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Radar On Limited Liability Partnership

I have been following with some interest the Company Commission of Malaysia’s (Suruhanjaya Syarikat Malaysia or SSM) proposal for the establishment of the framework for setting up limited liability partnerships (LLP) as an alternative business vehicle for Malaysians.

An LLP is basically a business vehicle that combines the protection of limited liability for its members (aka partners), without the strict management procedures of an incorporated body (ie. a Sendirian Berhad or Berhad corporation), whilst allowing flexibility in the internal management of its business.

While some of our neighbours have already established the legal framework for establishing LLPs, Malaysia is a little behind, perhaps as a means to keep Labuan afloat as an offshore financial centre (Labuan currently is the only jurisdiction in Malaysia that has a framework for establishing limited partnerships – albeit targeted to the offshore market).

As a small business owner currently operating as a sole proprietor, this is definitely welcome news. The ability to have one’s personal liability limited without the hassle and costs involved in setting up and running a limited liability corporation (ie. Sendirian Berhad corporation) is something many of us who would fall under the classification of micro and small businesses could use.

Take into account the possibility of increased tax benefits (very little benefits are in place for sole proprietorships and partnerships in the current tax regime) and possible better access to credit, a set-up like this would probably be the best hybrid structure for entrepreneurs who have “outgrown” freelancing and sole-proprietorships but have yet to be able to afford the benefits of full incorporation. If the LLP models from neighbouring countries like Singapore and India are considered, an LLP, while recognised as a body corporate / legal person, would be treated for tax purposes like a general partnership (ie. no corporate taxes, just personal income taxes).

LLPs would also be a suitable vehicle for project based joint-ventures between freelancers and small businesses which require the protection and privileges associated with a limited liability status but may not justify the excess costs and commitments that full incorporation would entail.

There has apparently been quite a bit of discussion about this in the professional circles with trade and professional bodies like the Bar Council, the Malaysian Institute of Chartered Secretaries and Administrators, and the Malaysian Institute of Accountants and dialogue sessions have been held with SSM regarding the proposal. Unfortunately, general small business owners and service providers like us get left out of the loop (more reason for us to organise ourselves as a trade body?).

The silver lining is that the SSM had made it clear that they have no intention of limiting the setting up of an LLP to professional enterprises only:

“… the circumstances giving rise to the proposal of LLP … to spur the growth of SMEs against the backdrop of the international business environment and the enhancement of domestic business activities.”

- Limited Liability Partnership in Malaysia – A Consultative Document
August 2008, Companies Commission of Malaysia

As far as I know, the “Labuan Limited Partnerships and Limited Liability Partnerships Bill” has been tabled in Parliament for the first reading. Why the broader “Limited Liability Partnership Bill” has yet to be tabled is something I’ll try to find out.

Here are some of the documents and articles that have been circulating regarding the proposal to authorise the setting up of LLPs in Malaysia:

Articles