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Partnerships in Malaysia

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Partnerships in Malaysia

2021-02-02T16:28:56+08:00August 28, 2019|0 Comments

Partnerships are among the most common business entities that exist in Malaysia. Those who plan to start one should be aware of the details about them as well as their inherent advantages and disadvantages. Knowledge of these matters will help them operate the partnership well.

There are many types of business entities which exist in Malaysia. Among these are the sole proprietorship, partnership, private limited company, and limited liability company, among others. This article will discuss the partnership, the details of one, and the advantages and disadvantages of owning one in Malaysia.

Partnerships in MY

Definition of a Partnership

A partnership is one of the primary business entities in Malaysia. In a partnership, there are at least two partners or owners and a maximum of 20 owners. It can be established on a small scale, making it a viable option for start-ups. Those who know that their business is to be owned and operated by more than one individual should consider selecting the partnership as their business structure of choice. There are two varieties of partnership in Malaysia. These are the partnership and limited liability partnership respectively. In a partnership, the partners jointly manage the company. They also will have joint responsibility for the partnership’s debts and other liabilities. The owners of the company have unlimited liability. In Malaysia, partnerships have certain similarities with sole proprietorships. However, there are two key differences between partnerships and sole proprietorships. The first and most important is, of course, the minimum number of owners. A partnership requires at least two; a sole proprietorship, just one. Partnerships are also governed by Malaysia’s Partnership Act of 1961. As is implied by its name, this act only pertains to partnerships; therefore, sole proprietorships are unaffected by this important piece of legislation.

A limited liability partnership is a partnership which includes elements that exist in both a partnership and a company. In a sense, a limited liability partnership is a hybrid of the two. In a limited liability partnership, the partners who own the company have limited liability related to the financial losses of the company. Most people who select this type of business entity own a small-scale business. Much like sole proprietorships, limited liability partnerships are therefore commonly owned by those who own small and medium enterprises (SMEs).

In Malaysia, the business profits of partnerships are taxed at the individual personal tax rate of each partner involved. Therefore, a partnership does not pay taxes on its business income but instead moves the tax burden to the individual partners. For this reason, tax planning opportunities for those who own a partnership are somewhat limited.

Due to the fact that tax planning for a partnership may sometimes be difficult, you may need the services of experts. This is where we at Paul Hype Page & Co can come in. Our knowledgeable and experienced tax team will provide the best tax advice possible for your partnership. We will see to it that you receive tax planning suggestions which will help your partnership thrive.

Advantages of Starting a Partnership in Malaysia

Establishing a partnership in Malaysia allows its owners to benefit from several advantages. One of these advantages is the fact that owners are able to collaborate to generate more effective business ideas. Highly skilled employees can also be made partners, thus leading to better ideas and more revenue being generated.

From a financial perspective, a partnership is relatively easy to establish and start-up costs are low. Input from multiple owners also assures that more capital is available for business operations. Therefore, the owners will have greater borrowing capacity when compared to the owner of a sole proprietorship. Partnership owners might also benefit from income splitting, which is an advantage that may even bring about significant tax savings.

Partnerships also have several legal advantages. In a partnership, all of the partners’ business affairs reman private and external regulation is reduced. Furthermore, it is also relatively easy to change the business structure if circumstances demand that such be the case.

Having read about the potential advantages brought about by a partnership, you might have become interested in starting a partnership of your own in Malaysia. If such is the case, or if you would like to start any other business entity in Malaysia, we at Paul Hype Page & Co will contribute our best input. We will take you through the entire process of incorporation. We will see to it that your company in Malaysia is set up in as simple and smooth a manner as possible.

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Disadvantages of Starting a Partnership in Malaysia

Of course, there are also certain disadvantages connected to establishing a partnership in Malaysia. Perhaps the most important of these disadvantages lies in the fact that if the partnership is not a limited liability partnership, the liability of the partners for the debts of the business is unlimited. Furthermore, each partner is fully liable for the debts of the partnership. This means that each partner is liable for their share of the partnership debts as well as all the debts which have been amassed by the company.

From an interpersonal perspective, partnerships are often tenuous. This is because the nature of partnerships means that there will always be a risk of disagreement and friction between partners and management. If the partners are unable to get along with one another, it could lead to problems for the partnership. Another related disadvantage relates to the fact that each partner is an agent of the partnership. This means that each partner is liable for actions taken by other partners. Thus, even if one partner has not made any mistakes, this partner may be made to suffer through the errant actions of other partners.

 

How Partnerships in Malaysia Can Be Ended

Partnership laws are not the same around the world; each country has its own laws regarding partnerships, including Malaysia. However, in many countries, should there not be a presence of an agreement to the contrary, a partnership can be dissolved for any of the following reasons:

  • death, resignation, withdrawal, expulsion, or retirement of a partner; in some countries, a partnership does not automatically end with the death or withdrawal of a partner, as an opportunity to buy out that partner’s portion of the partnership will be granted to other partners
  • physical or mental incapacitation of a partner
  • filing for bankruptcy by the partnership business
  • mutually-agreed dissolution of the partnership
  • partnership business is found to be illegal
  • court order is issued stating that the partnership must be terminated; such may be the case when the partnership can no longer achieve one or more of its economic objectives
  • one or more partners have made it impossible or extremely difficult to maintain the business operations of the partnership business
    one partner buys out all of the other partners; should such be the case, the partnership will have come to an end, but the business itself will continue to exist in the form of a sole proprietorship

In Malaysia, dissolution of partnerships is governed by Section 37 of the Partnership Act. This section allows a partner to ask the court for an order to dissolve the partnership if the partner considers another partner’s actions to have been willfully and deliberately harming the best interests of the partnership.
A good practice is for the partners to decide in advance what course of action will be taken in the event that one or more partners dies or withdraws. One way in which this can be done is by entering into one of various agreement related to buyouts. Such agreements are sometimes included as part of the partnership agreement, but they may also be found in the form of a separate agreement.

 

Partnerships in Malaysia FAQs

Can Partnerships in Malaysia besubsquently converted to other Business Structures?2020-04-28T16:55:31+08:00

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.

 
Which Industries in Malaysia have many Companies which are Partnerships?2020-04-28T16:54:40+08:00

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.

Are Foreigners allowed to Start Partnerships in Malaysia?2020-04-28T16:53:52+08:00

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.

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