Limited Liability Partnership (LLP)

    Why LLP is the Best Alternative for Today's Entrepreneurs?

    What is a Limited Liability Partnership (LLP)?

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    In 2012, the Companies Commission of Malaysia (SSM) created a new business entity, the Limited Liability Partnership (LLP). Many are confused about this new business entity in terms of its differences with other business entities. In this article, I will share about issues that are often questioned regarding Limited Liability Partnerships (LLPs).

    What is an LLP?

    A Limited Liability Partnership (LLP) is an alternative business entity regulated under the Limited Liability Partnership Act 2012.

    An LLP combines the characteristics of a company (Sdn. Bhd. or Berhad) and a conventional partnership.

    What is the Purpose of Establishing an LLP?

    The LLP business structure is designed for all legitimate business purposes under the law aimed at making a profit.

    This entity is suitable for all types of businesses that want to enjoy the advantageous features of a company. LLPs, like other business entities, can only be established for business purposes, not for charitable purposes. LLPs are also flexible because they can be formed by professionals such as Lawyers, Chartered Accountants and Company Secretaries for the purpose of carrying out their professional practice. The LLP concept also supports new businesses and small and medium enterprises (SMEs) to grow their businesses without having to worry about personal liabilities and assets, as well as strict compliance requirements.

    What are the Main Features of an LLP?

    Among the main features to know in an LLP are:

    • Provides liability protection to partners similar to the limited liability enjoyed by shareholders of a company. This means that any debts and obligations of the LLP will be borne and paid from the assets of the LLP and not from the assets of its partners.
    • LLPs can make internal business rules as a result of discussions and agreements between partners as in a conventional partnership. There is no mandatory requirement for a partnership agreement. In the absence of an agreement, the provisions under Schedule 2 of the LLP Act will apply automatically. LLPs are not like companies that are subject to stricter compliance requirements.
    • LLPs have the legal status of an incorporated body that can sue and be sued in the name of the LLP itself. LLPs can also own assets in their name and do all other legally valid things in the same name as any other incorporated body.
    • LLPs also offer flexibility in terms of establishment, maintenance and termination.

    What's Interesting About LLPs?

    Looking at the features that I have mentioned above, there are many more reasons why LLPs are now the choice of many entrepreneurs. LLPs can also be said to have dynamic characteristics and attractions to be able to compete domestically and internationally. The following are some of the other reasons why I chose to open an LLP:

    • The cost of registering and managing an LLP is cheaper than registering and managing a company.
    • LLPs are not required to have a “company secretary” or appoint an accounting firm compared to companies, instead LLPs are required to appoint a “compliance officer”.
    • LLPs do not need to hold an Annual General Meeting (AGM) and will not be fined if they do not do so.
    • LLPs do not need to audit business accounts.
    • The income tax rate payable to the IRB is lower than Enterprise.
    • Can be converted to a company.

    Differences between LLPs and Conventional Partnerships

    LLPs offer limited liability to their partners, where any LLP debt will be borne entirely by the LLP’s assets. While conventional partnerships, partners have joint and several liability with the partnership firm.

    Differences between LLPs and Companies

    To answer the question above, there are many significant differences between LLPs and companies. Among them are:

    • No share issuance
      • Companies will issue shares that need to be issued as business capital.
      • LLPs do not issue any shares for business capital.
      • Capital is in the form of partnership capital by partners.
    • Flexibility in making decisions:
      • Companies need to follow procedures or formal requirements such as the Annual General Meeting in making decisions. LLPs do not need to follow formal requirements like companies to make decisions.
    • No requirement to submit Financial Statements to SSM:
      • Companies are required to submit audited Financial Statements to SSM. Delays can result in the company and directors being penalized.
      • LLPs do not need to submit Financial Statements to SSM and do not need to audit the financial statements prepared.

    To answer the question above, there are many significant differences between LLPs and companies. These include:”

    • No share issuance:
      • Companies will issue shares that need to be issued as business capital.
      • LLPs do not issue any shares for business capital. Capital is in the form of partnership capital by the partners.
    • Flexibility in decision-making:
      • Companies need to follow procedures or formal requirements such as the Annual General Meeting in making decisions.
      • LLPs do not need to follow formal requirements like companies to make decisions.
    • No requirement to submit Financial Statements to SSM:
      • Companies are required to submit audited Financial Statements to SSM. Delays can result in penalties for the company and the directors.
      • LLPs do not need to submit Financial Statements to SSM and do not need to conduct an audit for the financial statements prepared.

    Time and Money Saving Tips Regarding LLPs

    At MudahPLT, I want to help and guide entrepreneurs in Malaysia who want to venture into business through the Limited Liability Partnership (LLP) structure, whether small or large. Here are other articles you can read to make your business more successful:

    I have also compiled several Ebooks that you can use as a guide to manage your LLP more effectively. All the steps and guidance provided are based on my experience and that of my business associates. The following Ebooks are available on this platform:

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