Lecture 4: General/Conventional Partnership vs Limited Liability Partnership (LLP)
1. Recap
1. Separate Legal Entity:
o As seen in Salomon v Salomon, a company is a separate legal entity distinct from
its owners.
2. Lifting the Corporate Veil:
o Courts may disregard the corporate entity in cases of fraud or improper conduct to
hold individuals personally liable.
2. Lecture Objectives
1. Partnership Dynamics:
o Define partnerships and legal implications.
o Examine different types (general, LLP).
o Explore formation processes and roles of partners.
2. Private Limited Companies (PLCs):
o Define characteristics, formation, and governance.
o Examine financial reporting obligations.
3. Limited Liability Partnerships (LLPs):
o Distinguish LLPs from other structures.
o Understand liability protections, management, and tax implications.
3. Types of Business Entities
Business entities in Malaysia include:
1. General/Conventional Partnerships:
o Defined under the Partnership Act 1961.
o Partners share responsibilities, profits, and liabilities.
2. Private Limited Companies (Sdn Bhd):
o Governed by the Companies Act 2016.
o A separate legal entity with limited liability.
3. Limited Liability Partnerships (LLPs):
o Introduced by the Limited Liability Partnerships Act 2012.
o Combines features of partnerships and private limited companies.
4. General/Conventional Partnerships



Features:
o Partners have unlimited liability, meaning personal assets can be used to settle
debts.
o Simple registration and administration with lower compliance costs.
o No statutory audits or financial disclosure requirements.
Advantages:
o Fast registration process.
o Low startup costs and straightforward management.
o Suitable for small businesses and new ventures.
Disadvantages:
o Unlimited liability.
o Financial stability tied to individual partners.
o Risk of personal asset exposure in disputes or debt settlements.
5. Private Limited Companies (PLCs)



Features:
o Legal entity separate from shareholders.
o Shareholders’ liability limited to their investment.
o Subject to corporate governance and statutory compliance.
Advantages:
o Limited Liability Protection: Shareholders’ personal assets are safeguarded.
o Separate Legal Entity: Can own property, enter contracts, and sue or be sued.
o Tax Benefits: Lower tax rates and incentives for SMEs.
o Attracts Investment: Ability to issue shares for capital growth.
Disadvantages:
o Higher compliance and operational costs.
o Stricter regulatory obligations.
6. Limited Liability Partnerships (LLPs)



Definition:
o A hybrid entity combining elements of a partnership and a private limited
company.
Key Features:
o Separate Legal Entity: The LLP exists independently of its partners.
o Limited Liability: Partners’ liability is limited to their capital contribution.
o Governed by the LLP Act 2012 and Companies Act 2016.
Advantages:
o Flexible decision-making processes without minimum voting rights.
o
o
o

Exemption from mandatory statutory audits.
Simplified compliance and operational requirements.
No liability for partners regarding the misconduct of other partners.
Disadvantages:
o Requires at least two partners.
o A compliance officer must be appointed, personally liable for LLP activities.
o May face challenges in securing bank loans compared to private companies.
7. Points of Comparison Between Business Entities
Aspect
Legal Status
Liability
Registration
Governance
Taxation
Annual
Compliance
General Partnership
Not a separate legal
entity.
Unlimited liability.
Simple process under
Registration of Business
Act 1956.
Informal; governed by
partnership agreement.
Partners taxed
individually.
Minimal compliance
costs.
Private Limited Company
Separate legal entity.
LLP
Separate legal entity.
Limited liability.
Limited liability.
Requires registration with
Governed by LLP Act
SSM under Companies Act
2012.
2016.
Flexible; partnership
Formal structure with
agreement dictates
directors and shareholders.
terms.
Corporate tax rate
Corporate tax rate applies.
applies.
Higher compliance and
Simplified annual
audit requirements.
solvency declarations.
8. Tax Implications
1. General Partnerships:
o Partners are taxed on personal income at rates ranging from 0% to 26%.
2. Private Limited Companies (Sdn Bhd):
o Corporate tax rate applies, with incentives for SMEs.
3. LLPs:
o Corporate tax applies: 20% for the first RM500,000, then 25% for amounts
beyond.
9. Key Considerations

PLCs (Sdn Bhd):
o Preferred for limited liability and easier access to funding.
o

Higher regulatory burden but suitable for long-term growth.
LLPs:
o
o
Best suited for small to medium enterprises seeking flexibility and limited
liability.
Requires careful drafting of partnership agreements for clarity in operations.
10. Summary




Business entities differ in legal structure, liability, governance, and compliance
requirements.
General partnerships are ideal for low-cost startups with minimal risk.
Private limited companies offer robust legal protection and growth potential at the cost of
higher compliance.
LLPs strike a balance between flexibility and liability protection, suitable for businesses
desiring operational simplicity without sacrificing security.