LLP: An alternative business structure to partnership or company

Prior to the Limited Liability Partnership (LLP) Act 2012, entrepreneurs can either become sole traders, or form a partnership or set up a company. The LLP Act 2012 introduces an alternative business structure called the Limited Liability Partnership (LLP), offering a hybrid of benefits enjoyed by a conventional partnership and a private limited company.

• LLP versus conventional partnership

An LLP enjoys the protection of limited liability to its business partners, akin to the limited liability enjoyed by shareholders of a company. An LLP enjoys a “separate legal entity”, which means the LLP itself is capable of suing and being sued in its own name, and any debts and liabilities of the LLP will be borne by the LLP’s assets, not that of the partners.

Contrast this with conventional partnership, partners are jointly and severely liable for all business debts and obligations. For example, if the partnership had incurred a debt, the debtors can sue the partners and go the partners’ personal assets may be seized to clear the debt.

• LLP versus private company

Unlike a private company, LLP enjoy several special features:

• No requirement for Annual General Meetings (AGM)
• No requirement to submit financial statements to Suruhanjaya Syarikat Malaysia (SSM)
• No requirement to audit accounts
• No issuance of shares
• More flexible decision-making process

• Registration of LLP
• By minimum two persons, with a registration fees of RM500.00.
• Usually formed by professionals, small and medium business (SME) or joint venture.
• There must be a Compliance Officer for the LLP. Where no compliance officer is appointed, all partners will be deemed the compliance officers of the LLP.

• Duties and Liabilities of Compliance Officer in an LLP.

The Compliance Officer must:

• Keep a complete accounting record of the LLP business.
• Complete and submit income tax return form (ITRF) and ensure timely and accurate payment of tax by the LLP.
• Provide estimates of tax payable to Malaysia Inland Revenue Board.
• Submit documents on behalf of the LLP.
• Perform any matters requested to be done by the Registrar of LLP from time to time.
• Register changes in particulars of the LLP with the Registrar as and when it occurs.
• The Compliance Officer will be personally liable to all penalties including administrative penalties imposed on LLP for non-compliance of the LLP Act unless proved otherwise.

In short, LLP provides an appealing alternative business structure with the necessary dynamics to compete domestically and internationally owing to its flexibility in formation, maintenance and termination, while enjoying the advantages of a separate legal entity.