A Limited Liability Partnership (LLP) is a special type of business setup that combines the features of both a company and a partnership. It’s like having the benefits of a private limited company (Sdn Bhd) but with more flexibility like a partnership.
An LLP offers protection for its partners, meaning their personal assets are safe from the business’s debts. This is great for those who want to limit their financial risk while enjoying the freedom of managing their business in a way that suits them.
It’s a popular choice for startups and small businesses, especially those in the field of law or accounting. An LLP is easy to set up, and it requires less paperwork and compliance than a traditional company. This makes it an attractive option for many business owners looking for a balance between protection and flexibility.
Key features of LLPs in Malaysia
1. Hybrid structure
A Limited Liability Partnership (LLP) in Malaysia merges the best aspects of a private limited company (Sdn Bhd) and a traditional partnership.
This means you get the limited liability protection of a company combined with the flexible management style of a partnership.
For example, while a private company must adhere to strict regulations and have a complex management structure, an LLP allows partners to set rules and make decisions more freely.
2. Limited liability
One of the most attractive features of an LLP is limited liability protection. This means that the personal assets of partners are shielded from the business's debts and liabilities.
Similar to the protection offered to shareholders in a private company, this ensures that if the LLP faces financial difficulties or legal issues, your personal finances are not at risk.
This makes LLPs a popular choice for professionals such as lawyers, accountants, and consultants who want to protect their personal wealth while running their businesses.
3. Flexibility
LLPs offer significant flexibility in terms of management and internal operations. Unlike private companies that are bound by stringent regulations, an LLP allows partners to design their internal management structure and business operations through a partnership agreement.
This flexibility extends to how profits are shared and responsibilities are divided, which can be tailored to suit the specific needs of the business.
4. Separate legal entity
An LLP is considered a separate legal entity from its partners. This means the LLP itself can own property, enter into contracts, and even sue or be sued independently of its partners.
This separation provides a level of professional credibility and operational independence, much like a private company. For instance, an LLP can hold assets, sign agreements, and engage in legal proceedings under its own name.
5. Perpetual succession
One of the key benefits of an LLP is its perpetual succession. This means that the LLP continues to exist even if there are changes in the partnership, such as the addition or departure of partners, or even their death.
This feature ensures that the business can continue operating without interruption, providing stability and continuity which is often crucial for long-term projects and relationships with clients.
So to put it simply, an LLP in Malaysia combines the limited liability protection of a private company with the flexible management of a partnership. Its separate legal status and ability to continue existing despite changes in partners make it an appealing option for many businesses.
Whether you’re starting a new venture or looking to adjust your business structure, an LLP offers a balance of protection and flexibility suited to various business needs.
Benefits of LLPs for startups and small businesses
1. Protection of personal assets
One of the main benefits of setting up a Limited Liability Partnership (LLP) is the protection it offers for your personal assets. In an LLP, partners are shielded from business debts and liabilities.
This means if your business faces financial trouble or legal claims, your personal property, like your home or savings, is safe.
This is similar to the protection enjoyed by shareholders in a private limited company (Sdn Bhd), making it a great choice for entrepreneurs who want to limit their financial risk while running their business.
2. Affordability
Starting an LLP is quite cost-effective. The setup cost is generally around RM500, which is significantly lower compared to other business structures like private limited companies.
The annual maintenance fee for an LLP on the other hand, is just approximately RM200. This is a sound option for startups and small businesses that are conscious of their budget.
By keeping both initial and ongoing costs relatively low, LLPs give entrepreneurs the space to spend the money elsewhere for their businesses while still benefiting from a robust legal structure.
3. Ease of formation
Forming an LLP is relatively straightforward and quick. The registration process typically takes between four to seven working days, which is faster than many other business structures.
You’ll need to complete a registration form, submit the necessary documents, and meet any regulatory requirements.
The process is simplified by the MyLLP system provided by the Companies Commission of Malaysia (SSM), which helps streamline the application and registration phases.
4. Tax treatment
From a tax perspective, LLPs enjoy treatment similar to private limited companies (Sdn Bhd). Income tax compliance for an LLP is straightforward, and the LLP benefits from preferential tax rates on the first RM500,000 of chargeable income.
This means that just like with Sdn Bhd, you can enjoy tax relief on a significant portion of your business's income, which can be advantageous for managing your company's finances and planning for growth.
5. Business continuity
Another important benefit of an LLP is its ability to continue operating even if key partners leave or pass away. Unlike sole proprietorships or general partnerships, where the business may dissolve upon a partner's death or withdrawal, an LLP remains intact.
This feature ensures that your business can continue its operations seamlessly and maintain relationships with clients, providing stability and long-term continuity.
How to register an LLP in Malaysia
Registering a Limited Liability Partnership (LLP) in Malaysia is a fairly simple process, but it involves specific steps and the right documentation.
Step 1: Prepare required information
Before you begin the registration process, you’ll need to gather some essential information about your business. This includes:
Proposed LLP name: Make sure your business name is unique and aligns with SSM’s naming guidelines. Your LLP’s name will need to reflect its nature and should not resemble any existing companies.
Nature of business: You’ll need to specify the type of business activities your LLP will engage in. For example, whether it’s a consultancy firm, a tech startup, or a service-based business.
Registered office address: You’ll need to provide the address where official business documents and statutory records will be kept. This is important for compliance purposes.
Details of partners: You’ll need to submit identification details (MyKad or passport) of all partners involved. Foreign partners are allowed but at least one compliance officer must be a Malaysian citizen or permanent resident.
Step 2: Name reservation
Once you have the necessary information, the next step is to reserve your LLP name. This can be done online through the MyLLP systema portal provided by the Companies Commission of Malaysia (SSM).
Name reservation costs RM30 and the approval typically takes one to three working days. Be sure to have a few alternative names ready in case your preferred one is already taken.
Step 3: Online registration via MyLLP portal
Once the name is approved, you can proceed with online registration through the MyLLP portal, which offers a convenient way to handle the entire process digitally. You will need to provide:
The approved LLP name
Partner details: Names, identification numbers, residential addresses, and roles within the LLP.
Compliance officer information: A compliance officer must be appointed to ensure the LLP complies with all regulations. The officer must reside in Malaysia and be a citizen or permanent resident.
Step 4: Appoint a compliance officer
Every LLP must have a compliance officer. This is a key position because the compliance officer is responsible for ensuring that the LLP follows all regulations under the Limited Liability Partnerships Act 2012. The officer must:
Be a Malaysian citizen or permanent resident.
Reside in Malaysia.
Be either one of the partners or someone qualified to act as a company secretary under the Companies Act 2016.
The compliance officer plays a crucial role in filing documents like annual declarations and ensuring that all legal obligations are met.
If the compliance officer fails to fulfill their duties, they can be held personally liable for any penalties or fines imposed on the LLP.
Step 5: Pay the registration fee
The registration fee for setting up an LLP in Malaysia is RM500, payable through the MyLLP system. After payment is confirmed, SSM will issue a “Notice of Registration” as proof that your LLP is officially registered.
The entire process generally takes four to seven working days, depending on how quickly you can provide the necessary documentation and SSM’s processing time.
Annual maintenance and compliance
Once your LLP is registered, you’re not done. You must also be aware of the annual requirements to keep your LLP in good standing. Every year, you’ll need to:
File an “Annual Declaration” with SSM, confirming that your LLP is still operational. The fee for this is RM200.
Update any changes in partner details or business activities.
LLPs in Malaysia are not required to submit audited financial statements, making them a less burdensome option compared to other business entities like private limited companies (Sdn Bhd).
This is a significant advantage for startups and small businesses that want to minimize costs and compliance efforts.
By following these steps and meeting all the requirements, your LLP will be officially registered and ready to operate in Malaysia. The LLP structure offers flexibility and legal protection, making it an ideal choice for entrepreneurs and small business owners.
Need help registering your LLP in Malaysia?
Douglas Loh offers professional assistance to ensure a smooth and hassle-free registration process. Let our experts handle the paperwork and guide you through each step so you can focus on building your business!
LLP vs. other business structures
Feature | LLP (Limited Liability Partnership) | Sole proprietorship/partnership | Private Limited Company (Sdn. Bhd.) |
Liability | Limited liability for partners – partners’ assets are protected from LLP debts | Unlimited liability – personal assets of partners can be used to settle debts. | Limited liability for shareholders – only company assets are at risk, not personal assets. |
Ownership | Minimum of 2 partners. No maximum limit on the number of partners. | 1 or more individuals, depending on the type of business (Sole Proprietorship: 1 owner). | Minimum 1 shareholder, maximum 50 shareholders. |
Compliance requirements | Lesser compliance – no need for annual audits, but must submit an annual declaration to SSM. | No annual audit requirement, but personal tax filing is required for the owner(s). | Must conduct annual audits, submit financial statements, and comply with the Companies Act. |
Taxation | LLPs are taxed like companies, with preferential tax rates for the first RM500,000 of chargeable income. | Taxed under personal income tax rates. | Corporate tax rates apply, with similar preferential treatment as LLP for first RM500,000. |
Business continuity | Continuity even if a partner leaves or passes away. | Business typically dissolves if the owner passes away or withdraws. | Company continues regardless of shareholder changes. |
Cost of registration | RM500 for registration, RM200 for yearly maintenance. | Minimal registration costs (typically RM30–RM60 for sole proprietorship). | RM1,000–RM1,500, including legal fees and company secretarial fees. |
Management flexibilty | More flexible in decision-making; no formal voting rights or complex board requirements like Sdn Bhd. | Sole proprietor or partners make decisions; no formal procedures. | Stricter management rules – board of directors and shareholders must comply with formal regulations. |
Audit requirements | No mandatory audits unless the partners choose to do so. | No audit required. | Annual financial audits are mandatory. |
Ability to raise capital | LLPs cannot issue shares; partners contribute capital. | Sole proprietor or partners contribute capital; no shares issued. | Can issue shares to raise capital. |
Legal status | Separate legal entity from its partners. Can enter contracts and sue or be sued in its own name. | Sole proprietorship/partnership is not a separate legal entity from the owner(s). | Separate legal entity from shareholders; can sue or be sued. |
Profit sharing | Profits shared based on the partnership agreement. | Sole proprietor keeps all profits, or partners share profits as agreed. | Dividends are distributed to shareholders based on their shareholding. |
Business termination | Can continue indefinitely unless voluntarily wound up or by court order. | Ceases with the owner's death or withdrawal (for sole proprietorship/partnership). | Can continue indefinitely, but requires formal winding up procedures if necessary. |
Conclusion
In conclusion, a Limited Liability Partnership (LLP) in Malaysia offers an attractive blend of flexibility and protection for business owners. With its hybrid structure, limited liability for partners, and ease of registration, it’s a great option for startups and small businesses.
The separate legal entity status and cost-effective setup make it ideal for those who want the security of limited liability without the complexities of managing a private limited company (Sdn Bhd).
Whether you're protecting personal assets or seeking easier compliance, an LLP provides a balanced business solution.
Considering setting up an LLP? Need professional advice on accounting and taxation? Reach out to Douglas Loh!
As experts in business structures and tax strategies, we can guide you through every step to ensure your business thrives while staying compliant. Contact Douglas Loh today to discuss the best options for your business.
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