Company Law

1. 1.0 Introduction
Up until 2012, an act relating on partnership is governed by Partnership Act 1961. The
most significant feature of the Act is the joint legal entity of the partners which incorporates
liabilities on the partners, in contrast with the limited liability of a company. The stringent
approach governing the law on partnership has led to development of that law by the introduction
of Limited Liability Partnership Act 2012, (subsequently refer as The Act) which provides
flexibility of the partnership arrangement for the organization of the business. The Act has been
gazette on 9 February 2012 and it came into operation on 26 December 2012.1 It is observed that
the development of partnership based business vehicles mainly concentrates on the aspect of
limited liability amidst the criticism of the unlimited and joint liability principle.2 The Act was
formed in response to a business need for an unincorporated business which combines the regular
partnership structure with the doctrines of separate legal personality and limited liability
established in company law as a hybrid preference.
The LLP is available in more than 35 states which, by satisfying certain statutory
prerequisites, insulates its partners from vicarious liability for certain partnership obligations.3 In
Malaysia, the limited liability partnership was introduced due to the rapid pace of globalization
and competition in doing business. It is also said to create and maintain a friendly business
environment which is in line with Government’s aspiration and call since April 2007 to improve
public and Government service delivery system, cut bureaucracy and red tapes, simplify
procedures, reduce administrative and compliance burdens relating to doing business.4 LLP
coverage may differ on country basis; vary on the jurisdiction of the state. For instance, in
Malaysia, all partners are entitled to enjoy limited liabilities.
Thus, this paper aims to discuss the structures of one of the most recent kinds of business
entities combining the preeminent characteristic of the two basic business configurations, namely
partnerships and companies, and yet subsists independently. This includes the comparison from
the basic partnership structure. Besides, this paper also aims to provide contrast between the
structure and application of LLP in Malaysia and United Kingdom to get e better look to the real
concept of LLP in more details.
1 Federal gazette.
2 See URN 94/529 Diana Faber,1997,'The Law Commission Review Of the Law of Partnership',Butterworths
Journal of International Bankingand Financial Law,June, p 242 and Joanna Gray, 1997,'DTI Consults On Limited
Liability Partnerships,TheCompany Lawyer', Butterworths Journal of International Bankingand Financial Law,
June, p 242.
3 Elizabeth G. Haster. (1996). Keeping Liability atBay. Business LawToday, pp. 58-62. American Bar Association.
4 Grace Tan. (2008). Limited Liability partnership-theway forward?.Micpa.com.

2. 2.0 Comparison between LLP and basic partnership
2.1 Limited liability without the strict management procedures of an incorporated body.
Partnership Act 1961 was enacted in 19615 and came into force on 29 April 1961. Under the
basic partnership structure, the law imposes joint and several liability for all tortious acts6 of their
co-partners acting within the scope of their actual or apparent authority.7 Every partner in a firm
is liable jointly with the other partners for all debts and obligations of the firm incurred while he
is a partner; and after his death his estate is also severally liable in a due course of administration
for such debts and obligations, so far as they remain unsatisfied but subject to the prior payment
of his separate debts8 Thus, this shows that the Act apply the unlimited liability towards the
partners under it.
In Leong Sing v Perusahaan Kuari (Melaka Pindah) Sdn Bhd (formerly known as
Malacca Lian Hwa Sdn Bhd9 it was ruled that, when a wrong tortious act in nature is committed
by the firm or partners the liability that arise from that tort will bind the firm exclusively. There
is no veil of incorporation that allows it to be treated as a separate legal entity from its partners. It
is clear that partners are entitled to enjoy the profits but a jointly and severally liable to pay and
settle the debts and liabilities of the enterprise.
Unlike partnership, according to Section 21 of Limited Liability Partnership Act 2012, the
limited liability position will protect the single partners from the debts and liabilities of the LLP
as well as personal liability from the acts of another partner which were conceded out throughout
the course of business. Nevertheless, such rule will not shield a partner of the LLP which he would
otherwise incur by his own wrongful act or omission, even though such acts were carried out in
his role as a partner of the LLP. It must be noted that the contractual obligations and liabilities
arising from a contract are made under the limited liability partnership, not on the personal capacity
of the partners. It is also proposed that in the event an LLP becomes insolvent, a partner's liability
should be limited to the amount of his capital contribution to the LLP subsisting at the time.10
The LLP will be preferable for a big size partnership where there is different specialization
among the partners coming together of different profession within a partnership. For instance, in
a very large partnership, not all the partners personally known each other and hence there has been
amassed distresses about their liability for the conduct of their fellow partners.11 At the same time,
5 Act 135.
6 Section 12 Partnership Act1961
7 Section 13 Partnership Act1961.
8 Section 11 Partnership Act1961.
9 [1997] 5 MLJ 657
10 Section 22 Limited Liability Act 2012.
11 Grace Tan. (2008). Limited Liability partnership-theway forward?.Micpa.com. p. 8.

3. having limited liability will encourage the small businesses to expand their wings of business on
the same level as incorporation, while having benefits of partnership, which is less complicated.
2.2 Registration
A partnership business must be registered under Registration of Businesses Act in which all the
details of partnership agreement shall be specified in the prescribed form. Nevertheless, in
Gulazam v Noorzaman and Saboth,12 partners could set up their firm without registering the
business so long as they accomplish all the features of partnerships, namely relations between
persons carrying on business in common. Thus, a partnership could validly be carried on.13
Whereas for the LLP, the law is clear that registration14 is a condition for existence although
the procedures are not as complicated as registering a company. The information to be included in
the registration form consists of the name and principal activities of the LLP, the address of the
registered office of the LLP, and the names and addresses of the partners of the LLP.15 The
partners' agreement however is not required to be lodged to the registrar.16 LLP Act will be
providing a straightforward registration process through a single instrument. Thus, it will become
more convenient. An LLP must use the words “LL Partnership” or the abbreviation “LLP” as part
of its name and that such name must be publicized at its place of business and official documents
together with the unique LLP number to show its difference from the basic partnership.
Besides, the registration process shall be done by the Compliance Officer appointed by the
LLP to the registrar. There is no requirement of compliance officer under the basic partnership
structure. However, LLP required at least one compliance officer. He must be a natural person
who is Malaysian citizen or permanent resident, either a partner of the LLP or a person qualified
as company secretary who is appointed through his consent.17 Whether the officer is qualified or
not is determined through his conduct. This is to guarantee that the person selected as a compliance
officer is dependable and not amongst those who have been previously convicted with particular
offences or obstinately in violation of the companies or LLP regulations.
2.3 Status of legal entity and cessation of partnership
A partnership has no separate legal entity apart from its members. The firm and the partner are
not separate from one another. A partnership cannot by itself make a contract, employ people,
commits crime, sued or be sued. Since partnership is a contractual relationship which subsist
12 [1957] 23 MLJ 45.
13 Zuhairah Ariff Abd Ghadas.'New Kid On The Block!!'Limited Liability Partnerships:The Imminent Business Enti ty
In Malaysia.Malayan Law Journal Articles.
14 Section 10 LLP Act 2012.
15 Ibid.
16 See the LLP Act 2012 s 10(1) and (2).
17 Section 27 LLP Act 2012.

4. between persons carrying on business in common with a view of profit, the Contracts Act 195018
applies to a partnership agreement.
In M.K. Varma & Another v K.M. Oli Mohamed,19 it was ruled that action under contract in
the course of the partnership must be filed under the firm’s name or jointly encompassing all the
partners. The suit cannot be maintained in their own personal and individual capacity.
A cessation of partnership by dissolution of partnership can be either through the court order
or without the intervention of the court. This is because partners do not enjoy perpetual succession
in case there is a change in membership. It can be deduced that in respect of contracts, be it in
written or verbal, where a contract is entered into with several persons jointly they should all join
in an action upon it as there is no separate legal entity in the law of partnership.
Under the limited liability partnership, persons dealing or contracting with a partner of an LLP
will be dealing or contracting with the LLP rather than its partner. Partners acting on behalf of
LLP then may enter into contract, sued, or be sued. After all, the responsibility incurred and
liability arising therefrom, whether arising in contract, tort, or otherwise, should be that of LLP
due to the presence of separate legal entity. Limited partners can also lend or borrow money from
the firm and enter into transactions with the firm.20 In such cases, except where the limited partner
is also a general partner, the limited partner's claim against the assets of the offshore limited
partnership shall rank them as creditors of the firm.21 Another more important feature is that as
LLP it should be allowed to raise capital or create charges over its assets due to its status of having
legal personality.22
In contrast with the basic partnership, LLP will cease through winding up or striking off of the
LLP. It can be either by the order from the court23 or voluntarily by the partners collectively.24 It
must be noted that in the event of death or bankruptcy of the partners, the LLP will not be affected
nor dissolved. This is in line with the separate entity standard that accords LLP with perpetual
succession.25 Since the LLP give flexibility to its partners in designing their own internal
regulations, sometimes methods of dissolution can also be provided in the agreement.26 If it is,
they must be complied with.
18 Act 329.
19 [1950] 1 MLJ 80.
20 See the LLP and LLPA 2010 s 15(1).
21 See the LLP and LLPA 2010 s 15(2).
22 SSM CD on Limited Liability Partnerships, April 2008 atp 38.
23 Section 49 LLP Act 2012.
24 Section 50 LLP Act 2012.
25If LLP however is subjectto restriction of operating below the required membership of 2 after a certain grace
period, in which they will automatically ceaseafter the expiry of such period.
26 SSM CD on Limited Liability Partnerships, April 2008 atp 49.

5. 2.4 Structure of membership
According to Section 47(2) of Partnership Act 1961, there must be at least two persons to form
a partnership with the maximum limit of 20 numbers of partners. However, in the case of
professional partnership, there is no maximum limit stipulated.27 In Tan Teck Hee & Ors v Cheng
Tiew Peng,28 it was held that a formation of a firm of more than 20 persons is prohibited by the
law and therefore the parties are not eligible to claim.
In contrast with partnership, the minimum number of members in LLP is two and can go up
without being subjected to any maximum number.29 This means, partnership business will be able
to stimulate their growth as in in a company without being restricted to convert into incorporation
when they exceed the maximum requirement. In term of its eligibility, the memberships of the
LLP are flexible to both natural and artificial persons.30 Unlike in basic partnership, the LLP can
still operate within the period of no longer than six months or more as prescribed by the registrar
in account of the number of partner’s falls below two.31 This approach will permit a sole partner
to remain to operate without having winding up the business will surely make LLP more
convenient and attractive as it increases business flexibility and avoid the cost of winding up when
the number of partners falls below the minimum standard.32
Nevertheless, failure to comply the condition after the specified period shall make the partners
jointly and severally liable with the LLP for all the LLPs' obligation33 and the partner could be
penalized with a fine.34
3 Rule as to interest and duties of partners
According to Section 7 of Partnership Act 1961, every partner is an agent of the firm and his
other partners for the purpose of the business of the partnership unless if the partner has in fact no
authority to act for the firm in the particular matter. It can be concluded that under the basic
partnership, there is a dual agency relationship, in which the partner will act as agent for both the
firm and other partners.
27 Section 14(3) Companie Act 1965.
28 [1915] 2 FMSLR 161.
29 See the LLP Act 2012 s 6.
30 See the LLP Act 2012 s 7(4).
31 See the LLP Act 2012 s 7(1).
32 SSM CD on Limited Liability Partnerships,April 2008 atp 21.
33 See the LLP Act 2012 s 7(2).
34 See the LLP Act 2012 s 7(3).

6. In LLP, partners are only agents to the LLP and not to other partners thus can act for,
represent and bind the LLP provided that they have authority to perform such act.35 The firm is
completely a separate entity from its partner. This standard is significant as it manages to resolve
complications initiated by the unlimited liability rule.36 In the circumstances when the default of
the partners was committed to the third party within their scope of authority, the LLP will bear the
consequences unless at the time of the transaction, the third party knows that the partner are no
longer acting on behalf of the firm. It means that the coverage of partners' burden is obviously
condensed under the LLP.
Concept of LLP in UK/US and its differences from Malaysia
There are three types of LLP namely; (1) LLP which has the status of a partnership, for
example the United States of America (US) LLP,37 (2) LLP which is a legal entity but not a body
corporate, for example the Jersey LLP38 and (3) LLP which has the status of a body corporate, for
example the Singapore LLP39 and the UK LLP.40 The UK LLP is in fact resembles a company
than a partnership.41 The UK LLP Act states, that unless specifically provided otherwise in
legislation, "the law relating to partnership does not apply" to LLP.42
In Malaysia, the introduction of LLP is more akin to the third type of LLP in which it has
the status of a body corporate. Therefore, there are a lot of similarities in terms of the structure and
organization of LLP in our country and the one applicable in United Kingdom. Having a status of
a corporate body, both LLP be it in UK or Malaysia is subject to similar requirements applicable
to companies such as reporting and disclosure requirements when it comes to external
obligations.43 Nonetheless, its internal regulation is governed by partners' agreement, which is
akin to a partnership agreement.44
In term of liability, the LLP in Malaysia highlighted that the partners of LLP should be
conferred limited liability in respect of tort and contractual claims. Thus, partners will be protected
from being liable on any default constituted by other partners unless it was caused by their own
35 Grace Tan. (2008). Limited Liability partnership-theway forward?.Micpa.com.
36 Limited Liability partnership- a new business vehicleIn town. (November 2013).PWC Alert issue110.
37 See Chapter 614 of the Uniform Partnership Act; Limited Liability Partnerships.
38 See article2(4) of the Jersey Limited Liability PartnershipsLaw1997 (Rev 2008).
39 See s 4(1) of the LLPP Act 2005 [SG].
40 See s 1(3) of the LLP Act 2000 [UK].
41 Paul Davies,Company Law, Cameron Law Series, 3rd Edition, Oxford University Press,2002,p. 296.
42 Section 1(5) UKLLPAct 2000.
43 LLP (UK) Act 2000;in Singapore, the LLPs are only required to submit annual insolvency/solvency reportbut
there is no obligation to lodge the audited account report to the Registrar;Limited Liability Partnerships
(Singapore) Act 2005 ss 24 and 25.
44 LLP (UK) Act 2000 s 6 and LLP (Singapore) Act 2005 s 10(1) and (2).

7. actions.45 This is in line with the approach taken in UK whereby the House of Lords applied the
decision in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, to LLP. It was ruled
that the personal assets of a negligent partner as well as those of the non-involved partners will be
protected. The partner is not jointly liable. Thus, it can be deduced that both Act in United
Kingdom and Malaysia countries provide limited liability to the members, acting as separate legal
entity from the partnership.
Another similarity between both Acts is that the partners should be subjected to the same
disqualifications and penalties as that of a company. Likewise, in all these jurisdictions, the
designated compliance officer is generally responsible for the registration of the LLP, informing
the Registrar of any changes affecting the LLP, keeping registers of the LLP and maintaining
accounts and records of the LLP.
In regard to the agency rule, both in UK and Malaysia LLP adopted the same principle in
which every partner is an agent of an LLP. Therefore, persons dealing with a partner of an LLP
will be contracting with the LLP rather than its partner. The liability arising from the contract
should therefore be the liability of the LLP and not its partners personally. Each partner therefore,
may represent or act on behalf of the LLP.46 Besides, Malaysia LLP also accepted the approach
taken by UK regarding the legal personality. Since an LLP possesses a separate legal personality
and can own assets in its own name, it is proposed that the LLP should be allowed to raise capital
or create charges over its assets.
In both LLPs, it is the duties of the partners to determine their rights and obligations in a
partnership agreement. In the absence such, then only referral can be made to LLP Act which
provides a set of default rules on which partners of an LLP can rely on.47 It means that the internal
regulations of the partnership can be decided by the partner themselves in their own way.
Another interesting feature of the incorporated LLP is its tax status. Although it has the
status of a body corporate and is subjected to the company law, the LLP is treated as a partnership
for tax purposes.48
Therefore, it can be concluded that most of the salient features of Malaysia LLP are adopted
from United Kingdom. This is due to the similar like business environment in both countries which
need a new vehicle to govern the business law.
45 Section 12 LLP Act 2012.
46 Section 6(1) of the UK LLP Act 2000 and Section 7 Malaysia LLP Act 2012.
47 See the LLP Act 2012 s 9(1).
48 See the Limited Liability PartnershipsAct2000 [UK] s 10(1); and the Income and Corporation Taxes Act 1988[UK]
s 118ZA; IRAS circular,'IncomeTax Treatment of Limited Liability Partnerships(LLPs),' firstpublished on 15 July
2004,and revised on 16 July 2004,para 5 (IRAS circularon LLPs) at
http://www.iras.gov.sg/irasHome/uploadedFiles/Quick_Links/etax_Guides/Individuals_and_employees/2004it6.

8. Even though most of the characteristics between UK and Malaysia LLP are similar, there
are also subjected to several differences. In fact, The UK Parliament Select Committee on Trade
and Industry of the House of Commons in 1998 had indicated that the factor which led to the
introduction of a limited liability structure for partnerships in the UK was the increasing incidents
and scale of actions against professional advisers on liabilities in respect of financial losses to
stakeholders where there is potential increase in personal bankruptcies of partners and the rising
costs for insurance for partnerships.49 In Malaysia however, the circumstances giving rise to the
proposal of LLP is very much different, that is to spur the growth of SMEs against the backdrop
of the international business environment and the enhancement of domestic business activities.50
Pertaining to the maximum number of members under the LLP the minimum requirement
is two members and no maximum requirement is being prescribed. In the UK, if LLP is left with
only one partner, the remaining partner must find a replacement within 6 months from the date he
becomes a sole partner. Upon the expiration of the grace period, the sole partner will lose the
limited liability protection.51 The LLP in Malaysia also is of the view that a single-partner will be
in contradiction with the definition of 'partnership,52 itself and not in line with international norms.
However, the application of doctrine of constructive notice in UK is still blurring and arguable. In
order to avoid this confusion, our jurisdiction is of the view that the doctrine of constructive notice
should not be applicable where transactions with a third party are concerned.53
In the UK, an LLP is subject to the financial reporting regime similar to that of a company.
The financial accounts of an LLP must be prepared according to the approved accounting standards
and must be audited. In contrast, section 167(2) of the Companies Act 1965, proposed that LLP
are required to keep their accounting records for 7 years after the completion of the transactions or
operations to which they respectively relate. Nevertheless, there is no requirement to have its
financial statements to be audited or to have the financial statement filed with the Registrar.54 The
LLP only have to file an annual solvency or insolvency statement with the Registrar.55
Lastly, in UK, the LLP Act does not provide for a conversion process or procedures with
regard to the transfer of business, assets and liabilities as being provided in Part V of Malaysia
LLP Act. Thus, any transfer of business, assets and liabilities will have to be effected between the
partnership firm and the LLP.
49 Faber, Diana,The Law Commission Review of the Law of Partnership,Butterworths, Journal of International
Bankingand Financial Law,1997 at p 242.
50 CD on Limited Liability Partnerships, April 2008 atp 8.
51 UK LLP Act 2000.
52 Section 3(1) of the Partnership Act 1961 defines a partnership as 'the relation which subsists between persons
carryingon business with a common view of profit'.
53 Limited Liability Partnership in Malaysia.(April 2008).A consultiveDocument. Retrieved. from ssm.com.my.
54 Section 69 LLP Act 2012.
55 Section 68 LLP Act 2012.

9. As the implementation of LLP in Malaysia is still new, a lot more is need to be learned
from the experiences of the countries which have adopted it ahead of our country to improve its
efficacy for the development of businesses.
Conclusion
The introduction of limited liability partnership in Malaysia is seen as one of the ideal
vehicle to inculcate the growth of small businesses on the same level as of the incorporation. It
will symbolize the progression of government towards having a rapid growth in businesses be it
local or internationally. Even though the LLP in our country is still new, by looking at the way it
was systematically structured can be said to be sufficient to cater the business needs. However,
references need to be made to the enforcement of the Act in other countries as well as analyzing
the problems those are facing in order to avoid them. This Act also need to be revised frequently
to make it in line with the development of the nation. In the future, there may be changes that need
to be included in the Act to make it universal in term of application. It is highly hope that with
introduction of LLP will help in fulfilling our nation’s vision of achieving a high income status
country in the future.
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