Limited Liability Partnerships in Malaysia

In Malaysia, there are many types of business entities for an entrepreneur to run his business. Each business entity has their own pros and cons, and it is crucial for entrepreneurs to understand them before incorporating a company.

One of such business entities is a Limited Liability Partnership. This business entity is regulated under the Limited Liability Partnership Act 2012 which combines the characteristics of a Private Limited Company (Sdn. Bhd.) and the conventional Partnership.

A Limited Liability Partnership is a hybrid version of the conventional partnership and a Private Limited Company (Sdn. Bhd.). Some of the unique features of a Limited Liability Partnership includes:

Before the Limited Liability Partnership was introduced, local entrepreneurs are prone to registering either a sole proprietorship or the conventional partnership. These two options are commonly preferred by the local entrepreneurs as:

However, as time goes by, more entrepreneurs are entangled with their own belief and more downsides are exposed when they venture into these two types of business entities. Not only will the owners be liable towards all the debts accumulated by the business over the years, if they were to declare bankruptcy, creditors have the right to sue them in order to claim the debt owed.

Over the years, the Companies Commission of Malaysia abbreviated SSM (Suruhanjaya Syarikat Malaysia) have discussed thoroughly how are they able to assist the local entrepreneurs with their small medium businesses without too much impact towards their personal wealth.

In 2012, they enacted the Limited Liability Partnerships Act 2012 where the Limited Liability Partnership (LLP) entity is designed for business owners to generate profit and indirectly boost the local economy. The aim was for professionals such as lawyers, accountants and company secretaries to use this vehicle to carry out their professional practice. The concept will also support start-ups, small and medium enterprises (SMEs) to grow their businesses without worrying too much on their personal liabilities, personal wealth as well as strict annual compliance requirements.

Having understood the fundamentals of a Limited Liability Partnership, let’s take a look at the advantages such a business entity brings to business owners. 

While entrepreneurs may feel that incorporating a Limited Liability Partnership company has its advantages, there are some drawbacks that you should consider before making the final decision.

After considering the advantages and disadvantages and believing that a Limited Liability Partnership is the best entity for your company, registration must be done online in the MYLLP website by a registered Compliance Officer of the entity on behalf of the partners.

The items needed to setup are:

The information above is crucial for the Companies Commission of Malaysia (SSM) to determine the legality of the business the entity will be running.

The owners must also provide a list of all partners who will be involved in the ownership and operations within the entity as well as the appointed compliance officer.

If you are wondering who can be appointed as the compliance officer, you may refer to the criteria below:

Should your Limited Liability Partnership intend to provide professional services such as law practice or auditing, the owners must provide evidence of approval from the governing authorities. This may be in the form of a letter of approval, a license, or a certification that allows members in the Limited Liability Partnership to provide professional services.

The cost to setup a Limited Liability Partnership is only MYR 500 and the incorporation is instant upon submission of the application through MYLLP website. Once the incorporation is done, SSM will issue the notice of registration as proof of the Company’s existence.

Based on the public ruling no. 3/2014 published by the Inland Revenue Board of Malaysia (LHDN), there is a specific tax treatment for a Limited Liability Partnership. First, the income generated within the Limited Liability Partnership will be taxed at its level. Therefore, any provision of the Income Tax Act 1967 (ITA), exemption order and income tax rules applicable shall apply to the Limited Liability Partnership.

Businesses who generated income with a total capital contribution of MYR 2.5 million or below in Malaysia will be taxed at 20% for every first MYR 500,000 of its chargeable income.

However, the rate above does not apply to a Limited Liability Partnership if more than:

Limited Liability Partnerships with capital contribution less than MYR 2.5million is eligible to deduct certain incorporation expenses under the Income Tax (Deduction for Incorporation Expenses) Rules 2003 and Income Tax (Deduction for Incorporation Expenses) (Amendment) Rules 2005.

For more in-depth information on this topic, you may visit this website: http://phl.hasil.gov.my/pdf/pdfam/PR2_2010.pdf

Even though a Limited Liability Partnership is not required to prepare an audited financial statement, the Company is required to keep the following records for the appointed Compliance Officer to file the taxes:

Whether you’re a looking to incorporate a new company in Malaysia or need help with filing your taxes, you can entrust us to help you to do so while you attend to your business needs! Reach out to us to find out more.