All about LLPs Vs Sdn Bhd
Is an LLP a suitable business structure and how it differs from a traditional partnership and a private limited company.
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Limited Liability Partnerships have been around since 2012. Mostly used by professional firms (audit firms) that are not allowed to operate as a private limited company as it offers better protection against unlimited liabilities that conventional partnerships are exposed to.
The partners in an LLP are protected from personal liability as the LLP's liability is limited to the paid-up capital of the LLP. However, if one partner commits professional negligence, whilst the other partners are not personally liable, the LLP itself is liable, and the liabilities will be borne out of the assets of the LLP.
The shareholders in a Sdn Bhd, are not exposed to unlimited liability as the liability of a Sdn Bhd is limited to the share capital of the Company.
The cost of incorporating a Sdn Bhd is higher as compared to the formation of an LLP. It may cost about RM1,500 for an LLP formation as opposed to incorporation costs of over RM2000 for a Sdn Bhd.
It is administratively easier to manage an LLP than a Sdn Bhd. Whilst an LLP does not need to file audited accounts with the SSM, it does have to file a declaration containing certain financial information such as revenue and profit after tax for the year.
Whilst both LLPs and Sdn Bhd companies are taxed in their own name, and enjoy the lower SSM tax rate, LLPs do not get as many tax incentives as Sdn Bhd companies do.
Sdn Bhd company have more credibility because they need to prepare annual audited accounts and this is the reason why it is easier for Sdn Bhds to obtain financing from financial institutions. Sdn Bhds can also be converted to Berhad (public) companies in order to raise funds from the public.
The annual costs of an LLP are generally lower as they do not require a company secretary to be appointed or to carry out annual audits. Maintaining a Sdn Bhd company may cost approximately about RM5000 to RM6000 per year, which includes secretarial retainer fees, accounting and audit fees as well as tax agents fee.
Thus, the choice of using either an LLP or a Sdn Bhd company depends on the owners/partners objectives.
If you have any queries on LLPs or require assistance in forming an LLP or a Sdn Bhd Company, kindly contact us via email, text or Whatsapp and we will be happy to help with your questions.