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Limited Liability Partnerships (LLP) @

Perkongsian Liabiliti Terhad (PLT)


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Outline

Business Entities Limited Liability Partnerships (LLP)

LLP in Malaysia

LLP for Professionals Foreign LLP

Observation


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Business Entities

Generally, there 3 types of businessentities which are available all over the in

Malaysia:

(i) Sole proprietorships(ii) Partnerships / Firm

(iii) Companies- Sdn Bhd/Bhd


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AttributesType/

Attributes

Legal

Status

Limited

Liability

Existence Regulation Tax

Sole

Proprietorships

Not

a legal

entity

Not

available

Depends on

the sole

proprietor

Self

Regulated/

Registration of

Business Act1950

Income Tax

Partnerships/

Firm

Not

a legal

entity

Not

available

Depends on

the partners Partnership

Act 1961/

Contracts Act

1950

Income Tax

Companies Legal

entity

Available

Independent

from the

members-

perpetual

succession

Companies Act

1965

Corporate

Tax


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Restriction by professional

bodies

Accountants Main regulation which governs the accounting

profession is the Accountants Act 1967- section 18

Without prejudice to any other provisions of thisAct or rules or by-laws no member shall

(c) in anyway, practice as a chartered

accountant or licensed accountant other

than(i) in his own name;


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(ii)in the name or names of his partner or

partners being chartered accountants or

licensed accountants; or(iii) in the name of a firm existing at the time of the

coming into operation of this Act or formed

thereafter provided that the partners in

Malaysia are eligible to be registered as

chartered accountants or licensed accountants;


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Although the above provision does notspecifically provides for restriction for

accountants to set up practices as a company,

it is clear that the provision does not provide

company as a medium for accountants to carryout their business or practices.


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Malaysian Institute of Accountants (Membership

and Council) Rules 2001[P.U.(A)343/2001] (asamended by the Malaysian Institute of

Accountants (AMENDMENT) RULES 2002

[P.U.(A)258/2002]):

Rule 2 : member in public practice means achartered accountant or licensed accountant who,

as a sole proprietor or in a partnership, provides

or is engaged in public practice services in return

for a fee or reward for such services otherwise

than as an employee.


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Despite that the rule does not expressly statedthe restriction for accountant to practice as a

company, the Rule clearly stated that the

medium in which the practice can be carried out

is through sole proprietorships or partnerships.


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Lawyers

The main regulation which governs theprofession is the Legal Profession Act (LPA)

1976.

Other than the LPA1976, the lawyers are also

regulated by rulings and by-laws.

Chapter 1 of the Rulings, clause 1.01(l) clearly

provides that all references to a firm or a law

firm mean a firm of Advocates and Solicitorswhether a partnership or a sole proprietorship.


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The exclusion of company structure fromreferences to a firm clearly indicates that the

business of legal practices can only be carried

out in the form of sole proprietorships or

partnerships.


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Architects Act Architectural consultancy practice

7A.(1) Notwithstanding subsection 7(1), a sole

proprietorship, partnership or body corporate may

practice as an architectural consultancy practice and

recover in any court any fee, charge, remuneration or other

form of consideration for any architectural consultancy

services rendered by it pursuant to its practice as an

architectural consultancy practice carried on by virtue of

this section, if it is registered with the Board as an

architectural consultancy practice and has been issued witha certificate of registration.


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A body corporate providing architectural consultancy

services, professional engineering services and/or

quantity surveying services

Section 7B.(1) Where a body corporate carrieson a practice of providing architectural

consultancy services, professional engineering

services and/or quantity surveying services, the

Board may, subject to such conditions orrestrictions as it may deem fit to impose,

register that part of the practice providing

architectural consultancy services.


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REGISTRATION OF ENGINEERS ACT 1967

Section 7A. (1) Notwithstanding subsection7(1), a sole proprietorship, partnership or body

corporate may practice as an Engineering

consultancy practice and recover in any court any

fee, charge, remuneration or other form ofconsideration for any professional engineering

services rendered by it pursuant to its practice as

an Engineering consultancy practice carried on by

virtue of this section, if it is registered with the

Board as an Engineering consultancy practice and

has been issued with a certificate of registration.

A b d idi f i l i i


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A body corporate providing professional engineering

services, architectural consultancy services and/or

quantity surveying services.

Section 7B. (1) Where a body corporatecarries on a practice of providing

professional engineering services,

architectural consultancy services and/or

quantity surveying services, the Board may,subject to such conditions or restrictions as it

may deem fit to impose, register that part of the

practice providing professional engineering

services.


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QUANTITY SURVEYORS ACT 1967

Section 7A. (1) Notwithstanding subsection7(1), a firm, or a body corporate may practice

as consulting Quantity Surveyors and recover

in any court any fee, charge remuneration or

other form of consideration for any professionaladvice or services rendered by it pursuant to its

practice as such, if it has the written approval of

the Board, and has been issued with a valid

permit, to so practice.

A b d t idi tit i


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A body corporate providing quantity surveying

services, professional engineering services and/or

architectural consultancy services

Section 7B. (1) Where a body corporatecarries on a practice of providing quantity

surveying services, professional engineers

services and/or architectural consultancy

services, the Board may, subject to suchconditions or restrictions as it may deem fit to

impose, grant an approval to practice in respect

of that part of the practice providing quantity

surveying services.


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Limited Liability Partnerships

LLP is a hybrid business entity that combines the

best features of partnerships and company. It enjoys the attributes of a body corporate,

namely, separate legal entity, limited liability, and

perpetual succession HOWEVER the internal

regulation is based upon an agreement which isakin to a partnership agreement.

LLP shall be liable for business risks/debts but

defaulted partners shall be jointly liable with theLLP.

Partners are liable for his tortious act; e.g

negligence.


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Main Characteristics of LLP

A legal entity- as a body corporate (LLPs in UK, India,

Singapore, Labuan) or as a non-body corporate (JerseyLLP) or as a partnership (US LLP)

Attributes- similar to companies (SLE, LL, PS.etc)

Internal regulation- similar to partnerships (via agreement)

Third party protections- claw back mechanisms andminimum disclosure.

Formalities and Disclosure requirement- annual declarationof solvency- no submission of audited account/ AGMminutes

Tax status- on the entity (Labuan) or as a partnership-income of partners (UK, Jersey and Spore) or as apartnership but at fixed rate (India) or as a company(Malaysia)


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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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Attributes

LLP

Limited

Liability

(Partial)

Ability to

enter legal

proceedings

Perpetual

Succession

SeparateLegal Entity

Right to

own

property


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The limitation of liability in LLP is only

PARTIAL- viable for innocent partner and not to

defaulted partners. As such, partners still have

to be cautious on their duties to client as they

shall be jointly liable with the LLP for theirdefault in tort and in contracts.


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Internal Regulation

r

Agreement Between Partnersor

Default Rules

S


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Tax Status

LLP

Entity

(Labuan)

3%- trading activity

Not taxable- non-trading

Income of

Partners

(UK, Spore, US)

Partnership at

a flat rate

(India- 30%)

O h hi hli h


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Other highlights

Third party protections- claw back mechanismsand minimum disclosure.

Registration Formalities-moderate- less thancompanies but more than partnerships.

Disclosure-only submission of annual solvency/

insolvency report. Accounts- No audit requirement but keep of

records for certain years.

Partnership laws are not applicable whilst winding

up procedures/laws on companies are applicable.

LLP IN MALAYSIA


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LLP IN MALAYSIA

Agenda Labuan LLP Malaysia PLT

Legal status Body corporate Body corporateAttributes 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 recordswhich givea true and fair view of the

LLP state of affairs (7

years)

Claw-back provisions

(section 22)


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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

RECOMMENDATIONS

(i) Irrevocable option to

be taxed either as apartnership or a

company

(ii) Fixed rate on the

entity- attractive rate .

LLP IN MALAYSIA


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LLP for Professionals

Section 2 of LLP act 2012:professional practice means the practice as

specified in the first column of the First

Schedule which is governed by the written law

as specified in the second column of the First

Schedule, respectively;

First Schedule only provides for Chatered

Accountants, Advocates and Solicitors andCompany Secretary.


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LLP for professionals The members of the LLP shall only be

professionals such as all architects, engineers,quantity surveyors, accountants or all lawyers.

The partners shall regulate their activities by way

of contract among themselves which shall

incorporate requirement of the professionals ethicsand regulation.

The LLP cannot limit its liability below the

compulsory level of insurance that has to be takento protect clients interests.

The LLP is liable for all the business debts but the

professionals liabilities remains in tort- negligence


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Power to amend Schedules

Section 92. The Minister may, by orderpublished 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 2012

Section 44. (1) A foreign limited liability

partnership shall not carry on business in Malaysiaunless 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 secretariesunder the Companies Act 1965 who

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

and (b) ordinarily resides in Malaysia.


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Section 48 (8) The foreign limited liabilitypartnership shall be deemed to continue to exist

in Malaysia until the winding-up of its affairs in

Malaysia is completed


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Conversion from Sdn.Bhd to PLT

Section 30.

(1) A private company may convert to a limitedliability partnership if and only 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 limited liability partnership

to which it is to be converted comprises all the

shareholders of the private company and no oneelse.


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Conversion from partnership to PLT

Section 29.

(1) A conventional partnership may convert to a limitedliability partnership if and only if the partners of the limited

liability partnership to which the conventional partnership is

to be converted, comprises all the partners of the

conventional partnership and no one else.(2) In this Part, convert, in relation to a conventional

partnership converting to a limited liability partnership,

means a transfer of the properties, interests, rights,

privileges, liabilities, obligations and the undertaking of the

conventional partnership to the limited liability partnership.

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