13 Dec About Limited Liabilities Partnership (LLP)
The Limited Liability Partnership or LLP is a business entity that is a convenient mix of a company and conventional partnership. But what exactly sets this entity apart from the others? Having LLP as your preferred choice will enable you to safeguard your personal wealth without tying it to the company. Anything that happens to the company will not endanger partners / shareholders personally. That is termed as separate legal entity. If you were wondering how many partners you need – a minimum of 2 and as many as you can handle!
What were to happen if someone in the company…died (yikes!) or changes amongst partners occurred? Rest assured, the company will continue its operation and the LLP Partnership Agreement will handle the change of partners. Imagine the world spinning and spinning every second – if a plant died, it still spins irrelevant of what’s living and dying on it. In the case of LLP, the company will continue running until it is intentionally shut down.
My personal favorite about LLP is definitely its limited liability. This means that all partners have limited liability in respect of any claim against the LLP to the extent of the partners’ capital contribution to the LLP. For example, if Ali, Siti and Meng were to start a company with 50 thousand each as the capital and later on in their business, they were sued and asked to pay 300 thousand. Do they have to pay that amount? Nope! Their collective amount to their capital funds only amount to 150 thousand so they won’t be paying extra.
When it concerns taxing, LLP is treated as an entity chargeable to tax under the Income Tax Act 1967. This is different from a conventional partnership where each individual partner, and not the partnership, is subject to tax at his individual tax rate, which ranges from 2% to 26%.
That was the first type of taxation – there’s more; the preferential tax rate. A LLP that has a capital contribution, whether in cash or in kind (goods and services), of RM2.5 million or less at the beginning of its beginning year is entitled to a preferential tax rate of 20% for the first RM500,000 of its chargeable income. Its chargeable income that exceeds that amount shall be subject to the general tax rate of 25%. However, this isn’t so for an LLP which controls, or is being controlled by, a company that has more than RM2.5 million paid-up share capital.
As if those reasons weren’t strong enough for us take advantage of LLP, feast your eyes upon cheaper incorporation costs! It is absolutely cheaper to start with an LLP instead of other entities. The cost of incorporating an LLP is around RM500 which is considered insanely low if you were to base them against private limited company. We don’t like sky-high costs, we also don’t like meetings. This is why we recommend the LLP – NO Annual General Meetings (AGMs) needed. Let’s see, what else – hah, no auditing of account is required (unless stated otherwise in its LLP Partnership Agreement as requested by partners); yes, you read that correctly. You’re also not going to be berated to submit Annual Return to the relevant people also known as the Registrar. Having said that, an LLP must lodge with the Registrar an Annual Declaration and status of solvency or insolvency.
This not only applies to yoga fanatics but also in LLP – flexibility. Partners are free to decide how they will individually contribute to the business operations. For example, managerial duties can be divided equally or separated based on the experience of each partner, and the profits derived from the business can be distributed based on pre-discussed Terms & Conditions in the LLP Partnership Agreement rather than the partners’ share of capital contribution. This flexibility allowance is suitable for those who have different wants and needs in a business so the world is your oyster.
Hence it is important to have LLP Partnership Agreement among partners to state clearly the voting rights, shareholding, profit sharing, how to handle major decision making, changing of partners (adding new partner(s), partner(s) deceased/leave, termination of partner(s)) and others. In the absence of LLP Partnership agreement as to any matters set out in the Second Schedule of the LLLP Act 2010, provisions of the Second Schedule relating to that matter shall apply. So it is important to have a LLP Partnership Agreement that is tailor to partners’ needs in order to have smooth operations of the LLP company.