There are many types of business entities which exist in Malaysia and one of the more popular ones is Partnership. For Partnerships, they are governed by the Companies Commission of Malaysia – Suruhanjaya Syarikat Malaysia (SSM) and Registration of Businesses Act 1956.
Definition of a Partnership
A partnership is a business entity owned by two (2) persons but not exceed to twenty (20) persons at one time. An identity card name is not allowed to be used as a business name such an entity. Only a local Malaysian or Permanent Resident (PR) is allowed to register a Partnership to run their business.
Some of the unique features a Partnership includes:
Fast and easy registration
No corporate tax payments
Less formal business requirements
Easy wind-up process
Lowest annual compliance cost
The aim for Partnerships is for start-up businesses to test their business strategy and explore a new market. The partnership agreement is normally drawn up by an appointed legal counsel, which outlines the responsibilities and liabilities of each partner, conditions of termination, and the means of resolving intra-partner disputes.
All partners involved are required to share the profits and liabilities in the business depending on the % they have invested.
Tip: Instead of waiting for a job offer, you can incorporate your own company and apply an Employment Pass via an appointed agent.
Advantages of Starting a Partnership in Malaysia
The reasons why a Partnership is the preferred entity for business owners are as follows:
Sharing of responsibility
In a Partnership, the partners will need to share the responsibilities to run the business. This procedure allows each partner to fully utilise their individual capabilities and specialities, combining these skills to ensure the business run smoothly and generate income.
No corporate tax payments
A Partnership is not considered as a legal entity, hence all chargeable income generated by the Company will be charged on all partners personal income tax instead of a corporate tax.
Lowest annual cost
Compared to other types of business entities in Malaysia, a Partnership is only required to file annual renewal fee costing MYR 60 for trade name per annum. It is relatively a simple and straight forward submission to SSM.
Easy wind-up process
If the business is deemed no longer profitable for the partners, they are allowed to visit any SSM branch to wind up the Company. Also, if the Partnership did not file its annual renewal fee on time, SSM can automatically close the business as per enacted in the Registration of Businesses Act 1956.
Minimum entry requirements
The entry requirement for Partnerships is very simple as they only need at least 2 Malaysian citizens or permanent residents (PR) with legitimate Malaysia local residential address. The cost to start the business is only MYR 60 for a trading name.
Disadvantages of Starting a Partnership in Malaysia
Of course, there are also certain disadvantages when it comes to establishing a Partnership in Malaysia.
A partnership is not a separate legal entity. This means, the partners are jointly and severally liable towards the debts and liabilities accumulated by the business. If any of the partners has filed for bankruptcy, creditors have the right to sue the partners involved to claim the debt owned which will directly impact each partners personal wealth.
If there is an internal dispute between the partners, they are not allowed to expel any partners unless a power to do so has been conferred by a written agreement between the partners during the establishment of the business. This can lead to bad relationship amongst partners and bad decision making for the business.
As shared previously, the partnership is not liable towards corporate income tax. However, each partner is liable to disclose the profits they received from the business in their personal income tax filing. This will lead to a higher tax payable for their personal income tax.
Guidelines on termination of Partnership in Malaysia
When it comes to Partnership laws, every country has its own set of regulations – Malaysia is no exception. A Partnership in Malaysia can be dissolved for any of the reasons below:
Cessation of business
Death of owner
Pursuant to court order
The procedure to proceed with the termination is as follows:
The owners have to complete the Notification of Termination Registered Business (Form C) accordingly. This can be retrieved in SSM official website.
Every partner involved must sign the completed form accordingly.
The form can be submitted over any SSM counter or via online portal at ezbiz.ssm.com.my (only for cessation of business only).
The documents to be attached during submission includes:
Business registration certificate
Clear copy of partners’ NRIC
Clear copy of death certificate of partner (if any)
Clear copy of court order termination (if any)
Relevant documents proving the owner was declared as bankrupt (if any)
The registration fees:
Notification of termination of registered business – No fees applicable
Business information – MYR 10
Once everything is in order, partners can proceed with the termination as below:
Business termination to be registered within thirty (30) days from date of business termination
Registered business that has not expired is allowed to submit Notification of Termination of Registered Business
Submit the Notification as result of death within four (4) months from date of demise
Confirmation letter on expired business can be requested from SSM with payment of MYR 10
Results can be obtained within fifteen (15) minutes from the time submission is made
We know that incorporating a company in Malaysia can be challenging and choosing the right business entity is crucial to set up your business to success. Speak to us for a business consultation or for more information on company incorporation in Malaysia!
Can Partnerships in Malaysia besubsquently converted to other Business Structures?Tiwi2020-04-28T16:55:31+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?Tiwi2020-04-28T16:54:40+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?Tiwi2020-04-28T16:53:52+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.