A Limited Liability Partnership (‘LLP’) is a business entity introduced under the Limited Liability Partnerships Act 2012 (‘LLPA’) to offer business owners and traders an additional option for the incorporation of their business. Although the LLP has come into effect for almost a decade, issues surrounding the conduct or misconduct of a LLP’s Partner have been rarely tested in the Malaysian Courts.
KEY FEATURES OF A LLP
A LLP shares similar features to a company, chief amongst which, as a recognised body corporate, a LLP has a separate and distinct legal personality from that of its partners. It can sue and be sued in its own name. A LLP can also acquire, own, hold and develop its own property. The LLPA also expressly excludes the application of provisions of the Partnership Act 1961 and the rules of equity and common law which apply to partnerships to an LLP. It is therefore observed that a LLP is more of a “company” than that a “Partnership”.
STATUTORY DUTIES OF AN LLP PARTNERS
Unlike a company under the Companies Act 2016, there are no board and group of shareholders per se in an LLP. The “business owners” in an LLP are known as partners. Subject to the express provisions in the 2nd Schedule of the LLPA, the decision-making power of a LLP is dependable on the private agreements between the LLP’s partners. For instance, the partners of a LLP may agree that the decision of one partner shall bind upon the LLP. This is unlike a company where the decision-making of a company vests in the Board as a whole.
Nevertheless, there are again similarities between the common law duties of a director in a company to that of the duty of a LLP’s partner under the LLPA. A LLP’s partner must not carry on a business of the same nature and compete with the LLP without the consent of the LLP. The statutory consequence of doing so is that such a partner must account for all profits made by him or her in the competing business. Section 11 of the 2nd Schedule of the LLPA also prohibits any LLP partners from making personal gains and benefits from any transactions concerning the LLP where he or she must account for those benefits to the LLP.
It would appear that the usual common law duties of a director to act in good faith and in the best interest of a company and not to be in conflict of interest with a company have been codified under the LLPA to govern the conduct of a LLP’s partner. A partner must always be minded that as an own distinct independent entity from its partners, a partner of a LLP (like any director of a company) must not treat the LLP as his or her own vehicle.
In the event of any breach of duties by a partner, it is straightforward for a LLP to commence action against a wrongdoer partner or a third party. However, in the event of a deadlock in a LLP, the mode of commencing a derivative action is still unclear in Malaysia. Unlike the laws in the UK where its civil procedure provides for the reversion to the Companies Act for commencement of derivative proceedings in a LLP, the LLPA in Malaysia is silent in this area.
Disclaimer: The contents of this write-up is intended for general informational purposes only and
does not constitute legal advice.