Limited liability partnership

• CONTENTS:

• INTRODUCTION
• CHARACTERISTICS
• FORMATION & REGISTRATION
• FEATURES
• CONVERSION & EFFECTS
• DIFFERENCES WITH CONVENTIONAL
PARTNERSHIP
• ADVANTAGES & DISADVANTAGES
 INTRODUCTION
What is Limited Liability Partnership (LLP)?

• An alternative business vehicle regulated under the

LIMITED LIABILITY PARTNERSHIP ACT 2012. (enforced on
5th February 2013).

• Combines characteristics of a company and a

conventional/general partnership.

• Specifically forbids the establishment of multi-disciplinary

professional LLPs

Partnership Act 1961 and the rules of equity and of

common law - not applicable!! : S.4 LLP 2012
What is Limited Liability Partnership (LLP) ?

• Not to be confused with LABUAN LIMITED PARTNERSHIPS and LIMITED

LIABILITY PARTNERSHIPS ACT 2010
• A Labuan Limited Partnership shall consist of at least one general
partner; and one limited partner.
• The name of a Labuan limited partnership shall end with the words
“Limited Partnership” in full or the abbreviation “Ltd.P.”, “LP”, “L.P”
• A person may be a general partner and a limited partner at the same
time in the same Labuan limited partnership.
• A limited partner contribute capital to the partnership but do not
participate in the daily operations of the partnership. The limited partner
shall not be liable as a general partner unless the limited partner
participates in the management of the LP.
 …INTRODUCTION
• Another option to choose as the most preferred
form of business vehicle.

• Would benefit small businesses, professionals

groups and others.

• Registered with the Companies Commission of

Malaysia (CCM).

• The trade name of the firm is followed by

“Perkongsian Liabiliti Terhad” or “PLT.”, which
means “Limited Liability Partnerships”… S.13
EFFECT of LLPA 2012
m e co n v e n t ional
c o n v e r s i o n of so n i e s to
ds t o t h e d c o m p a
• Lea
m a l l p r i v a t e limite
or s
partnerships
LLP status.
e t h e b e n e fi ts of
tn er s h i p s w i l l h av
r
• Partners of pa
y.
limited liabilit
s b e i n g r u n as
s i z e d e n t e rprise
l l a n d m e d i u m -
v e r t i n t o L L Ps to
• S ma p a n i es m a y con
m i te d l i a b i l i ty com l i c a b l e t o
l i i r e m ents a p p
o u s r e q u
avoid oner o r a t e e n tity.
c o r p
maintaining a
s o l v e t h e L L P from
r s i o n d o e s n ot ab
nve
• BUT such co a t i ons w h i c h a r o s e f rom
a n d o b l i g e r s i on.
liabilities i n t o p r i o r to t h e c o n v
e re d
contracts ent
 Legal framework
• A legal framework to govern the registration, administration and dissolution of LLPs in
Malaysia:Formation Administration Dissolution
• [Link]
• •Registration of LLPs
• •Conversion by firms and private companies
• •Registration of foreign LLPs

• [Link]
• •Partners –duties and liabilities
• •Compliance Officer –duties and liabilities
• •Compliance requirements
• •Annual Declaration

• [Link]
• •Voluntary Winding up
• •Receivership & Court Ordered Winding Up
• •Striking off
•
 Registration of LLP
• Information required for registration:
• .proposed name of LLP
• nature of business
• address of registered office
• name and details of partners
• name and details of compliance officer
• approval letter (in cases of professional practice).

• •Name of LLP will end with “PerkongsianLiabilitiTerhad”

or “PLT”
 Availability of name
• Name as approved by governing bodies
• •Name search will not be applicable (except for Secretarial
Firms)
• •Similar names:
• –Unique LLP number will be issued upon registration
• –Unique identifier will be given to differentiate different
profession (ACC, LAW, CS)
• –Example:
• •Wong & Co PLT (LLP1 –LAW) vsWong & Co PLT (LLP1256 –LAW)
• •Wong & Co PLT (LLP 1-LAW) vsWong & Co PLT (LLP 8888 –ACC)
 Compliance officer
• LLP must appoint at least one compliance
officer.
• •Compliance officer must be either one of the
partners or persons qualified to act as a
secretary under the Companies Act 1965/2016.
• •Compliance officer must be—
• •A citizen or PR of Malaysia; and
• •Ordinarily resides in Malaysia.
 Duties of compliance officer
• Statutory duties of a compliance officer:
• Registering any changes in registered
particulars of the LLP;
• Keeping and maintaining registers and records
of the LLP; and
• Ensuring publication of names of the LLP
• •Will be personally liable for the contravention
of the statutory duties unless the court is
satisfied that he is not so liable.
 Other compliance requirement
• Registered office
• LLP must have a registered office in Malaysia at all
times.
• •Keeping of certain registers and statutory records at
the registered office
• Notice of registration
• Register of partners
• Copies of LLP Agreement, annual declaration/any
statement lodged with the Registrar
• Instrument of charges
 Other compliance requirement
• Keeping of proper accounting records
• LLP must keep accounting and other records to
sufficiently explain its financial position.
• The accounts shall be prepared to give a true
and fair view of the state of the affairs of the
LLP.
• •Annual declaration
• Declaration by at least two partners on the
solvency of the LLP.
Approval letters from governing bodies
• Confirmation of status from governing bodies:
• –Current partners (including membership
number)
• –Registered address
• –Registration date with governing bodies
(including any reference number)
• –Insurance coverage
• –Confirmation Reference Code
• –Solvency status for conversion cases
 Formation of LLP
• LLP may be formed:
• by a minimum of two persons (wholly or partly
individuals or bodies corporate);
• for any lawful business with a view of profit; and
• in accordance with the terms of the LLP agreement.
• LLP formed for professional practice must:
• consist of natural persons of the same profession; and
• have in force professional indemnity insurance as
approved by the Registrar.
 Registration of LLP
• Power of Registrar to refuse registration on
the following grounds:
• charitable purpose;
• unlawful purpose; or
• purpose is prejudicial to public peace, welfare
or good order or morality in Malaysia.
 Conversion
• Who can convert?
• •Conventional partnerships:
• registered under the Registration of Businesses Act
1956; or
• any partnership established by two or more persons
for the carrying on any professional practice.

• •Private companies incorporated under the

Companies Act
 Conversion CP to LLP
• Eligibility criteria:
• Same partners and no one else.
• At the date of application, the conventional
partnership is solvent.
• In cases of professional practice, the approval
letter from the governing body.
 Conventional partnership to LLP
• Effect of conversion:
• Vesting of assets of the conventional partnership into the
LLP;
• Pending proceedings may be continued, completed and
enforced against or by the LLP.
• Existing agreements, contracts shall have effect as though
the LLP were a party.
• Partner of conventional partnership shall continue to be
personally liable (jointly and severally with the LLP) for
liabilities and obligations incurred prior to the conversion.
• .
 Conversion COM to LLP
• Eligibility criteria:
• Same shareholders and no one else.
• There is no subsisting security interests in its assets.
• At the date of application, the private company is solvent.
• All outstanding statutory fees to government agencies
has been settled.
• Advertisement has been placed in a widely circulated
newspaper and the Gazette.
• All creditors agreed to the conversion.
• .
 Comp to LLP
• Effect of conversion:
• Vesting of assets of the private company into the LLP;
• Pending proceedings may be continued, completed
and enforced against or by the LLP.
• Existing agreements, contracts shall have effect as
though the LLP were a party.
• LLP continue to be liable for liabilities and obligations
incurred prior to the conversion.
• .
CHARACTERISTICS OF LLP:
1. Is a body corporate and has a separate legal
personality from its partners - S.3(1);

2. It enjoys perpetual succession - S.3(2);

3. it exists independent of its partners;

4. Change in the partners does not affect the

existence, rights or liabilities of the LLP - S.3(3);

5. It is capable of suing and being sued, acquiring,

owning, holding and developing or disposing of
property and doing and suffering such other acts
and things as bodies corporate may lawfully do
and suffer -S.3(4);

[Link]/LLP
…CHARACTERISTICS OF LLP:

5. LLP is liable to the same extent as the partner who

commits a wrongful act or omission in the course of
the LLP’s business or with its authority and the
liabilities of the LLP are to be borne out of the
property of the LLP - S.21.

A partner of an LLP is NOT liable for the wrongful

acts or omissions of the other partners of the LLP
BUT is personally liable in tort for his own wrongful
act or omission.
…CHARACTERISTICS:

6. Every partner is an agent of the LLP and has the

power to bind the LLP when the partner is acting
within authority and the person with whom the
partner is dealing with knows that the partner has
authority or that he is a partner of the LLP - S.23.

7. No issuance of shares.

8. Mutual rights and duties of the partners are

protected by an LLP agreement or, in its absence,
the Second Schedule to LLPA 2012.
 FORMATION & REGISTRATION

General

An LLP may be formed in accordance with the terms

of an LLP agreement by two or more persons,
whether individuals or bodies corporate, associated
for : S.6 - subject to SS.7 and 8.

In view of the requirements of S.6, an LLP may not

be formed for a social, recreational or charitable
purpose. Section 12
 LLP Agreement
• Except as otherwise provided in the Act, the rights
and duties of the partners of an LLP as between
themselves, and as between the LLP and its
partners, are to be governed by the Agreement.

• Unless otherwise stipulated in the LLP Agreement,

partner shall NOT assign his or her interest in the
distributions or capital of the LLP without the
consent of all partners.

• In the absence of specific provisions in the

Agreement on the matters specified in the Second
Schedule, the relevant provisions of the Second
Schedule will apply - S.9(1).
FEATURES DISTINGUISHING LLP
OTHER OBLIGATIONS AND FEATURES :

A. Compliance officer -
i. An LLP is required to appoint at least 1 compliance officer
from amongst its partners or persons who are qualified to
act as secretaries under the Companies Act 1965.
ii. The responsibilities of a compliance officer are similar to
that of a secretary of company.
iii. He must be a citizen or permanent resident of Malaysia and
ordinarily resides in Malaysia (S.27);

B. Annual declaration -

Every LLP is required to lodge with the Registrar an annual

declaration by any 2 of its partners that, in their opinion, the
LLP appears or does not appear to be able to pay its debts as
they become due in the normal course of business (S.68);
 FEATURES DISTINGUISHING LLP

• OTHER OBLIGATIONS AND FEATURES :

• A. Compliance officer -
i. An LLP is required to appoint at least 1 compliance officer from amongst
its partners or persons who are qualified to act as secretaries under the
Companies Act 1965.
ii. The responsibilities of a compliance officer are similar to that of a
secretary of company.
iii. He must be a citizen or permanent resident of Malaysia and ordinarily
resides in Malaysia (S.27);

• B. Annual declaration -

• Every LLP is required to lodge with the Registrar an annual declaration by

any 2 of its partners that, in their opinion, the LLP appears or does not
appear to be able to pay its debts as they become due in the normal
course of business (S.68);
• C. Accounts and other records -
•
i. Every LLP is required to keep such accounting and other records which will
sufficiently explain the transactions and financial position of the LLP as well
as give a true and fair view of the state of affairs of the LLP.
ii. Such records are to be retained for not less than 7 years.
iii. The accounts of an LLP need not be audited unless required under the
Agreement (S.69);
iv. Other [Link] 70

• D. Carrying on business with less than 2 partners -

• A person who is a partner of the LLP and knew or ought to have known that
the LLP was carrying on business with less than 2 partners beyond a period
of 6 months or such longer period as may be permitted by the Registrar
under S.7(1), will be personally liable, jointly and severally, with the LLP if at
the time when the obligation was incurred, beyond the period permitted
under S.7(1) (S.7(2);
FEATURES DISTINGUISHING LLP

E. Receivership and winding-up by the Court –

The winding-up of an LLP by the Court under Ss 49(1)(a)

&(b) applies:
i. Part VIII of the Companies Act on the receivership of an
LLP, and
[Link] 2 and 4 of Part X of the Companies Act and the
Companies (Winding-up) Rules 1972 - subject to the
necessary modifications.

F. Voluntary winding-up -

The procedures and laws that govern the voluntary winding-

up of an LLP are set out in S.50. An LLP which is unable to
pay its creditors is not permitted to initiate a voluntary
winding-up unless its creditors waive their claims against the
LLP.
.
FEATURES DISTINGUISHING LLP

G. Foreign LLPs -

S.44 provides that a foreign LLP may not carry on business

in Malaysia unless it is registered as a foreign LLP under the
Act.

“Carrying on of business” include (i) being a party to legal

proceedings, (ii) holding meetings or carrying on other
activities concerning its internal affairs, (iii) maintaining a
bank account, (iv) effecting any sale through an
independent contractor, (v) soliciting or procuring any order
which becomes a binding contract only if the order is
accepted outside Malaysia, (vi) conducting an isolated
transaction that is completed within 31 days, not being one
of a number of similar transactions and (vii) investing its
funds or holding property.
 CONVERSION TO LLP

CONVERSION refers to the transfer of the

properties, interests, rights, privileges,
liabilities, obligations and undertakings of
a conventional partnership or private
company, as the case may be, to a LLP.
Conversion from conventional partnership
1. A conventional partnership may be converted to a LLP provided
that the LLP shall comprise ONLY all the partners of the existing
conventional partnership and no other person - S.29(1)

2. Conversion process - the conventional partnership is required

to lodge with the Registrar of LLPs (“Registrar”) a statement
signed by all its partners stating, inter alia, that as at the date
of the application, the conventional partnership appears to be
able to pay its debts as they become due in the normal course
of business. -S.31(1)(a)(iii)

3. A professional practice, such as a firm of Chartered

Accountants or Advocates and Solicitors, which seeks a
conversion to a LLP is also required to lodge an approval letter
from its governing body with the Registrar -S.31(b)
REGISTRATION AND EFFECTS OF
CONVERSION
Upon approval of the application for conversion of a conventional
partnership or a private company (“transferor”), the Registrar will
issue a notice of registration to state that the LLP has
been registered under the Act (“registration notice”) from the
date specified in the registration notice ("registration date").

The registration of the conversion will result in the following:

(a)Vesting of properties and transfer of rights and liabilities –

All properties vested in the transferor, all interests, rights,
privileges, liabilities and obligations relating to the transferor,
and the whole of the transferor's undertaking shall be
transferred to and vest in the LLP without the requirement for
any further act or deed - S.33(1)(a);
REGISTRATION AND EFFECTS OF CONVERSION

(b) Pending proceedings, judgments or convictions - All

proceedings by or against the transferor which are
pending on the registration date may be continued,
completed and enforced by or against the LLP. This
similarly applies to any conviction, ruling, order or
judgment in favour of or against the transferor - Ss
34 and 35;
 REGISTRATION AND EFFECTS OF
CONVERSION

• (c) Existing agreements and arrangements deed,

contract, bond, instrument and arrangement to
which the transferor was a party immediately
before the registration date, shall as from that
date continue in force as if the LLP is the party
thereto and shall be enforceable by or against the
LLP – SS. 36 & 37);

• (d) Continuance of employment - Every contract of

employment shall continue in force on or after the
registration date as if the LLP was the employer
thereunder instead of the transferor - S.38; and
 REGISTRATION AND EFFECTS OF
CONVERSION

• (e) Existing appointment, authority or power in

force immediately before the registration date shall
take effect from that date as if the LLP had been
appointed.
• Similarly, every authority or power conferred on
the transferor shall take effect from the registration
date as if it were conferred on the LLP - S.39.

• However, the automatic vesting provisions under

SS.33-39 do not apply to any approval, licence or
permit held by the transferor. It will therefore be
necessary for the LLP to apply afresh for a similar
approval, licence or permit (S.40).
REGISTRATION AND EFFECTS OF
CONVERSION
Every partner of a conventional partnership that has
converted to a LLP will continue to be personally liable, jointly
and severally, with the LLP for the liabilities and obligations
incurred by the conventional partnership prior to its
conversion or which arose from any contract entered into
before the conversion.

Subject to any agreement with the LLP to the contrary, any

partner who discharges any such liability or obligation shall
be entitled to be fully indemnified by the LLP in respect of
that liability or obligation (S.41).

A LLP is also required to ensure that every invoice and official

correspondence bears a statement of the conversion and the
name and registration number of the transferor from which it
was converted for a period of 12 months commencing 14
days after the registration date (S.42).
Application for registration of an LLP

An application for registration of an LLP must include a statement

signed by every person who is to be a partner of the LLP which
sets out the particulars specified in S.10(2), namely:
i. the name of the proposed LLP;
ii. the general nature of the proposed business of the LLP;
iii. the proposed registered office of the LLP;
iv. the name, nationality and usual place of residence of every
proposed partner and where a partner is a body corporate, its
corporate name, place of incorporation or origin, registration
number and registered office;
v. the name, nationality and usual place of residence of every
person who is to be a compliance officer of the LLP; and
vi. such other information as the Registrar may specify.
 DIFFERENCES WITH GENERAL PARTNERSHIP
LLP CONVENTIONAL PARTNERSHIP
REGISTRA
TION S.10 of LLP 2012 states that, “A No provision on the
person may apply for registration of registration of the
a limited liability partnership to the partnership. However, it still
Registrar and the application shall must be registered, not under
be accompanied by the prescribed PA 1961 but under S. 5 of
fee and such documents as may be Registration of Business Act
specified by the Registrar.” 1956.

S.3 - the liability of the partners is S.11 - every partner is liable,

LIABILITY
limited to their agreed contribution. jointly with all the other
No partner is liable on account of partners and also severally for
the independent or unauthorized all acts of the firm done while
acts of other partners, thus allowing he is a partner. Thus, this
individual partners to be shows that the Act apply
shielded from joint liability the unlimited liability
created by another partner’s towards the partners under
wrongful acts or misconduct it.

[Link]/LLP
 DIFFERENCES WITH GENERAL PARTNERSHIP
LLP CONVENTIONAL PARTNERSHIP
NO. OF Minimum number of two persons in S. 14 (3) of Companies Act 1965 - not
PARTNERS the partnership – S.6 more than twenty partners
No maximum number of partners.

If there is no special agreement that If there is no special agreement that

INTEREST & made between the partners made between the partners , S.26 PA
DUTIES regarding their interest and duties, 1961 will apply.
under LLP 2012, default provisions
for limited liability partnership are
provided in the 2nd Schedule .S. 9.
 DIFFERENCES WITH GENERAL PARTNERSHIP
LLP CONVENTIONAL PARTNERSHIP

DISSOL- May be dissolved by : Upon its dissolution, there must be a

UTION i. Court order or settlement of partnership accounts.
ii. Voluntary winding-up :- only when 1. voluntary
it cease to operate, all debts and 2. Court order
liabilities have been discharged,
application is preceded by way of
notice to all partners and
published in national newspaper
of the intention to winding-up and
no objection from Inland Revenue
Board (IRB), creditor, and partner.
iii. Struck off on the grounds of: no
longer carrying on business,
contravention of LLP Act,
prejudicial to national interest, no
liquidator acting for court order
winding-up, or affairs have been
fully wound-up but with
insufficient assets to pay the cost
to obtain court order.

[Link]/LLP
 Advantages

i. Flexibility of organisational arrangement through the partnership

agreement.
ii. Limited liability to owners/partners
iii. There are no limits to partners, compared to conventional
partnerships where there is a cap of 20 persons;
iv. Companies may form an LLP. SSM states that these are the most
common form of joint ventures;
v. Absence of issuance of shares reduces the cost of setting up and
sustaining the LLP;
vi. An undischarged bankrupt may continue as a partner, but may not
participate in the management of the LLP
vii. Foreigner and foreign companies may be partners in an LLP.
[Link] maintaining its accounts, there is no specific prescribed accounting
standard.
ix. Audit is not required.
x. LLPs do not need to hold Annual General Meetings like companies.
xi. No requirement to submit financial statements to SSM.
 Disadvantages

i. LLPs are a new creation, therefore there is a

lack of experience among the enforcers and
supporting services, e.g. accounting firms, tax
authorities etc. As with all new creation, there
is a learning curve all will undergo.
ii. Professional practice LLPs formed are
restricted to the natural persons practicing the
same profession, e.g. lawyers may not team
up with accountants and form a professional
LLP.
iii. LLPs must maintain an accounting record, and
kept for seven years.
 Duties and liabilities of partners
• Any individual or body corporate can be a partner.
• “Partner” means any person admitted as a partner in
accordance to the LLP agreement and includes salaried
partner.
• •Any obligation arising from contract or tort will be the
liability of the LLP and not the partners.
• •A partner however will be jointly and severally liable for
his own wrongful act or omission in the course of the
business of the LLP.
• •Liabilities of LLP will be borne out of the property of the
LLP.
 Duties and liabilities of partners
• Every partner is an agent of an LLP.
• •However, the LLP is not bound by what the partner has done in
dealing with a person if:
• the partner acted without authority; or
• the person with whom the partner was dealing knows that the
partner acted without authority or does not know that he is a
partner of the LLP.
• •A former partner is still regarded as a partner of an LLP unless
—
• the person dealing with whom the partner was dealing knows
that the partner has ceased to be a partner; or
• Notice of cessation has been lodged with Registrar.
 cessation
• Automatic cessation:
• Upon death/dissolution of a partner; or
• in the case of a professional practice, the partner has
been disqualified from carrying out the professional
practice.
• •Voluntary cessation:
• a partner may cease to be a partner in accordance
with the LLP agreement; or
• in the absence of such an agreement, by giving a 30
days notice to the other partners.
 Effect of bankruptcy sect 25
• Bankruptcy of a partner will not cause a
partner to cease being a partner.
• •However, a bankrupt partner is prohibited to
take part in the management of the LLP unless
—
• •Leave from Director General of Insolvency has
been obtained; or
• •Leave of the Court has been obtained
(applicable to both local or foreign partners).
 Method of dissolution
• Court Ordered Winding Up
• •Voluntary Winding Up
• •Striking off
 Court ordered winding up
• Court Ordered Winding Up
• Follow Company Act 2016
• Appropriate modifications
• •Receivership
 Voluntary winding up
• Application in writing to the Registrar when all
assets and liabilities have been discharged.
• •Application must be preceded by notice to all
partners and advertisement of the intention to
wind up.
• •Registrar will order dissolution only if there is
no objection received.
 Power to strike out
• Power of the Registrar to strike LLP off the
register on the following grounds:
• No longer carrying on business;
• Contravention of the Act;
• Prejudicial to national interests; or
• No liquidator acting in cases of court ordered
winding up;
• Affairs have been fully wound up but no
sufficient assets to obtain court order.