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Perkongsian Liabiliti Terhad @ Limited Liability
             Partnerships (LLP)



                        ZUHAIRAH ARIFF BT ABD GHADAS
                                  SME Training Program
                                            1 July 2012




                                                    1
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)


                                               2
Attributes
Type/             Legal     Limited     Existence      Regulation           Tax
Attributes        Status    Liability


Sole              Not
Proprietorships   a legal   Not         Depends on     Self
                  entity    available   the sole       Regulated/        Income Tax
                                        proprietor     Registration of
                                                       Business Act
                                                       1950

                  Not       Not         Depends on
Partnerships/     a legal   available   the partners   Partnership       Income Tax
Firm              entity                               Act 1961/
                                                       Contracts Act
                                                       1950

                                        Independent
Companies         Legal     Available   from the       Companies Act     Corporate
                  entity                members-       1965              Tax
                                        perpetual
                                        succession
                                                                                      3
NEW BUSINESS ENTITY

LIMITED LIABILITY PARTNERSHIPS
               @
         MALAYSIA PLT
 (PERKONGSIAN LIABILITI TERHAD)




                                  4
LLP

Attribute                             Explanation
               A body corporate or non-body corporate or partnership.
Legal status   The Malaysia LLP has the status of a body corporate-
               sec 3(1)
Limited        Partial Limited Liability- The LLP is liable for all debts of
Liability      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)

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

               •No audit requirement and no submission of audited
Disclosure     account to Registrar
Requirement    •Have to keep a proper keeping of accounts and
               documents
               •Have to submit annual declaration of solvency
                                                                          5
External        •Regulated by the LLP Act
Regulation      •Winding Up procedures- applies the Companies Act

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

Composition     • Minimum two person but there is no maximum
of partners     number of partners-Sec 6
                •There must be at least one Compliance officer- duties
                akin to a Company Secretary- statutory responsibilities
                • Claims against the LLP
Protection of   •Claw-back mechanism
Third Parties
                •own tax regime- Different from Company and
Tax Regime      Partnership


                                                                          6
Legal Status


                       LLP




Body Corporate
  (UK, India,    Non-body corporate     Partnership
   Singapore,    (Isle of Jersey, UK)      (US)
   Malaysia)



                                                      7
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.




                                                           8
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


                                                     9
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


                                                        10
(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..




                                                       11
Tax Status




             12
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
                                             13
LLP IN MALAYSIA
Agenda             Labuan LLP                         Malaysia PLT

Legal status   Body corporate                  Body corporate

Attributes     Similar to companies-           Similar to companies-
               partial limited liability for   partial limited liability for
               defaulted partners              defaulted partners
Internal       Partnership agreement or LLP Agreement or default
regulation     default rules of the Act rules of the Act

Third parties •The word Labuan LLP as          •The word PLT as part of
/ creditors’  part of the name                 the name
protection    •Keep proper accounting          •Keep accounting and
              records.                         other records which give
              •Claw-back provision.            a true and fair view of the
                                               LLP state of affairs (7
                                               years)
                                               •Claw-back provisions
                                               (section 22)
                                                                          14
LLP IN MALAYSIA
Agenda         Labuan LLP                  Malaysia
                                           PLT

Formalities/   •Formal registration        •Formal registration
Disclosure     •Annual declaration of      •Annual declaration of
requirement    solvency.                   solvency/insolvency

Applicable     •Labuan LP and LLP Act      •LLP Act 2012
Laws           2010

Tax regime     Labuan Entity
               -Trading activity- 3%       Not finalized
               -non-trading- not taxable




                                                                    15
Conversion to LLP
Conversion 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.




                                                          16
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.
                                                          17
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)

                                                   18
FIRST SCHEDULE [Section 2]
                 PROFESSIONAL PRACTICE
Professional   Governing law                       Governing body
practice

1. Chartered   Accountants Act 1967                Malaysian Institute of
Accountant     [Act 94]                            Accountants




2. Advocate    i) Legal Profession Act 1976        (i) Malaysian Bar
and            [Act 166]                           (ii) Sabah Law
Solicitor      (ii) Advocates Ordinance of Sabah   Association
               [Sabah Cap. 2]                      (iii) Advocates’
               (iii) Advocates Ordinance of        Association of
               Sarawak[Sarawak Cap. 110]           Sarawak

3. Secretary   Companies Act 1965                  Nil
               [Act 125]

                                                                            19
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.




                                                 20
Foreign LLP- Part VI of LLP Act 2012
 Section 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.
                                                         21
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.




                                                 22
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.

                                                    23
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.

                                                  24
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.




                                                  25
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.
                                                   26
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.




                                                    27
THANK YOU



            28

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Llp sme training on 1 july 2012

  • 1. Perkongsian Liabiliti Terhad @ Limited Liability Partnerships (LLP) ZUHAIRAH ARIFF BT ABD GHADAS SME Training Program 1 July 2012 1
  • 2. 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) 2
  • 3. Attributes Type/ Legal Limited Existence Regulation Tax Attributes Status Liability Sole Not Proprietorships a legal Not Depends on Self entity available the sole Regulated/ Income Tax proprietor Registration of Business Act 1950 Not Not Depends on Partnerships/ a legal available the partners Partnership Income Tax Firm entity Act 1961/ Contracts Act 1950 Independent Companies Legal Available from the Companies Act Corporate entity members- 1965 Tax perpetual succession 3
  • 4. NEW BUSINESS ENTITY LIMITED LIABILITY PARTNERSHIPS @ MALAYSIA PLT (PERKONGSIAN LIABILITI TERHAD) 4
  • 5. LLP Attribute Explanation A body corporate or non-body corporate or partnership. Legal status The Malaysia LLP has the status of a body corporate- sec 3(1) Limited Partial Limited Liability- The LLP is liable for all debts of Liability 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) •Must be registered with the Registrar (SSM). Registration •No submission of incorporation document •No audit requirement and no submission of audited Disclosure account to Registrar Requirement •Have to keep a proper keeping of accounts and documents •Have to submit annual declaration of solvency 5
  • 6. External •Regulated by the LLP Act Regulation •Winding Up procedures- applies the Companies Act Internal •Regulated by an agreement between the partners Regulation •Default rules of the LLP Act only applies in absence of the agreement- SECOND SCHEDULE [Section 9] Composition • Minimum two person but there is no maximum of partners number of partners-Sec 6 •There must be at least one Compliance officer- duties akin to a Company Secretary- statutory responsibilities • Claims against the LLP Protection of •Claw-back mechanism Third Parties •own tax regime- Different from Company and Tax Regime Partnership 6
  • 7. Legal Status LLP Body Corporate (UK, India, Non-body corporate Partnership Singapore, (Isle of Jersey, UK) (US) Malaysia) 7
  • 8. 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. 8
  • 9. 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 9
  • 10. 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 10
  • 11. (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.. 11
  • 13. 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 13
  • 14. LLP IN MALAYSIA Agenda Labuan LLP Malaysia PLT Legal status Body corporate Body corporate Attributes Similar to companies- Similar to companies- partial limited liability for partial limited liability for defaulted partners defaulted partners Internal Partnership agreement or LLP Agreement or default regulation default rules of the Act rules of the Act Third parties •The word Labuan LLP as •The word PLT as part of / creditors’ part of the name the name protection •Keep proper accounting •Keep accounting and records. other records which give •Claw-back provision. a true and fair view of the LLP state of affairs (7 years) •Claw-back provisions (section 22) 14
  • 15. LLP IN MALAYSIA Agenda Labuan LLP Malaysia PLT Formalities/ •Formal registration •Formal registration Disclosure •Annual declaration of •Annual declaration of requirement solvency. solvency/insolvency Applicable •Labuan LP and LLP Act •LLP Act 2012 Laws 2010 Tax regime Labuan Entity -Trading activity- 3% Not finalized -non-trading- not taxable 15
  • 16. Conversion to LLP Conversion 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. 16
  • 17. 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. 17
  • 18. 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) 18
  • 19. FIRST SCHEDULE [Section 2] PROFESSIONAL PRACTICE Professional Governing law Governing body practice 1. Chartered Accountants Act 1967 Malaysian Institute of Accountant [Act 94] Accountants 2. Advocate i) Legal Profession Act 1976 (i) Malaysian Bar and [Act 166] (ii) Sabah Law Solicitor (ii) Advocates Ordinance of Sabah Association [Sabah Cap. 2] (iii) Advocates’ (iii) Advocates Ordinance of Association of Sarawak[Sarawak Cap. 110] Sarawak 3. Secretary Companies Act 1965 Nil [Act 125] 19
  • 20. 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. 20
  • 21. Foreign LLP- Part VI of LLP Act 2012 Section 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. 21
  • 22. 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. 22
  • 23. 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. 23
  • 24. 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. 24
  • 25. 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. 25
  • 26. 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. 26
  • 27. 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. 27
  • 28. THANK YOU 28