Limited Liability Partnerships are a new vehicle for doing business since 2012. Many businesses use the LLP vehicle, especially professional firms e.g. accountancy firms, which are not allowed to operate as a Sdn Bhd.
In the past, these professional service firms used to operate under a conventional partnership which suffers from unlimited liability on the part of the partners should the partnership enter into a capital deficit position especially if the partnership gets sued. In contrast, a Sdn Bhd provides a limited liability structure where liabilities are limited to the share capital of the company.
LLP
The partners in a LLP are partially protected against liabilities because the LLP’s liability is generally limited to the paid-up capital of the LLP. However, an LLP partner is personally liable in tort without limit e.g. professional negligence but the other LLP partners are not personally liable. Unfortunately, the LLP is liable to the same extent as that partner in tort and the liabilities of the LLP shall be borne out of the property of the LLP.
Nevertheless, partners in an LLP still enjoy better protection than partners in conventional partnerships because all partners in a conventional partnership are exposed to unlimited personal liability.
Sdn Bhd
The shareholders and directors in a Sdn Bhd are not generally exposed to unlimited liability. The liability of the Sdn Bhd is limited to the share capital.
LLP
LLP formation costs are likely to be about RM1,500 compared to company formation costs of about RM4,000. The savings are mainly because of the lesser government fees for forming an LLP (RM500) versus government fees for forming a Sdn Bhd (RM1,250). Professional fees may be lesser for forming an LLP due to a less complicated process compared to that for a Sdn Bhd. A specially tailored constitution (previously known as M&A or Memorandum and Articles of Association ) for a company and an LLP agreement for an LLP can bump up the incorporation costs of the respective entities significantly due to the legal fees involved.
For companies incorporated under the Companies Act 2016, the M&A is called the “Constitution”. For companies incorporated under the previous Companies Act 1965, the M&A is still being referred to as Memorandum and Articles of Association.
Sdn Bhd
Company formation costs are about RM4,000.
Sdn Bhd
Sdn Bhds have more complicated administration processes. Some decisions made by a company require informing the Companies Commission of Malaysia (SSM) via the submission of forms, etc.
Sdn Bhd
Sdn Bhds which are exempt private companies do not have to file accounts with the SSM. These Sdn Bhds therefore enjoy more privacy compared to LLPs.
Sdn Bhd
Sdn Bhds enjoy more tax incentives
Sdn Bhd
Sdn Bhds have simpler rules to comply with in order to obtain tax deduction of remuneration paid to directors
Sdn Bhd
Sdn Bhds have more credibility because of the need to prepare annual audited accounts and the abundance of Sdn Bhds which are large businesses. Sdn Bhds may find it easier to raise funds generally. Public companies (i.e. Bhds) are the principal vehicles allowed for an IPO (Initial Public Offering or listing) on the stock exchange.
Sdn Bhd
There is no option for a conventional partnership to be converted to a Sdn Bhd. Instead, the partners in a conventional partnership have to dispose of their partnership business (or parts of the partnership business) to the Sdn Bhd. The sale may attract stamp duty or real property gains tax, as the case may be.
Sdn Bhd
Sdn Bhds require an annual audit and the services of a company secretary. Audit fees vary depending on the size of the company but typically for a company with RM1 million turnover, the audit fees may be about RM4,000. Company secretarial retainer fees may be approximately RM2,000 per year but additional fees may be charged for special exercises e.g. for issue of shares or drafting of resolutions for non-routine business activities.
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