Perkongsian Liabiliti Terhad @ Limited Liability Partnerships (LLP)

ZUHAIRAH ARIFF BT ABD GHADAS

SME Training Program

1 July 2012

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Introduction

Generally, there 3 types of business entities which are available in Malaysia:

(i) Sole proprietorships

(ii) Partnerships / Firm

(iii) Companies- Sdn Bhd/Bhd

Latest addition- February 2012

(iv) Perkongsian Liabiliti Terhad (PLT)- Limited Liability Partnerships (LLP)

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AttributesType/Attributes

Legal Status

Limited Liability

Existence Regulation Tax

SoleProprietorships

Nota legal entity

Not available

Depends on the sole proprietor

Self Regulated/Registration of Business Act 1950

Income Tax

Partnerships/Firm

Nota legal entity

Not available

Depends on the partners Partnership

Act 1961/ Contracts Act1950

Income Tax

Companies Legalentity

AvailableIndependent from the members- perpetual succession

Companies Act 1965

Corporate Tax

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LIMITED LIABILITY PARTNERSHIPS@

MALAYSIA PLT (PERKONGSIAN LIABILITI TERHAD)

NEW BUSINESS ENTITY

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LLP

Attribute Explanation

Legal statusA body corporate or non-body corporate or partnership. The Malaysia LLP has the status of a body corporate- sec 3(1)

Limited Liability

Partial Limited Liability- The LLP is liable for all debts of the business but the defaulted partner shall also be jointly liable for the debts incurred by the LLP for his default. The innocent partners shall not be liable - Sec 21(1)-(4)

Registration•Must be registered with the Registrar (SSM).•No submission of incorporation document

Disclosure Requirement

•No audit requirement and no submission of audited account to Registrar•Have to keep a proper keeping of accounts and documents•Have to submit annual declaration of solvency

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External Regulation

•Regulated by the LLP Act •Winding Up procedures- applies the Companies Act

Internal Regulation

•Regulated by an agreement between the partners•Default rules of the LLP Act only applies in absence of the agreement- SECOND SCHEDULE [Section 9]

Composition of partners

• Minimum two person but there is no maximum number of partners-Sec 6•There must be at least one Compliance officer- duties akin to a Company Secretary- statutory responsibilities

Protection of Third Parties

• Claims against the LLP•Claw-back mechanism

Tax Regime•own tax regime- Different from Company and Partnership

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Legal Status

LLP

Body Corporate(UK, India, Singapore,Malaysia)

Non-body corporate(Isle of Jersey, UK)

Partnership(US)

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Compliance Officer

27. (1) A limited liability partnership shall appoint at least one compliance officer from amongst its partners or persons qualified to act as secretaries under the Companies Act 1965 who—

(a) is a citizen or permanent resident of Malaysia; and

(b) ordinarily resides in Malaysia.

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Sec 27 (7) A compliance officer shall be—

(a) answerable for the doing of all acts, matters and things as are required to be done by the limited liability partnership under sections 17, 19 and 20; and

(b) personally liable to all penalties including administrative penalties imposed on the limited liability partnership for any contravention of those sections unless he satisfies the court hearing the matter that he should not be so liable

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Claw-back Mechanism

• Liability of partners when limited liability partnership is insolvent

Sec 22. (1) Notwithstanding anything under this Act, a partner or former partner of a limited liability partnership who receives a distribution from the limited liability partnership—

(a) when the limited liability partnership is insolvent and knew or ought to have known at the time of the distribution that the limited liability partnership was insolvent; or

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(b) which results in the limited liability partnership becoming insolvent and knew or ought to have known at the time of distribution that the limited liability partnership would become insolvent as a result of the distribution,

shall be personally liable to the LLP for the amount or value of the distribution if it was received within a period of two years before the commencement of the winding up of the limited liability partnership..

Tax Status

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LLP in Malaysia

• Labuan Limited Partnerships and Limited Liability Partnerships Act 2010

( Royal Assent- 31 January 2010 )

Gazetted - 11 February 2010

• Limited Liability Partnerships Act 2012

( Royal Assent- 2 February 2012 )

Gazetted - 9 February 2012

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LLP IN MALAYSIAAgenda Labuan LLP Malaysia PLT

Legal status Body corporate Body corporate

Attributes Similar to companies- partial limited liability for defaulted partners

Similar to companies- partial limited liability for defaulted partners

Internal regulation

Partnership agreement or default rules of the Act

LLP Agreement or default rules of the Act

Third parties / creditors’ protection

•The word Labuan LLP as part of the name•Keep proper accounting records.•Claw-back provision.

•The word PLT as part of the name•Keep accounting and other records which give a true and fair view of the LLP state of affairs (7 years)•Claw-back provisions

(section 22)14

Agenda Labuan LLP Malaysia

PLT

Formalities/

Disclosure requirement

•Formal registration•Annual declaration of solvency.

•Formal registration•Annual declaration of solvency/insolvency

Applicable Laws

•Labuan LP and LLP Act 2010

•LLP Act 2012

Tax regime Labuan Entity-Trading activity- 3%

-non-trading- not taxable

Not finalized

LLP IN MALAYSIA

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Conversion to LLPConversion from conventional partnership to LLP• Sec 29. (1) A conventional partnership may convert

to a LLP

• Sec 29(2) In this Part, “convert” means a transfer of the properties, interests, rights, privileges, liabilities, obligations and the undertaking of the conventional partnership to the LLP.

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Conversion from private company to LLP• Sec 30. (1) A private company may convert to a

LLP if

(a) there is no security interest in its assets subsisting or in force at the time of application; and

(b) the partners of the LLP it is to be converted comprises all the shareholders of the private company and no one else.

• Sec 30(2)- In this Part, “convert” means a transfer of the properties, interests, rights, privileges, liabilities, obligations and the undertaking of the conventional partnership to the LLP.

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Professionals LLP• The members shall only be from the same

professions such as all architects, engineers, quantity surveyors, accountants or all lawyers-sec 8(a).

• The partners shall regulate their activities by way of contract among themselves which shall incorporate requirement of the professionals ethics and regulation.

• The LLP cannot limit its liability below the compulsory level of insurance- to be approved by Registrar- sec 8(b)

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Professionalpractice

Governing law Governing body

1. CharteredAccountant

Accountants Act 1967[Act 94]

Malaysian Institute ofAccountants

2. AdvocateandSolicitor

i) Legal Profession Act 1976[Act 166](ii) Advocates Ordinance of Sabah [Sabah Cap. 2](iii) Advocates Ordinance ofSarawak[Sarawak Cap. 110]

(i) Malaysian Bar(ii) Sabah LawAssociation(iii) Advocates’Association ofSarawak

3. Secretary Companies Act 1965[Act 125]

Nil

FIRST SCHEDULE [Section 2]PROFESSIONAL PRACTICE

Power to amend Schedules

• Section 92. The Minister may, by order published in the Gazette, vary, delete, add to, substitute or otherwise amend the First Schedule, Second Schedule and Third Schedule.

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Foreign LLP- Part VI of LLP Act 2012Section 44. (1) A foreign limited liability partnership shall not carry on business in Malaysia unless it is registered as a foreign limited liability partnership under this Act.

Section 46. (1) Notwithstanding anything under this Act, a foreign LLP shall appoint at all times at least one compliance officer from amongst its partners or persons qualified to act as secretaries under the Companies Act 1965 who—

(a) is a citizen or permanent resident of Malaysia; and (b) ordinarily resides in Malaysia.

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Foreign Partners

• There is no restriction under the LLP Act for partners to be all locals/residents . As such, foreigners can be partners of Malaysia PLT and their liability will be similar to other local/residents partners.

• Foreign partners are different from foreign LLP which is provided under the Act.

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Managing Foreign Partners

• The liability of foreign partners shall be similar to local partners.

• The main document is the partnership agreement.

• To avoid foreign partners from escaping from liability , a dispute resolution clause and indemnification clause should be included in the partnership agreement- e.g clause on the Indemnification , Governing law and Settlement of Dispute clause.

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Indemnification Clause

Suggestion:

Defaulted partners of X PLT shall indemnify the X PLT and other partners for any claim, demand, loss or liability due to his default in the event of any actions, formal or informal taken against him, including but not limited to refund of all expenses payable by X PLT and all costs and charges incurred by X PLT as a result of his default.

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Governing law

Suggestion:

This Agreement shall be constructed in accordance with and governed by the laws of  Malaysia from time to time in force and each of the Partners hereby submit to the jurisdiction of the courts in  Malaysia.

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Settlement Of Disputes Clause Suggestion:

1.0 Any difference or dispute between the Partners shall be settled amicably through mutual consultation and/or negotiations between the parties.

2.0 In case any dispute or difference could not be resolved by means as stated in paragraph 1, then in accordance with and subject to the provisions of the Arbitration Act 1952 as amended or re-enacted from time to time, such dispute or difference shall be and is hereby referred to one (1) arbitrator who shall be appointed by both parties and the award of the arbitrator shall be binding.

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Conclusion• LLP is a hybrid business entity suitable for

small/medium and Professional businesses- less informalities compared to a company but with all the advantages of a company. It also has internal flexibility akin to a partnership.

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THANK YOU

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