• 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.

Definition of a Limited Liability 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:

  • Limited liability protection to partners

  • Lower income tax rate

  • Exempted from lodging audited financial statement

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:

  • The registration is fast and cheap

  • No charges with corporate tax payments

  • Less formal business requirements

  • Lowest and cheapest annual maintenance

  • Can easily wind up once business no longer brings value as expected

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.

Note: Only a local Malaysian citizen or Permanent Resident is allowed to register a Limited Liability Partnership according to the Limited Liability Act 2012. 

Why register Limited Liability Partnership (LLP) instead? 

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.

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Advantages of Limited Liability Partnership

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. 

  • Separate Legal Entity

    This business entity is considered as “legal entity” or “juristic person” established under the Limited Liability Partnership Act 2012. It can have its own assets, open its own corporate bank account, hire employees, obtain business licenses and operate as an independent corporate entity.

    Personal wealth will be safe guarded and not personally liable towards the debts accumulated by the business throughout the years.

  • Owning Property

    As a “legal entity” or “juristic person”, a Limited Liability Partnership can purchase various types of assets such as building, land, vehicles, and many more under its name. Partners involved have no rights to claim upon an asset owned by the Company as long as it is a going concern basis.

  • Ease of Ownership Transfer

    The partners involved has the right to appoint or remove partners as they deem fit. Any changes such as new profit sharing or partner remuneration packages can be determined during partner’s monthly meeting or written in a new partnership agreement.

  • Uninterrupted Existence

    Similar to a Private Limited Company (Sdn. Bhd.), the Limited Liability Partnership also has a perpetual succession. This means, it will only cease to exist once it is legally dissolved.

    The business will be uninterrupted if any existing partners departs.

  • Easy Compliance

    Once a Limited Liability Partnership is incorporated, it is not mandatory to appoint a certified Company Secretary like a Private Limited Company (Sdn. Bhd.). However, appointing a compliance officer which is normally one of the business partners himself will be required.

    Another compliance is that a Limited Liability Partnership must adhere to is filing their annual declaration of accounts without the need to appoint an auditor or lodge an audited financial statement.

  • Lower Income Tax Rate

    The highest income tax rate chargeable towards a Limited Liability Partnership is only at a 24% flat rate compared to conventional partnership which is higher at 28%.

    Compared to Private Limited Company (Sdn. Bhd.), a Limited Liability Partnership with capital contribution of MYR 2.5million or less will enjoy a preferential tax rate of 20% on the first MYR 500,000 of its chargeable income.

    However, profits paid, credited or distributed to partners within the business are exempted from corporate tax. There is no withholding tax on profits paid, credited or distributed to partners

Note: The higher the partners income received, the higher the personal tax chargeable towards their personal income tax submission.

Disadvantages of Limited Liability Partnership (LLP)

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.

  • A limited Liability Partnership will find it harder to access to fundings. Even though the Company is able to open a corporate bank account under its own name, however, due to most bankers are still skeptical towards such business types, there are limited loan packages offered.

  • Third party investors are likely not interested to invest or fund such businesses.

  • Setting a Limited Liability Partnership may be easy initially, however, as the business grows, more partners may be involved with decision making. This will lead to possible problems when coming to a decision, especially if there is any problem amongst the partners.

  • As Limited Liability Partnership businesses do not rely on share options, there is no way for the business to sell its share to the public as an alternative to raise fund.

Requirements to Setup a Limited Liability Partnership in Malaysia

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:

  • Proposed name of the business

  • Nature of business  

  • Registered office address 

  • Details of all partners involved 

  • Details of the appointed compliance officer 

  • Letter of approval from professional body such as MIA (if any) 

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:

  • One of the partners within the Company or a person qualified to act as a Secretary under Company Act 2016

  • At least 18 years old and is a Malaysian citizen or Permanent Resident (PR)

  • Lives in Malaysia

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.

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How is a Limited Liability Partnership in Malaysia Taxed? 

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:

  • 50% of capital contribution of Limited Liability Partnership is directly or indirectly contributed by a Company

  • 50% of the paid-up capital in respect of ordinary shares of the Company is directly or indirectly owned by the Limited Liability Partnership

  • 50% of the capital contribution of Limited Liability Partnership and 50% in respect of ordinary shares of the Company is directly or indirectly owned by the corporate shareholder 

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:

  • Information on income for the year

  • Information on expenditure for the year

  • List of debtors and creditors

  • List of all assets (current and fixed)

  • Percentage of capital contribution of each partner

  • Other supporting documents to proof the business transactions occur

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.

FAQs

Who are compliance officers?2020-04-28T17:18:23+08:00

Compliance officers are defined as people who are tasked with ensuring the legal and regulatory compliance of an LLP. In Malaysia, LLPs are not required to appoint compliance officers; however, such a move is nevertheless beneficial and highly advisable.

Is there an upper limit on the number of owners of an LLP?2020-04-28T17:17:53+08:00

Malaysian company laws state that an LLP must have at least two owners. However, there is no mention made about the maximum number of owners which an LLP may have. This means that there is no upper limit on the number of owners of an LLP. 

Is the Limited Liability Partnership Act 2012 Expected to either be ammended or Rescinded?2020-04-28T17:16:58+08:00

Ever since its introduction, there have not been any mentions of any possible amendments to the Limited Liability Partnership Act 2012. There have also not been any mentions of the possibility that it might be rescinded. Therefore, the Limited Liability Partnership Act 2012 is expected to remain in its present form. 

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6 Discussions

  1. Apple April 14, 2021 at 1:01 am - Reply

    Hi there, is it possible for a group of people (let say A, B, and C) to own two PLT with the same amount of percentage ?
    Is it consider as same entity or separate entity? Does the account need to be merge or is there any tax regulation to be followed?
    Had search so much online but there is no answer. Please help! thank you very much!

  2. Beant Singh November 9, 2020 at 10:27 pm - Reply

    Hi, are there tax deduction for PLT company something similar to what we have for personal income tax, or can things like petrol meals etc be considered as the PLT cost of business?

    • Tiwi November 13, 2020 at 3:43 pm

      Hi,
      for your year end tax filing, you can deduct business expenses from your taxable income, thus reducing the amount of tax you need to pay. Business expenses are expenses you have paid to run the business. Transport and entertainment expenses should be part of your business expense and subjected to varying tax rules.

      Please contact us via Paul Hype Page to discuss further.
      Thanks

  3. Alice Chiew April 8, 2020 at 9:37 pm - Reply

    Hi, I have an inquiry for PLT company. If my partner want to sell out all his share to me, can I ask my spouse to be my PLT partner? Currently only 2 partners in this company.

    • Tiwiyah Kumaran April 23, 2020 at 9:24 am

      Hello Alice,

      There is no restriction imposed on the identity of any partner of a PLT company in Malaysia. Thus, your spouse is permitted to be your PLT partner.

      For further information on PLT companies, please contact us.

      Thank you for your question.
      Paul

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