COMPARISON PARTNERSHIP AND LLP

1. Limited Liability Partnership (LLP) was introduced in Malaysia only about 6-7 years ago.
It is a new alternative business vehicle launched by SSM in 2013 under the Limited
Liability Partnership Act, 2012. LLP offers flexibility in management to the business client
in the area of business formation, maintenance and termination. The LLP is a hybrid
between a company and a partnership, i.e. partners are effectively operating a conventional
partnership while enjoying the benefits of running a Sdn Bhd.

Compared to conventional partnership there are numbers of interesting features of LLP.

Separate legal entity

LLP is a corporate body with a separate legal personality from its members, and any
change in a LLP's partners does not affect the LLP's existence, rights or liabilities. It
means the company is legally detached from its partners.

For a conventional partnership, there is no separate legal entity. The conventional

partnership is not recognised as a separate legal entity in law. The partners are responsible
for the decisions of each other. Under Partnership Act 1961, the decisions of each partner
in carrying out the usual operations of business will bind his partners as well. In addition,
each partner is jointly liable with all other partners for the partnership's debts and
obligations.

Limited liability
Any obligation of an LLP, whether arising from contract or tort or otherwise, is the
responsibility of the LLP and not the responsibility of its partners. An LLP's liabilities are
borne out by the LLP's property. In addition, a partner of an LLP does not become directly
or indirectly liable by way of indemnification or contribution, solely because of his position
as a partner.

Personal liability of partners

There is only limited liability borne by the partners of LLP to the extent of the partners'
unpaid share capital only. No personal liability of partner, except for own wrongful act or
omission or without authority. Thus, the personal assets of the partners are protected.
 However, for a conventional partnership, it is unlimited liability (jointly and severally liable
with the partnership) which can extend to personal assets of the partners. If the partnership
enters into the agreements and the other partner incurs debt on behalf of the partnership,
both will be equally liable for that debt. Since the partnership is not a separate legal entity,
the personal assets of the partners are at risk.

Number of Partners

For LLP, the number of partners is no maximum limit as it can start from 2 people, the
minimum. Nonetheless, minimum 2 to 20 partners for conventional partnerships (except
for partnerships with no maximum limit for professional practice).

Succession

The partners’ changing status will not affect the LLP corporation's existence. It's a perpetual
succession. There is no succession, however, for conventional partnership. A change in
membership affects the established partnership.

Business flexibility
The LLP has a flexible business mode. The partnership operation and profit distribution are
determined by a written partnership agreement between the members. This may allow for
greater flexibility in business

http://www.llp.com.my/thing-you-should-know-on-llp.php

https://www.simpleformations.com/llp-benefits-and-disadvantages.htm
https://www.3ecpa.com.my/incorporation/sole-proprietor-vs-llp-vs-general-partnership-vs-
company/
https://comsetup.com.my/free-resources/guide/comparison-company-vs-llp-vs-conventional-
partnership-vs-sole-proprietorship-malaysia/
4.1 The features of an LLP.
In addition to that, converting to an LLP will allow your firm to enjoy unlimited capacity.
This means that your firm will be capable of suing and being sued. Thus, it can sue in respect
of any rights that it has, and if it has liabilities, others may sue against it. It will also be
capable of acquiring, owning, holding and developing or disposing of property, which means
that the property of your firm belongs to itself and not to its partners. Your firm will also be
capable of doing and suffering such other acts and things as bodies corporate.

4.2 Whether there are any differences between a conventional partnership and an LLP.

From the differences discussed, it can be seen that there are vast differences between a
conventional partnership and an LLP.

Retaining a conventional partnership would mean not being able to enjoy the fruits that an
LLP has to offer. The fact that the LLP places a reduced financial liability upon its partners
means that the lesser your capital contribution, the lesser is your financial liability towards
the firm. This also means no longer having to withstand the burden of unlimited liability in a
conventional partnership.

Further, the difference in its nature also makes LLP more appealing, whereby obtaining the
status of an LLP means that the firm is granted with perpetual succession. Unlike a
conventional partnership which holds no such status, once the firm has converted to an LLP,
you can rest assured that it will continue to operate for as long as it is not wound up. Not only
that, the firm will also be regarded as a separate legal personality, which means that in the
event of any dispute, legal action can be taken by the firm itself.

Another noteworthy difference would be that contrary to a conventional partnership,

A conventional partnership allows for its dissolution to be made formally or informally.

Thus, there is always a risk of the firm being subject to dissolution. However, the formalities
that must be adhered to in the winding up of an LLP under the Act lessens the risk of firm
being wound up.

4.3 The structure, the procedure, and the eligibility to become a member of an LLP.
Where the Act does not impose a specific structure for the management of an LLP, you will
be able to have a structure which caters best to the needs of your firm. This can be done
through the insertion of provisions in your LLP agreement. However, it will not be necessary
for you to include terms with regards to everything as matters that are not covered under your
LLP agreement will be implied through the items set out in the Second Schedule of the Act.
Should there ever be a conflict as to which terms apply, your LLP agreement will have
priority over the Act. Thus, in any event, your LLP agreement will be the primary document
governing matters in your firm.

Nevertheless, one requirement that the Act requires every LLP to fulfil is to have a
compliance officer. As aforementioned, there are several things which a compliance officer
will be made in charge of. Therefore, the appointment of a compliance officer can be made
within the firm, namely between the partners, or of any other person eligible under the Act.

The main thing which a compliance officer will be required to do is register the LLP via the
MyLLP Portal by providing all the necessary information. Such information includes the
name of your firm, which must include the words “Perkongsian Liabiliti Terhad” or the
abbreviation “PLT” as part of its name. The insertion of the words will act as a notice to the
public that your firm is an LLP and no longer a conventional partnership.

In order to successfully convert your firm into an LLP, you will also be required to provide
the name and registration number of your firm; the date on which your firm was first
registered; and that as at the date of the application, your firm appears to be able to pay its
debts as they become due in the normal course of business.

In addition to that your firm is also required to lodge with the Registrar an annual declaration,
containing the particulars as determined by the Registrar and accompanied by the necessary
documents, by any two of the partners that in their opinion, your firm appears as at that date
to be able to pay its debts; or does not appear as at that date to be able to pay its debts as they
become due in the normal course of business.

Your firm will only be deemed to be eligible to become an LLP when it has satisfied the
requirements for registration under the Act. Only then will the Registrar register the LLP,
allocate a registration number and issue a notice of registration.

However, for your conversion to be complete, your firm must affirm that the partners of the
prospective LLP, i.e. yourself, Zafril, Lubna and Wajdi are the partners of the conventional
partnership and no one else. Therefore, all transfer of properties, interests, rights, privileges,
liabilities, obligations and the undertaking of the conventional partnership to the LLP must be
undergone by the same partners in your firm.
Once your firm has converted to an LLP, all properties, interests, rights, privileges, liabilities
and obligations relating to the conventional partnership, and the whole of the undertaking of
the conventional partnership shall be transferred to and vest in the LLP. Thus, the conversion
will cause your conventional partnership to be dissolved and removed from the register of
businesses maintained under the Registration of Businesses Act 1956.

All the partners in your firm shall continue to be personally liable, jointly and severally with
the LLP, for any liabilities and obligations incurred prior to the conversion. A discharge of
such liability or obligation after the conversion entitles them to be fully indemnified by the
LLP, subject to an agreement as to the contrary.

Not only that, through the information which you supplied to us during our meeting on 4th
May 2016, you informed us of your concern for the subsisting contracts which you have with
three existing clients. Fortunately, these contracts will continue to be in force on and after the
date of registration as if they relate to the LLP and shall be enforceable by or against your
firm as if the LLP were named in the contract or a party to it.

Further, you also informed us that your partnership has four subsisting employment contracts
with four members of staff at the firm. Similar to your clients’ contract, the contracts of
employment shall continue to be in force on or after the date of registration of the LLP as if
the LLP were the employer.

4.4 The advantages and disadvantages of the conversion from a conventional partnership
to an LLP.

Weighing the advantages and disadvantages of a conversion from a conventional partnership

to an LLP, it is apparent that there are more advantages in converting your firm.

The primary advantage would be the limited liability that the partners in your firm will be
able to enjoy. This means that they will only be liable to the extent of their capital
contribution. The LLP itself will bear a heavier burden of incurring liability arising from any
contracts and not the partners in your firm. Not only that, as aforementioned, if any of your
partners commits a wrongful act or omission in the course of business, the LLP will be liable
to the same extent as your partner. For instance, if your partner commits professional
negligence in the course of business, both the LLP and the partner himself will be held liable.
Another advantage is that your firm will not have to go through the hassle of complying with
stringent audit requirements imposed upon companies. However, your firm must keep its
accounting reports for a period of 7 years upon the completion of the related transactions or
operations.

The flexibility of an LLP means that your firm will not need to hold an annual general
meeting or adhere to the fixed structure of a corporation. Its management is wholly dependent
upon the terms inserted in your LLP agreement.

Another advantage of the conversion would be the speedy process of registration through the
My LLP Portal, which means that you will not need to worry about any delay in registration.

The aforementioned prominent features of an LLP, which are the separate legal personality
and perpetual succession also appear as advantages of a conversion to your firm. Not only
because your firm will be an entity of its own, but also because it will be able to enjoy an
ongoing lifespan despite any loss of partners.

Nevertheless, you and your partners should take into account the fact that once your firm has
converted, it is not bound by what a partner has done if he acts without authority, or if the
person with whom the partner was dealing knows that the partner acted without authority or
does not know that he is a partner of the firm. Furthermore, the LLP will not be held liable
for any tortious acts against another person which your partners are personally liable for. For
instance, if your partner was found to have been negligent for an act not committed in the
course of business, he would be held personally liable and your firm would not be affected.

Another disadvantage would be that conversion renders the ownership rights non-transferable
without the consent of all the partners in your firm. If any partner wishes to transfer some
portion of ownership, he has to obtain the consent of all existing partners.
 1. What is LLP
Limited Liability Partnership (LLP) was introduced in Malaysia only about 6-7
years ago. It is a new alternative business vehicle launched by SSM in 2013
under the Limited Liability Partnership Act, 2012. LLP offers flexibility in
management to the business client in the area of business formation,
maintenance and termination. The LLP is a hybrid between a company and a
partnership, i.e. partners are effectively operating a conventional partnership
while enjoying the benefits of running an Sdn Bhd.

2. Differences Between a Conventional Partnership and an LLP.

Compared to conventional partnership there are numbers of interesting
features of LLP.

2. Separate legal entity

LLP is a corporate body with a separate legal personality from its members,
and any change in an LLP's partners does not affect the LLP's existence, rights
or liabilities. It means the company is legally detached from its partners.

For a conventional partnership, there is no separate legal entity. The

conventional partnership is not recognised as a separate legal entity in
law. The partners are responsible for the decisions of each other. Under
Partnership Act 1961, the decisions of each partner in carrying out the usual
operations of the business will bind his partners as well. In addition, each
partner is jointly liable with all other partners for the partnership's debts and
obligations.

4.2.3 Limited liability

An LLP offers limited liability to its partners, as provided under Section 21 of
the Limited Liability Act 2012 (LLP Act). Any obligation of an LLP, whether
arising from contract or tort or otherwise, is the responsibility of the LLP and not
the responsibility of its partners. An LLP's liabilities are borne out by the LLP's
property. In addition, a partner of an LLP does not become directly or indirectly
liable by way of indemnification or contribution, solely because of his position
as a partner.

Contrary to this, a conventional partnership offers unlimited liability whereby

they are jointly and severally liable to the full extent of all business debts and
obligations.

4.3.3 Personal liability of partners

There is only limited liability borne by the partners of LLP to the extent of the
partners' unpaid share capital only. No personal liability of partner, except for
own wrongful act or omission or without authority. Thus, the personal assets of
the partners are protected.

However, for a conventional partnership, it is an unlimited liability (jointly and

severally liable with the partnership) which can extend to personal assets of the
partners. If the partnership enters into the agreements and the other partner
incurs debt on behalf of the partnership, both will be equally liable for that debt.
Since the partnership is not a separate legal entity, the personal assets of the
partners are at risk.

As a result, partners in a conventional partnership may bring an action enforcing

the rights of the partnership in the names of all partners and may be sued
 personally for their actions under Section 11 of the Partnership Act 1961, just
as the partnership may sue and be sued in its own name under Section 12 of
the Partnership Act 1961.

4.3.4 Number of Partners

For LLP, under Section 6 of the LLP Act, the number of partners is no maximum
limit as it can start from 2 people, the minimum. Notwithstanding, minimum 2 to
20 partners for conventional partnerships (except for partnerships with no
maximum limit for professional practice) pursuant to Section 47(2) of the
Partnership Act 1961.

4.3.5 Succession
The partners’ changing status will not affect the LLP corporation's existence.
It's perpetual succession under Section 3 of the LLP Act. There is no
succession, however, for conventional partnership. A change in membership
affects the established partnership.

4.3.6 Mode of cessation

An LLP can cease to exist by way of a court-ordered winding up, a voluntary
winding up, or by way of being struck-off from the register as provided under
Sections 49, 50 and 51 of the LLP Act, respectively.

Nonetheless, a conventional partnership can cease to exist by way of

dissolution made informally through an agreement between the partners, by
expiration or notice, or by way of an application made to the court.

TAXES
the incomes are earned by the individuals and not by the partnership; therefore
the partners are liable for their profits under personal income tax regulations.
The partners are taxed on their chargeable income at rates ranging from 2% to
26%, after the deduction of tax relief.

4.4.1 The advantages of the conversion from a conventional partnership to

an LLP.
A conversion from a conventional partnership to an LLP has several
advantages. First, LLP's partners can enjoy limited liability. As mentioned
above, the liability of a partner depends on its capital contribution. This poses
as an advantage to the partners because they will not be subjected to the full
extent of the debt of the partnership.

The obligation and liability whether arising from contract, tort or otherwise,
should, therefore, be that of the LLP and not of its partners personally.
Furthermore, in accordance with Section 21(4) of the Act, where a partner is
liable to any person other than another partner because of an act or omission
in the course of the LLP's business or with its authority, the LLP shall be liable
to the same extent as the partner.

Secondly, the LLP has a flexible business mode. The partnership operation
and profit distribution are determined by a written partnership agreement
between the members. This may allow for greater flexibility in business
management.