choose from, each with its own advantages and limitations. Selecting the right structure is critical, as it directly impacts taxation, liability exposure, compliance obligations, and long-term scalability.

One such business structure is the Limited Liability Partnership (LLP). Governed by the Limited Liability Partnership Act 2012, an LLP combines the flexibility of a conventional partnership with the liability protection of a Private Limited Company (Sdn. Bhd.).

Definition of a Limited Liability Partnership (LLP)

A Limited Liability Partnership (LLP) is a hybrid business structure that incorporates features of both a conventional partnership and a Private Limited Company (Sdn. Bhd.).

Key Features of an LLP

Some of the defining characteristics of a Limited Liability Partnership include:

• Limited liability protection for partners
• Lower income tax rate compared to conventional partnerships
• Exemption from lodging audited financial statements

Before the introduction of LLPs, local entrepreneurs primarily registered their businesses as sole proprietorships or conventional partnerships due to:

• Fast and low-cost registration
• No corporate tax
• Minimal formality
• Low annual maintenance costs
• Simple wind-up procedures

However, these structures exposed business owners to unlimited personal liability, making them vulnerable to creditor claims and lawsuits in the event of bankruptcy.

Why Register a Limited Liability Partnership (LLP) Instead?

Over the years, the Companies Commission of Malaysia (SSM) has explored ways to support small and medium enterprises (SMEs) while safeguarding entrepreneurs’ personal wealth.

In response, the Limited Liability Partnership Act 2012 was introduced to provide a modern business vehicle designed for:

• Professionals such as lawyers, accountants, and company secretaries
• Start-ups and SMEs seeking growth
• Business owners looking for flexibility without strict corporate compliance

An LLP allows entrepreneurs to grow their business with reduced personal risk, fewer compliance requirements, and operational flexibility—making it a popular alternative to Sdn. Bhd. for professional and service-based businesses.

Advantages of Limited Liability Partnership (LLP)

After understanding the fundamentals, let’s explore the benefits of operating under an LLP structure.

1. Separate Legal Entity

An LLP is recognised as a “legal entity” or “juristic person” under the Limited Liability Partnership Act 2012. It can:

• Own assets in its own name
• Open a corporate bank account
• Hire employees
• Apply for business licences
• Enter into contracts

Partners’ personal wealth is protected and not personally liable for the LLP’s debts and obligations.

2. Owning Property

As a legal entity, an LLP can acquire assets such as:

• Buildings and land
• Vehicles
• Equipment and machinery

Partners cannot claim ownership of LLP assets as long as the business operates on a going concern basis.

3. Ease of Ownership Transfer

LLPs offer flexibility in managing ownership:

• Partners may be appointed or removed as needed
• Profit-sharing ratios and remuneration packages can be revised
• Changes can be agreed upon during meetings or documented in updated partnership agreements

This flexibility allows LLPs to adapt easily as the business evolves.

4. Uninterrupted Existence

Similar to a Private Limited Company (Sdn. Bhd.), an LLP enjoys perpetual succession.

The LLP continues to exist regardless of:

• Partner resignation
• Death of a partner

The business remains operational unless legally dissolved.

5. Easy Compliance Requirements

Compared to Sdn. Bhd., LLPs have fewer compliance obligations:

• No requirement to appoint a certified Company Secretary
• Appointment of a Compliance Officer is mandatory (usually one of the partners)
• Annual declaration of accounts must be filed
• No requirement to appoint an auditor or submit audited financial statements

6. Lower Income Tax Rate

LLPs benefit from competitive tax treatment:

• Flat tax rate of 24%, lower than conventional partnerships (up to 28%)
• LLPs with capital contribution of MYR 2.5 million or less enjoy:
  • 20% tax rate on the first MYR 500,000 of chargeable income

Profits distributed to partners are:

• Exempt from corporate tax
• Not subject to withholding tax

Disadvantages of Limited Liability Partnership (LLP)

Despite its benefits, LLPs may not suit every business. Hence, before deciding to incorporate a Limited Liability Partnership, consider both its advantages and drawbacks as an entrepreneur.

1. Limited Access to Funding

Banks are often cautious when lending to LLPs, resulting in:

• Fewer loan options
• Limited financing packages

Third-party investors also tend to prefer Sdn. Bhd. structures.

2. Decision-Making Challenges

As the LLP grows and more partners are added:

• Decision-making can become slower
• Disagreements may arise among partners
• Consensus-based governance may delay key actions

3. No Public Fundraising Option

LLPs do not issue shares, meaning:

• No access to public fundraising
• No equity-based capital raising

Funding options remain limited to internal contributions or loans.

Requirements to Set Up a Limited Liability Partnership (LLP) in Malaysia

LLP registration must be completed online via the MYLLP portal by the appointed Compliance Officer.

Required Information

• Proposed LLP name
• Nature of business
• Registered office address
• Details of all partners
• Details of the Compliance Officer
• Approval letters from professional bodies (if applicable)

Compliance Officer Requirements

The Compliance Officer must:

• Be a partner or qualified to act as a Company Secretary
• Be at least 18 years old
• Be a Malaysian citizen or Permanent Resident
• Reside in Malaysia

Professional service LLPs (e.g. law, audit) must submit approval from relevant governing bodies.

Registration Cost

• MYR 500 incorporation fee
• Instant registration upon successful submission
• SSM issues a Notice of Registration as proof of existence

Limited Liability Partnership (LLP) Registration Procedure and Timeline

The registration process typically takes up to 8 business days, depending on SSM system availability.

Step-by-Step Process

Step 1: Name reservation submission to SSM
Step 2: Submission of signed incorporation documents (1–3 business days)
Step 3: Issuance of certified LLP documents for:

• Bank account opening
• Business licensing
• Operational purposes

Malaysia Limited Liability Partnership (LLP) Taxation

Tax treatment for LLPs is governed by Public Ruling No. 3/2014 issued by the Inland Revenue Board of Malaysia (LHDN).

Key Tax Rules

• LLP income is taxed at the entity level
• Preferential tax rate applies if capital contribution ≤ MYR 2.5 million
• Not applicable if:
  • More than 50% capital is contributed by a company
  • Cross-ownership exists between LLPs and companies

Allowable Deductions

Eligible LLPs may deduct incorporation expenses under:

• Income Tax (Deduction for Incorporation Expenses) Rules 2003
• Income Tax (Deduction for Incorporation Expenses) (Amendment) Rules 2005

Record-Keeping Requirements

Although audited accounts are not required, LLPs must maintain:

• Income and expenditure records
• List of debtors and creditors
• Asset register (current and fixed)
• Capital contribution breakdown
• Supporting transaction documents

These records enable the Compliance Officer to fulfil tax filing obligations.

Final Thoughts

A Limited Liability Partnership (LLP) is an excellent option for professionals, SMEs, and start-ups seeking flexibility, reduced personal liability, and manageable compliance requirements.

If you are considering incorporating an LLP or need assistance with taxation and compliance in Malaysia, our consultants are ready to guide you through every step.

Reach out to us today to find out more.