Limited liability partnership 2022 (1).pptx

law partnership chapter 2

1. Limited Liability P artnership

2. CONTENTS: INTRODUCTION CHARACTERISTICS FORMATION & REGISTRATION FEATURES CONVERSION & EFFECTS DIFFERENCES WITH CONVENTIONAL PARTNERSHIP ADVANTAGES & DISADVANTAGES continue

3. What is Limited Liability Partnership ( LLP )? An alternative business vehicle regulated under the LIMITED LIABILITY PARTNERSHIP ACT 2012. (enforced on 5th February 2013 ) . Combines characteristics of a company and a conventional/general partnership . Specifically forbids the establishment of multi-disciplinary professional LLPs Partnership Act 1961 and the rules of equity and of common law - not applicable!! : S.4 LLP 2012 INTRODUCTION

4. What is Limited Liability Partnership (LLP) ? Not to be confused with LABUAN LIMITED PARTNERSHIPS and LIMITED LIABILITY PARTNERSHIPS ACT 2010 A Labuan Limited Partnership shall consist of at least one general partner ; and one limited partner. The name of a Labuan limited partnership shall end with the words “Limited Partnership” in full or the abbreviation “ Ltd.P .”, “LP”, “L.P” A person may be a general partner and a limited partner at the same time in the same Labuan limited partnership. A limited partner contribute capital to the partnership but do not participate in the daily operations of the partnership . The limited partner shall not be liable as a general partner unless the limited partner participates in the management of the LP. continue

5. …INTRODUCTION Another option to choose as the most preferred form of business vehicle. Would benefit small businesses , professionals groups and others. Registered with the  Companies Commission of Malaysia ( CCM ). T he trade name of the firm is followed by “ Perkongsian Liabiliti Terhad ” or “ PLT .”, which means “Limited Liability Partnerships ”… S.13

6. EFFECT of LLPA 2012 Leads to the conversion of some conventional partnerships or small private limited companies to LLP status. Partners of partnerships will have the benefits of limited liability. Small and medium-sized enterprises being run as limited liability companies may convert into LLPs to avoid onerous requirements applicable to maintaining a corporate entity. BUT such conversion does not absolve the LLP from liabilities and obligations which arose from contracts entered into prior to the conversion.

7. A legal framework to govern the registration, administration and dissolution of LLPs in Malaysia: Formation Administration Dissolution 1.Formation •Registration of LLPs •Conversion by firms and private companies •Registration of foreign LLPs 2.Administration •Partners –duties and liabilities •Compliance Officer –duties and liabilities •Compliance requirements •Annual Declaration 3.Dissolution •Voluntary Winding up •Receivership & Court Ordered Winding Up •Striking off Legal framework

8. Information required for registration: proposed name of LLP nature of business address of registered office name and details of partners name and details of compliance officer approval letter (in cases of professional practice). •Name of LLP will end with “ Perkongsian Liabiliti Terhad ” or “PLT ”. Registration of LLP

9. Name as approved by governing bodies •Name search will not be applicable (except for Secretarial Firms) •Similar names: –Unique LLP number will be issued upon registration –Unique identifier will be given to differentiate different profession (ACC, LAW, CS) –Example: • Wong & Co PLT (LLP1 –LAW) vs Wong & Co PLT (LLP1256 –LAW) • Wong & Co PLT (LLP 1-LAW) vs Wong & Co PLT (LLP 8888 –ACC) Availability of name

10. LLP must appoint at least one compliance officer. •Compliance officer must be either one of the partners or persons qualified to act as a secretary under the Companies Act 2016•Compliance officer must be— •A citizen or PR of Malaysia; and •Ordinarily resides in Malaysia . Compliance officer

11. Statutory duties of a compliance officer: Registering any changes in registered particulars of the LLP; Keeping and maintaining registers and records of the LLP; and Ensuring publication of names of the LLP •Will be personally liable for the contravention of the statutory duties unless the court is satisfied that he is not so liable . Duties of compliance officer

12. Registered office LLP must have a registered office in Malaysia at all times. •Keeping of certain registers and statutory records at the registered office Notice of registration Register of partners Copies of LLP Agreement, annual declaration/any statement lodged with the Registrar Instrument of charges Other compliance requirement

13. Keeping of proper accounting records LLP must keep accounting and other records to sufficiently explain its financial position. The accounts shall be prepared to give a true and fair view of the state of the affairs of the LLP. Annual declaration Declaration by at least two partners on the solvency of the LLP . Other compliance requirement

14. Confirmation of status from governing bodies: –Current partners (including membership number) –Registered address –Registration date with governing bodies (including any reference number) –Insurance coverage –Confirmation Reference Code –Solvency status for conversion cases Approval letters from governing bodies

15. LLP may be formed: by a minimum of two persons (wholly or partly individuals or bodies corporate); for any lawful business with a view of profit; and in accordance with the terms of the LLP agreement. LLP formed for professional practice must: consist of natural persons of the same profession; and have in force professional indemnity insurance as approved by the Registrar . Formation of LLP

16. Power of Registrar to refuse registration on the following grounds: charitable purpose; unlawful purpose; or purpose is prejudicial to public peace, welfare or good order or morality in Malaysia . Registration of LLP

17. Who can convert? • Conventional partnerships: registered under the Registration of Businesses Act 1956; or any partnership established by two or more persons for the carrying on any professional practice. • Private companies incorporated under the Companies Act Conversion

18. Eligibility criteria: Same partners and no one else. At the date of application, the conventional partnership is solvent. In cases of professional practice, the approval letter from the governing body . Conversion CP to LLP

19. Effect of conversion: Vesting of assets of the conventional partnership into the LLP; Pending proceedings may be continued, completed and enforced against or by the LLP. Existing agreements, contracts shall have effect as though the LLP were a party. Partner of conventional partnership shall continue to be personally liable (jointly and severally with the LLP) for liabilities and obligations incurred prior to the conversion. Conventional partnership to LLP

20. Eligibility criteria: Same shareholders and no one else. There is no subsisting security interests in its assets. At the date of application, the private company is solvent. All outstanding statutory fees to government agencies has been settled. Advertisement has been placed in a widely circulated newspaper and the Gazette. All creditors agreed to the conversion. Conversion COM to LLP

21. Effect of conversion: Vesting of assets of the private company into the LLP; Pending proceedings may be continued, completed and enforced against or by the LLP. Existing agreements, contracts shall have effect as though the LLP were a party. LLP continue to be liable for liabilities and obligations incurred prior to the conversion. Company to LLP

22. Z.Elias/LLP CHARACTERISTICS OF LLP: Is a body corporate and has a separate legal personality from its partners - S.3(1) ; It enjoys perpetual succession - S.3(2 ) ; it exists independent of its partners; Change in the partners does not affect the existence, rights or liabilities of the LLP - S.3(3 ) ; It is capable of suing and being sued, acquiring, owning, holding and developing or disposing of property and doing and suffering such other acts and things as bodies corporate may lawfully do and suffer - S.3(4 ) ;

23. …CHARACTERISTICS OF LLP: LLP is liable to the same extent as the partner who commits a wrongful act or omission in the course of the LLP’s business or with its authority and the liabilities of the LLP are to be borne out of the property of the LLP - S.21 . A partner of an LLP is NOT liable for the wrongful acts or omissions of the other partners of the LLP BUT is personally liable in tort for his own wrongful act or omission.

24. …CHARACTERISTICS: 6. Every partner is an agent of the LLP and has the power to bind the LLP when the partner is acting within authority and the person with whom the partner is dealing with knows that the partner has authority or that he is a partner of the LLP - S.23 . No issuance of shares. Mutual rights and duties of the partners are protected by an LLP agreement or, in its absence, the Second Schedule to LLPA 2012 .

25. General   An LLP may be formed in accordance with the terms of an LLP agreement by two or more persons, whether individuals or bodies corporate, associated for : S.6 - subject to SS.7 and 8 . In view of the requirements of S.6 , an LLP may not be formed for a social, recreational or charitable purpose.     FORMATION & REGISTRATION

26. Except as otherwise provided in the Act, the rights and duties of the partners of an LLP as between themselves, and as between the LLP and its partners, are to be governed by the Agreement. Unless otherwise stipulated in the LLP Agreement, partner shall NOT assign his or her interest in the distributions or capital of the LLP without the consent of all partners. In the absence of specific provisions in the Agreement on the matters specified in the Second Schedule, the relevant provisions of the Second Schedule will apply - S.9(1) . LLP Agreement

27. FEATURES DISTINGUISHING LLP OTHER OBLIGATIONS AND FEATURES   : A. Compliance officer   - An LLP is required to appoint at least 1 compliance officer from amongst its partners or persons who are qualified to act as secretaries under the Companies Act 2016 The responsibilities of a compliance officer are similar to that of a secretary of company. He must be a citizen or permanent resident of Malaysia and ordinarily resides in Malaysia ( S.27 ); B. Annual declaration  - Every LLP is required to lodge with the Registrar an annual declaration by any 2 of its partners that, in their opinion, the LLP appears or does not appear to be able to pay its debts as they become due in the normal course of business ( S.68 );

28. OTHER OBLIGATIONS AND FEATURES  : A. Compliance officer   - An LLP is required to appoint at least 1 compliance officer from amongst its partners or persons who are qualified to act as secretaries under the Companies Act 1965. The responsibilities of a compliance officer are similar to that of a secretary of company. He must be a citizen or permanent resident of Malaysia and ordinarily resides in Malaysia ( S.27 ); B. Annual declaration  - Every LLP is required to lodge with the Registrar an annual declaration by any 2 of its partners that, in their opinion, the LLP appears or does not appear to be able to pay its debts as they become due in the normal course of business ( S.68 ); FEATURES DISTINGUISHING LLP

29. C. Accounts and other records  - Every LLP is required to keep such accounting and other records which will sufficiently explain the transactions and financial position of the LLP as well as give a true and fair view of the state of affairs of the LLP. Such records are to be retained for not less than 7 years. The accounts of an LLP need not be audited unless required under the Agreement ( S.69 ); D. Carrying on business with less than 2 partners  - A person who is a partner of the LLP and knew or ought to have known that the LLP was carrying on business with less than 2 partners beyond a period of 6 months or such longer period as may be permitted by the Registrar under S.7(1) , will be personally liable, jointly and severally, with the LLP if at the time when the obligation was incurred, beyond the period permitted under S.7(1) (S.7(2) ; continue

30. . FEATURES DISTINGUISHING LLP E. Receivership and winding-up by the Court  – T he winding-up of an LLP by the Court under Ss 49(1)(a ) &(b) applies : Part VIII of the Companies Act on the receivership of an LLP, and Divisions 2 and 4 of Part X of the Companies Act and the Companies (Winding-up) Rules 1972 - subject to the necessary modifications. F. Voluntary winding-up  - The procedures and laws that govern the voluntary winding-up of an LLP are set out in S.50 . An LLP which is unable to pay its creditors is not permitted to initiate a voluntary winding-up unless its creditors waive their claims against the LLP.

31. FEATURES DISTINGUISHING LLP G. Foreign LLPs   - S.44 provides that a foreign LLP may not carry on business in Malaysia unless it is registered as a foreign LLP under the Act. “Carrying on of business” include (i) being a party to legal proceedings, (ii) holding meetings or carrying on other activities concerning its internal affairs, (iii) maintaining a bank account, (iv) effecting any sale through an independent contractor, (v) soliciting or procuring any order which becomes a binding contract only if the order is accepted outside Malaysia, (vi) conducting an isolated transaction that is completed within 31 days, not being one of a number of similar transactions and (vii) investing its funds or holding property.

32. CONVERSION TO LLP CONVERSION refers to the transfer of the properties, interests, rights, privileges, liabilities, obligations and undertakings of a conventional partnership or private company, as the case may be, to a LLP .

33. Conversion from conventional partnership A conventional partnership may be converted to a LLP provided that the LLP shall comprise ONLY all the partners of the existing conventional partnership and no other person - S.29(1) Conversion process - the conventional partnership is required to lodge with the Registrar of LLPs (“Registrar”) a statement signed by all its partners stating , inter alia, that as at the date of the application, the conventional partnership appears to be able to pay its debts as they become due in the normal course of business. - S.31(1 )(a)( iii) A professional practice, such as a firm of Chartered Accountants or Advocates and Solicitors, which seeks a conversion to a LLP is also required to lodge an approval letter from its governing body with the Registrar - S.31(b)

34. REGISTRATION AND EFFECTS OF CONVERSION Upon approval of the application for conversion of a conventional partnership or a private company (“transferor”), the Registrar will issue a notice of registration to state that the LLP has been registered under the Act (“registration notice”) from the date specified in the registration notice ("registration date").   The registration of the conversion will result in the following : Vesting of properties and transfer of rights and liabilities – All properties vested in the transferor, all interests, rights, privileges, liabilities and obligations relating to the transferor, and the whole of the transferor's undertaking shall be transferred to and vest in the LLP without the requirement for any further act or deed - S.33(1 )(a ) ;

35. REGISTRATION AND EFFECTS OF CONVERSION ( b) Pending proceedings, judgments or convictions - All proceedings by or against the transferor which are pending on the registration date may be continued, completed and enforced by or against the LLP. This similarly applies to any conviction, ruling, order or judgment in favour of or against the transferor - Ss 34 and 35 ;

36. (c) Existing agreements and arrangements deed, contract, bond, instrument and arrangement to which the transferor was a party immediately before the registration date, shall as from that date continue in force as if the LLP is the party thereto and shall be enforceable by or against the LLP – SS. 36 & 37 ); (d) Continuance of employment - Every contract of employment shall continue in force on or after the registration date as if the LLP was the employer thereunder instead of the transferor - S.38 ; and REGISTRATION AND EFFECTS OF CONVERSION

37. (e) Existing appointment, authority or power in force immediately before the registration date shall take effect from that date as if the LLP had been appointed. Similarly, every authority or power conferred on the transferor shall take effect from the registration date as if it were conferred on the LLP - S.39 . However, the automatic vesting provisions under SS.33-39 do not apply to any approval, licence or permit held by the transferor. It will therefore be necessary for the LLP to apply afresh for a similar approval, licence or permit ( S.40 ). REGISTRATION AND EFFECTS OF CONVERSION

38. E very partner of a conventional partnership that has converted to a LLP will continue to be personally liable, jointly and severally, with the LLP for the liabilities and obligations incurred by the conventional partnership prior to its conversion or which arose from any contract entered into before the conversion . Subject to any agreement with the LLP to the contrary, any partner who discharges any such liability or obligation shall be entitled to be fully indemnified by the LLP in respect of that liability or obligation ( S.41 ). A LLP is also required to ensure that every invoice and official correspondence bears a statement of the conversion and the name and registration number of the transferor from which it was converted for a period of 12 months commencing 14 days after the registration date ( S.42 ). REGISTRATION AND EFFECTS OF CONVERSION

39. Application for registration of an LLP   An application for registration of an LLP must include a statement signed by every person who is to be a partner of the LLP which sets out the particulars specified in S.10(2 ) , namely : the name of the proposed LLP; the general nature of the proposed business of the LLP; the proposed registered office of the LLP; the name, nationality and usual place of residence of every proposed partner and where a partner is a body corporate, its corporate name, place of incorporation or origin, registration number and registered office; the name, nationality and usual place of residence of every person who is to be a compliance officer of the LLP; and such other information as the Registrar may specify.  

40. Z.Elias/LLP DIFFERENCES WITH GENERAL PARTNERSHIP LLP CONVENTIONAL PARTNERSHIP REGISTRATION S.10 of LLP 2012 states that, “A person may apply for registration of a limited liability partnership to the Registrar and the application shall be accompanied by the prescribed fee and such documents as may be specified by the Registrar.” No provision on the registration of the partnership . However, it still must be registered, not under PA 1961 but under S. 5 of Registration of Business Act 1956. LIABILITY S.3 - the liability of the partners is limited to their agreed contribution . No partner is liable on account of the independent or unauthorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct S.11 - every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner.  Thus, this shows that the Act apply the unlimited liability towards the partners under it .

41. DIFFERENCES WITH GENERAL PARTNERSHIP LLP CONVENTIONAL PARTNERSHIP NO. OF PARTNERS Minimum number of two persons in the partnership – S.6 No maximum number of partners. S. 14 (3) of Companies Act 1965 - not more than twenty partners INTEREST & DUTIES If there is no special agreement that made between the partners regarding their interest and duties, under LLP 2012, default provisions for limited liability partnership are provided in the 2nd Schedule . S. 9 . If there is no special agreement that made between the partners , S.26 PA 1961 will apply.

42. Z.Elias/LLP DIFFERENCES WITH GENERAL PARTNERSHIP LLP CONVENTIONAL PARTNERSHIP DISSOL-UTION May be dissolved by : Court order or Voluntary winding-up :- only when it cease to operate, all debts and liabilities have been discharged, application is preceded by way of notice to all partners and published in national newspaper of the intention to winding-up and no objection from Inland Revenue Board (IRB), creditor, and partner. Struck off on the grounds of: no longer carrying on business, contravention of LLP Act, prejudicial to national interest, no liquidator acting for court order winding-up, or affairs have been fully wound-up but with insufficient assets to pay the cost to obtain court order. Upon its dissolution, there must be a settlement of partnership accounts.

43. Flexibility of organisational arrangement through the partnership agreement. Limited liability to owners/partners There are no limits to partners, compared to conventional partnerships where there is a cap of 20 persons; Companies may form an LLP. SSM states that these are the most common form of joint ventures; Absence of issuance of shares reduces the cost of setting up and sustaining the LLP; An undischarged bankrupt may continue as a partner, but may not participate in the management of the LLP Foreigner and foreign companies may be partners in an LLP. In maintaining its accounts, there is no specific prescribed accounting standard. Audit is not required. LLPs do not need to hold Annual General Meetings like companies. No requirement to submit financial statements to SSM. Advantages

44. LLPs are a new creation, therefore there is a lack of experience among the enforcers and supporting services, e.g. accounting firms, tax authorities etc. As with all new creation, there is a learning curve all will undergo. Professional practice LLPs formed are restricted to the natural persons practicing the same profession, e.g. lawyers may not team up with accountants and form a professional LLP. LLPs must maintain an accounting record, and kept for seven years . Disadvantages

45. Any individual or body corporate can be a partner. “ Partner” means any person admitted as a partner in accordance to the LLP agreement and includes salaried partner. •Any obligation arising from contract or tort will be the liability of the LLP and not the partners. •A partner however will be jointly and severally liable for his own wrongful act or omission in the course of the business of the LLP. •Liabilities of LLP will be borne out of the property of the LLP. Duties and liabilities of partners

46. Every partner is an agent of an LLP. •However, the LLP is not bound by what the partner has done in dealing with a person if: the partner acted without authority; or 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 LLP. •A former partner is still regarded as a partner of an LLP unless— the person dealing with whom the partner was dealing knows that the partner has ceased to be a partner; or Notice of cessation has been lodged with Registrar . Duties and liabilities of partners

47. Automatic cessation: Upon death/dissolution of a partner; or in the case of a professional practice, the partner has been disqualified from carrying out the professional practice. Voluntary cessation: a partner may cease to be a partner in accordance with the LLP agreement; or in the absence of such an agreement, by giving a 30 days notice to the other partners. cessation

48. Bankruptcy of a partner will not cause a partner to cease being a partner. However , a bankrupt partner is prohibited to take part in the management of the LLP unless— Leave from Director General of Insolvency has been obtained; or Leave of the Court has been obtained (applicable to both local or foreign partners ). Effect of bankruptcy

49. Court Ordered Winding Up Voluntary Winding Up Striking off Method of dissolution

50. Court Ordered Winding Up Follow Company Act 2016 Appropriate modifications Receivership Court ordered winding up

51. Application in writing to the Registrar when all assets and liabilities have been discharged. Application must be preceded by notice to all partners and advertisement of the intention to wind up. Registrar will order dissolution only if there is no objection received . Voluntary winding up

52. Power of the Registrar to strike LLP off the register on the following grounds: No longer carrying on business; Contravention of the Act; Prejudicial to national interests; or No liquidator acting in cases of court ordered winding up; Affairs have been fully wound up but no sufficient assets to obtain court order . Power to strike out