Regulated under the Limited Liability Partnerships Act 2012 (“Act”), a limited liability partnership (“LLP”) is a business vehicle that combines the characteristics of a private company and a conventional partnership. We set out below some benefits of an LLP in Malaysia:
LIMITED LEGAL LIABILITY
As the name suggests, an LLP limits the liabilities among business partners by separating the legal personality and capacity of the partners and the body corporate. This means in the event of a claim, the personal assets of the business partners are not liable to be claimed. This feature is not present in a general partnership or a sole proprietorship, where all the assets of both the legal entity and partners/proprietor are liable to be claimed.
This concept is also applicable to debts payable by either the LLP or the partners, whereby debtors of the LLC is unable to procure the personal assets of the partners and vice versa.
One of the key features of an LLP is its ability to have a continued existence, unless legally dissolved. Defined as a “perpetual succession” by the Companies Commission of Malaysia (“CCM“), it allows for the LLP to enjoy an uninterrupted existence despite having a partner depart from the LLP or a change in ownership.
It should be noted that the minimum number of partners required in an LLP is two (2). If the LLP carries on with less than the minimum number of partners required for a period of six (6) months or any other period as stipulated by the CCM, the concept of “perpetual succession” will no longer be applicable and the LLP will be legally dissolved thereafter in accordance to the Act.
FLEXIBILITY OF AN LLP
An LLP allows for flexibility through an agreement that is to be entered into between the partners of an LLP. This agreement provides the freedom to choose the best business model to suit the needs and requirements of the partners for their business structure. In the absence of such agreement, the second schedule of the Act provides for the default provisions for an LLP.
In comparison to a conventional company (e.g. a private limited company), an LLP allows for further flexibility by removing some of the following requirements:
1. the formal requirement for annual general meetings;
2. the requirement to submit financial statements to the CCM; and
3. the need for statutory audit of its accounts.
In addition to the above, the ownership of an LLP may be easily transferred in accordance to the agreement, simply by agreeing to appoint new or remove existing partners. The terms of profit sharing and remuneration due to the changes may also be amended in the agreement.