LLP vs Sdn Bhd: Which One Actually Fits

Open any comparison of the Malaysian LLP and you will read that it “combines the limited liability of a company with the tax transparency of a partnership”.

The first half is right. The second half is imported from the United Kingdom and is wrong in Malaysia. A Malaysian LLP is taxed at entity level, exactly like a company. If tax transparency is why you are considering an LLP, you are considering it for a reason that does not exist here.

That leaves a much narrower — but real — set of reasons to choose one.

What an LLP actually is

Section 3 of the Limited Liability Partnerships Act 2012 makes an LLP a body corporate with legal personality separate from its partners, with perpetual succession, and with unlimited capacity to sue, be sued, and own property. A change of partners does not affect its existence, rights or liabilities.

Section 4 then does something the name disguises: it disapplies the Partnership Act 1961 and the rules of equity and common law applicable to partnerships entirely. An LLP is not a partnership with a shield bolted on. It is a distinct statutory creature that borrows the vocabulary.

Formation needs two or more persons — individuals or bodies corporate — under s.6.

Liability: close to a Sdn Bhd, with one important carve-out

Section 21(1) makes any obligation of the LLP, whether in contract, tort or otherwise, solely the obligation of the LLP. Section 21(2) says a partner is not personally liable for it merely by being a partner.

Then s.21(3): those protections “shall not affect the personal liability of a partner in tort for his own wrongful act or omission, but a partner shall not be personally liable for the wrongful act or omission of any other partner”.

That single subsection is the whole design. Compare a conventional partnership, where s.14 of the Partnership Act 1961 makes every partner jointly and severally liable for every other partner’s wrongs. In an LLP, your negligent co-partner is the LLP’s problem and their own — not yours.

Two ways the shield lifts:

• s.7(2) — carrying on with fewer than two partners past the period allowed by s.7(1) restores personal joint and several liability for obligations incurred after that period, for any partner who knew or ought to have known.
• s.22(1) — a partner who takes a distribution while the LLP is insolvent, or which makes it insolvent, knowing or having reason to know, is personally liable to repay it if the distribution was received within two years before the winding-up commenced.

Tax: one layer either way

Income from an LLP is taxed at the LLP level, because the definition of “person” in the Income Tax Act 1967 includes an LLP. Profits paid, credited or distributed to partners are exempt in the partners’ hands under paragraph 12C of Schedule 6, with no withholding tax.

So the shape is identical to a single-tier Sdn Bhd paying dividends: taxed once, at the entity, and clean on the way out. There is no partner-level pass-through of profits, and no pass-through of losses either — an LLP’s losses stay in the LLP.

One structural difference worth flagging: under s.75B of the Income Tax Act 1967 the responsibility for the LLP’s tax obligations lies jointly or severally on the compliance officer appointed from among the partners. That is a named person carrying the filing risk.

Rates and thresholds move; check the current position before modelling.

Running cost and compliance

	LLP	Sdn Bhd
Registration fee	RM500 (direct registration incl. name)	RM1,000
Annual filing	Annual declaration, RM200	Annual return, RM150
Filing deadline	Within 90 days of financial year end (s.68(2)); first within 18 months of registration (s.68(3))	Within 30 days of the incorporation anniversary (CA 2016, s.68)
Statutory audit	Not required (s.69(5))	Required unless the PD 10/2024 exemption criteria are met
Officer required	Compliance officer (s.27)	Company secretary (CA 2016, s.236)
Governing document	LLP agreement; Second Schedule defaults apply where silent (s.9)	Constitution optional
Records retention	7 years (s.69(2))	7 years (CA 2016, s.245(3))

The audit line is the one that moves money. Under s.69(5), subject to the LLP agreement, an LLP’s accounts shall not be required to be audited — full stop, with no turnover test and no phase-in. A Sdn Bhd only escapes audit if it meets the qualifying criteria in SSM’s Practice Directive 10/2024.

The annual declaration is not a formality. Two partners must state whether the LLP appears able to pay its debts as they fall due (s.68(1)). Making that declaration without reasonable grounds is an offence under s.68(6) carrying up to RM250,000 or two years, and s.68(8) raises it to five years and RM1 million where there is intent to defraud creditors.

The professions that have no choice

For a specific group, this comparison has only one answer.

The First Schedule to the LLP Act 2012 names three professional practices: chartered accountant, advocate and solicitor, and secretary. Section 8 lets an LLP be formed to carry on a professional practice only if the partners are natural persons practising the same professional practice and no one else, and the LLP holds professional indemnity insurance at a level approved by the Registrar — after consultation with the governing body where the practice has one.

Why does that matter? Because for these practices, incorporation as a Sdn Bhd is not on the table:

• Audit. Section 263(7) of the Companies Act 2016 defines the “person” who may be approved as a company auditor as a chartered accountant under the Accountants Act 1967. Section 264 then contemplates appointment of an individual (s.264(1)), a firm all of whose resident partners are approved company auditors (s.264(4)), or a limited liability partnership (s.264(7)). A company appears nowhere.
• Legal practice. Section 36(1) of the Legal Profession Act 1976 restricts practice to a person on the Roll holding a valid practising certificate, and s.37(5) makes it an offence for a body corporate to do an act that would be unauthorised practice if done by a person, or to hold itself out as qualified.

So the LLP exists in Malaysia largely because these firms needed a way out of unlimited joint and several liability that their own governing statutes would permit. If you are in one of them, the choice is between a conventional firm and an LLP, not between an LLP and a Sdn Bhd.

Where the Sdn Bhd still wins

Everywhere capital is involved.

An LLP has capital contributions, not shares. There is no share register, no authorised class structure, no pre-emption regime, no treasury shares, no convertible instrument that a venture investor recognises. You cannot run an employee share option scheme over a capital contribution. Section 26 restricts assignment of a partner’s interest, and the Second Schedule default is that no person may be introduced as a partner without the consent of all existing partners.

Practical consequences:

• Outside investment. Institutional investors invest in shares. An LLP forces a bespoke structure they will usually decline.
• Exit. Selling a Sdn Bhd can be a share transfer. Selling an LLP means admitting an assignee under s.26 with consent, or selling assets.
• Credibility and procurement. Some tender and licensing regimes are written around companies, and a licence granted to a company does not migrate to an LLP.
• Governance. The Companies Act 2016 gives minority shareholders s.346 oppression relief and a codified directors’ duty regime. The LLP Act’s Second Schedule defaults are thinner, which puts far more weight on drafting the LLP agreement well.

Common mistakes

• Choosing an LLP for tax transparency. It does not exist here. Income is taxed at the LLP level and distributions are exempt under para 12C, Schedule 6.
• Skipping the LLP agreement. Section 9(1)(b) then imports the Second Schedule defaults — equal profit shares regardless of contribution, no remuneration for working in the business, and unanimous consent for new partners.
• Treating the compliance officer as a clerical role. Section 27(7) makes them personally liable for penalties on the LLP under ss.17, 19 and 20, and s.27(6) deems every partner to be one if nobody is appointed.
• Assuming no audit means no accounts. Section 69(1) still requires records giving a true and fair view; s.69(6) fines the LLP and every partner up to RM50,000 or six months for failure.
• Letting partner numbers fall to one and doing nothing. Section 7 gives you six months, extendable to twelve, and then removes the shield.
• Expecting to raise a seed round as an LLP. You will be asked to convert first, and a conversion under Part V is work you could have avoided.

What’s next

If you are a solo operator or a two-person services business with no outside capital in view, price both: an LLP at RM500 to register and RM200 a year with no audit and no secretary, against a Sdn Bhd with a secretary’s retainer and possibly an audit.

If you expect to raise money, hire on equity or sell the business, start as a Sdn Bhd. The conversion routes in Part V run one way in practice, and investors do not wait for restructuring.

If you are an auditor, a lawyer or a company secretary in practice, read s.8 and the First Schedule, then get quotes for the professional indemnity cover the Registrar will require.

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Verification status. AI-assisted draft, not yet reviewed by a subject-matter expert. Section references are to the Limited Liability Partnerships Act 2012 (Act 743) and the Companies Act 2016 (Act 777) as published by SSM, the Legal Profession Act 1976 (Act 166), and the Income Tax Act 1967 as explained in LHDN Public Ruling 8/2022. Fees are from SSM’s published materials and should be re-checked at the time of filing. Nothing here is legal or tax advice on a particular firm.