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Difference between a Partnership and LLP in Malaysia

Prabhat Nigam

| Updated: Jun 15, 2022 | Category: Global Registration

Partnership and LLP in Malaysia

Both the entities of Conventional Partnership and LLP in Malaysia are subsets of one of the three major business vehicles in Malaysia called Partnership. Before moving on to the difference between partnership and LLP in Malaysia, it is very important to understand the commonality between the two terms. Both (partnership and LLP) business in Malaysia represent a business vehicle which comprises two or more individuals who are engaged in a commercial activity with profit-making objectives. However, a number of differences exist between the two entities on the basis of origin, composition, legal status etc.

This piece of writing will provide the readers an understanding of the difference between a conventional partnership and LLP in Malaysia under a number of heads.

What is Partnership in Malaysia?

A conventional partnership in Malaysia is an entity where two or more individuals come together with the purpose of carrying out a business activity. Its identity is the collective union of its partners. A conventional partnership does not hold its independent legal status.    

What is an LLP in Malaysia?

A Limited Liability Partnership or commonly called as LLP is a hybrid business vehicle having the features of both a conventional partnership as well as a private company. An LLP is a body corporate which is capable of suing and be sued and can own and hold property in its own name independent of its partners. It requires a minimum of two entities who can be individuals or corporations.

 

7 Differences between Conventional Partnership and LLP in Malaysia     

The difference between a conventional partnership and LLP in Malaysia can be made under the following heads:

  • Governing law

A Conventional partnership in Malaysia is governed by the Registration of Business Act, 1956 (ROBA) and The Partnership Act, 1961[1], which is quite similar to the Partnership law of the UK. A Limited Liability Partnership, on the other hand, is governed by the Limited Liability Partnership Act 2012, which is a hybrid model between a conventional partnership and a private company.

  • Number of Partners

The Partnership Act, 1961 of Malaysia prescribes a minimum of 2 individuals and a maximum of 20 partners for constituting a conventional partnership in Malaysia. The law stresses the fact that only individuals have been permitted to form a conventional partnership in Malaysia.

In the case of an LLP, the LLP Act 2012 of Malaysia permits a minimum number of 2, and there is no limit on the maximum number of partners in the case of an LLP. The partners in an LLP can comprise both individuals and corporations, unlike a conventional partnership where only individuals have been permitted to become partners.

  • Startup cost

The startup cost of registration of a conventional partnership in Malaysia is one of the least among the registration cost of all the business vehicles in Malaysia and starts at RM 100.

Since an LLP is a slightly advanced version of a conventional partnership which includes partnership of corporations also; the registration cost is slightly higher than a conventional partnership at RM 500.

  • Annual Operating Costs

The annual operating cost of a conventional partnership is very low due to low renewal fee, applicable taxes and accounting fees.

On the other hand, for an LLP registration, the annual operating cost is comparatively higher compared to a conventional partnership because of the accounting fee, lodgement fee, tax fee, and fee of a compliance officer to be appointed for the purpose of lodging documents on behalf of the LLP.  

  • Legal status

A conventional partnership in Malaysia is not a separate legal entity. Its partners collectively form a partnership, and it cannot sue or be sued under the Partnership name. Here the partners are jointly and severally liable for the acts of the other partner, and their liability is unlimited.

Unlike in a conventional partnership, an LLP is a separate legal entity, and it can sue or be sued in its own name. It is capable of holding or buying a property under its own name.    

  • Liability of Partners

The partners in a conventional partnership have unlimited liability, and they are both jointly and severally liable. The liability can extend to the personal assets of the partners. In the case of an LLP, partners do not have a personal liability except for their own wrongful acts in furtherance of the business of the LLP. Here liability of the members extends to the contribution made by the partners.

  • Life of Partnership

The liability of partners in a conventional membership is unlimited, where each partner can be held jointly and severally liable for the wrongful acts or omissions of the other partners. The liability of the partners extends to their personal assets in order to settle the claims of the creditor.

In an LLP, the partners do not have any personal liability except for their own wrongful acts or omission done without authority. The liability of the partners in an LLP is joint and several and extends to their contribution in the LLP only and not beyond that. 

Conclusion

The crux of the above business reveals that selecting either a conventional partnership or an LLP in Malaysia is entirely dependent on the goals and vision of the partners. If the partners wish to have a small and simple business having individuals as partners, then the obvious choice is a conventional partnership. However, if the partners want flexibility and wish to enjoy the features of both a conventional partnership and that of a private company, then the choice of business vehicle should be an LLP. It must be noted that while entering into a partnership and LLP in Malaysia is to get the partnership agreement carefully drafted by a professional in order to avoid any difficulties in future.   

Read our Article: A discourse on Law on Partnership in Malaysia

Prabhat Nigam

Prabhat has done his BA LLB (Hons) and has been writing research papers since his law school days. His interest in content writing made him pursue a career in legal research and content writing. His core areas of interest are indirect taxes, finance and real estate.

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