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Limited Liability Partnerships in Malaysia

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Limited Liability Partnerships in Malaysia

2020-12-18T16:55:03+08:00October 22, 2019|4 Comments

Limited Liability Partnerships Paul Hype Page

 

Malaysian company laws allow business owners to undertake different business ventures by using one of several business entities. When starting a business, business owners have to choose which business entity will be used for the running of business operations. Malaysian company laws allow for the setting up of sole proprietorships, partnerships, limited liability partnerships, limited liability companies, and private limited companies. This article will discuss information about the most recent addition to the list of legal business entities in Malaysia. This business entity is the limited liability partnership (LLP). In Malaysia, LLPs were brought into active recognition in 2012 through the introduction of the Limited Liability Partnership Act 2012. This act allowed business owners to use this business entity for the setting up of a business instead of using a sole proprietorship, limited liability company, partnership, or private limited company.

Definition of a Limited Liability Partnership

A limited liability partnership or LLP is a hybrid version of a partnership that combines the advantages of a limited liability company (LLC) and those of a partnership. To provide further clarification about the details of an LLP, the differences between a partnership and a company must first be discusses.

A partnership is a business entity which has two or more owners who have agreed to share the responsibilities and profits of the business. A partnership has unlimited liability. This means that should the partnership ever be sued, the owners’ assets can be used to settle debts or fines which may have been imposed through a court ruling. For this reason, the existence of the partnership and the financial status of the partners who own the partnership are closely linked because any matter which has a significant effect on the business will also have a significant effect on the individual partners and vice versa. A company, on the other hand, has multiple shareholders who hold varying amounts of shares in the company. A company is a legal entity which has limited liability. This allows it to either sue or be sued itself. A company is separate from its owners. For this reason, the assets of a company’s owners or shareholders may not be used to pay for any debts which the company may owe.

If you happen to be interested in starting an LLP, a partnership, or any other business entity in Malaysia, we at Paul Hype Page & Co will be able to serve your needs. We will ensure that the process of incorporation and registration of the business in Malaysia is done according to all existing laws and regulations. Through the use of our services, you will be able to run the business without facing any serious issues.

A limited liability partnership combines two important business concepts; that of limited liability and that of a partnership. In an LLP, the partners who own it are independent of the partnership itself. Thus, the partnership operates in a similar manner as does a limited liability company; however, the key difference lies in the fact that the ownership terms are to adhere to the Partnership Act as prescribed by Malaysian company laws. Any business owners planning to establish an LLP in Malaysia must create a partnership agreement that contains the details of the partnership. Such details include but are not limited to partners’ responsibilities as well as how the LLP’s profits are to be shared.

In Malaysia, an LLP may either have limited or general partners. A limited partner does not have any liabilities with the partnership. For this reason, a limited partner’s personal assets cannot be used to settle the debts owed by the partnership. On the other hand, a general partner is liable for any debts which may have been incurred by the partnership. This allows a general partner’s assets to be used to pay for any debts which partnership may owe. In this regard, an LLP possesses characteristics of both partnerships and limited liability companies alike.

Requirements for Setting Up a Limited Liability Partnership in Malaysia

In order to set up an LLP in Malaysia, the business owners must first provide a proposed name to the Companies Commission of Malaysia (SSM) which is the organization tasked with overseeing the registration process. The owners are also required to provide a document describing the general nature of the proposed business. This information is crucial for the determining of the legality of the LLP.

The owners must also provide a list of all partners who will be involved in the ownership and operations the LLP. To adhere to Malaysia’s compliance regulations, the owners must appoint a compliance officer or officers who will ensure that the registration process adheres to the country’s laws and regulations. The list must include the official names and details of all partners of the LLP as well as those of the compliance officers.

Should the LLP intend to provide professional services such as law practice or auditing, the owners must provide evidence of approval from the governing authorities. This approval may be in form of a letter of approval, a license, or a certification that allows members of the LLP to provide professional services. The owners of the LLP must also provide all other information specified by the Registrar who is in charge of the registration of the LLP.

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Advantages of Owning a Limited Liability Partnership in Malaysia

As has been mentioned, an LLP includes the characteristics of both a partnership and a limited liability company alike. One of the primary advantages of owning an LLP lies in the lack of personal liability. Unlike partners in conventional partnerships, partners in an LLP are not personally liable for any debts which may have been incurred by the LLP. LLPs are also not required to hold regular annual general meetings. Furthermore, the decision-making process of an LLP is fairly flexible; this is due to the fact that there are no minimum voting rights required for the passing of a decision in an LLP. LLPs also avoid being burdened by any legal requirement which compels the partners of an LLP to submit financial statements to SSM. This means that LLPs are not required to undergo any mandatory audits; other business entities are mandated to do so. In general, an LLP is one of the more robust structures for business ownership. Other business entities often tend to have notable drawbacks which may threaten the continuity and stability of the business entity in question.

How Limited Liability Partnerships in Malaysia Are Taxed

The tax system of Malaysia has specific criteria which only apply to limited liability partnerships. The structure of an LLP is flexible; thus, the avoidance of liability is easily possible. For this reason, the Malaysian government deems it necessary to obtain revenue in the form of taxes from LLPs.

The compliance officer appointed by the partners of an LLP is required to file the taxes of the LLP. Some LLP owners might prefer not to hire a compliance officer. In such an LLP, the individual partners are responsible for the filing of the LLP’s tax returns according to the stipulations mentioned in the Income Tax Act of 1967.

An LLP incurs an income tax of 24% on its total revenue. However, should the total net worth of the LLP be RM2.5 million or less, the LLP is to be taxed at a rate of 19% on the first RM500,000 of its revenue. The rest of the revenue is to be be taxed at a rate of 24%. To prevent the effects of double taxation from taking place, the profits which have been shared between the LLP’s partners are not taxed in the same way that shared profits of conventional partnerships are taxed. In this way, an LLP in Malaysia is taxed in much the same way as a limited liability company.

Taxation in Malaysia can be a somewhat complicated matter which some might not be able to fully comprehend. When dealing with such matters, this is where we at Paul Hype Page & Co come in. We can assist you with understanding all of your tax obligations and how they are to be paid. We will also work with you with regard to the filing of your taxes.

Conclusion

Limited liability partnerships have an important advantage which partnerships do not experience; as implied by their name, liabilities are limited, but the partnership maintains the original business idea. For this reason, LLPs are suitable for professionals who plan to collaborate with one another to earn income. LLPs are also often used by venture capitalists as well as small or medium-sized business owners to start a business. LLPs in Malaysia offer their owners many advantages which business owners can use to earn profits. Nevertheless, those who own an LLP are advised to appoint compliance officers who have deep knowledge about Malaysian company laws in order to prevent any problems related to compliance from occurring. These compliance officers will ensure that the LLP files its taxes in a punctual manner so as to avoid committing any regulatory or tax violations.

 

Limited Liability Partnerships in Malaysia 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. 

4 Comments

  1. 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

  2. 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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