Formation of Partnership in Malaysia: Key Things to Consider

10 Sep, 2022

A Partnership is a business that is owned by two or more individuals. As a result, management, liability and earnings are equally divided among the owners. In Malaysia, a partnership is limited to a maximum of 20 owners. Foreign Nationals are also eligible to form a partnership in Malaysia only after obtaining a permanent residency permit.

The Partnership in Malaysiaare of two types, i.e. the limited liability partnership (LLP) governed by the Limited Liability Partnership Act 2012 and the conventional partnership governed by the Partnership Act 1961(Revised 1974) is governed by the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia).The Suruhanjaya Syarikat Malaysia (SSM0 is a statutory body that regulates all company and business-related activities in Malaysia, and it is the main enforcing body under the Companies Act of 2016 [1] .

Eligibility for Formation of Partnership in Malaysia

The following are the list of eligibilities for the formation of Partnership in Malaysia are:

• Must be a permanent resident or citizen of Malaysia;
• Must have attained the age of 18 years or above;
• Not More than 20 owners;
• A partnership can be formed with or without a written agreement;
• A person willing to be a partner should be of sound mind.
• Foreign nationals are eligible after obtaining a permanent residence permit;
• Businesses can’t be similar to an owner’s name on their identity card;
• Registration shall be done within 30 days of starting the business;

Step by Step Procedure for the formation of partnership in Malaysia

The procedure for formation of partnership in Malaysia are as follows:

Step 1-Required Document for starting a business as Partnership

The applicant must submit the relevant documents and requisite fee before initiating the registration process. The following are list mentioned:

• Copies and Original identity cards of the owners
• The proposed name of your business (Partnership)
• A document mentioning the details of your business activities
• Relevant permits if needed (for example. export permit, manufacturing permit etc.)
• Business registration fee -RM 100
• Business information docket -RM 10
• Registration of branch offices (per branch) – RM 5

Step 2- Registration Name of your Business

• Duly filled form titled -Form PNA.42;
• List of 3 names to be submitted to choose from, in the order of priority;

After gaining the approval, you may begin with the next step.

Step 3-Registration of Business

A partnership must be registered with the Registrar of Businesses as per section 5 of the Registration of Business Act, 1956. The following details have to be filled:

• Completely filled business registration form, i.e. Form A
• The name of your business ( submit certified Form PNA.42)
• The date of commencement of your business(partnership)
• The principal location of the business office;
• The addresses of any branch offices
• List and details of all owners
• A copy of the Partnership Agreement
• If any changes are made subsequently, then Registrar must be informed of such changes within 30 days.
• A document detailing proposed business activities

The Application can be submitted online or in-person after the signature of all the owners.

Step 4- Certificate

• Once the requisite fee is made and all documents are verified, you can receive your registration certificate within an hour.
• The registration certificate is valid for a period of 1 year and can be extended for up to 5 years.

Step 5- Start your business

A partnership firm has been officially registered under the Companies Act, 2016, and owners can start the business activities.

Important Clauses under the Agreement for Formation of Partnership in Malaysia

• Contribution of owner to capital
• Apportionment of Losses
• Distribution of profits
• Remuneration for acting in Partnership business
• Introduction of New Partner
• Change in the nature of partnership
• Partnership Property shall be only used for Partnership Business

Conversion of Partnership into Other Business Structures

In Malaysia, Partnerships can be easily converted into other forms of business. The most preferred choice is to convert a partnership into a Limited Liability Partnership. There are some criteria for converting partnership into a Limited Liability Partnership (LLP) as follows:

• After the conversion, the partner has to be the same;
• A partnership must be financially solvent before conversion;
• An approval must be taken from the concerned government authorities;
• A partnership is considered to be dissolved after the conversion, and the newly formed entity is a Limited Liability Partnership (LLP).

Benefits of Formation of Partnership in Malaysia

Some of the benefits of the formation a Partnership in Malaysia are as follows:

Minimum start-up requirements

The formation of Partnership in Malaysia is a straightforward process as they only require a minimum of 2 permanent residents of Malaysia with legitimate local residential address proof. The cost of forming a partnership is low compared to other business structures.

Less compliance

Compared to other forms of business entities in Malaysia, a Partnership follows the least compliance measures to function as a partnership. The audit requirements and annual return filings do not exist in the case of partnerships, and also, they are not liable to pay the corporate tax as Partnership is not considered a legal entity in Malaysia. Hence, partners will be charged on personal income as income tax.

Sharing responsibility

In Partnership, each partner will be responsible for running the business. This allows the partners to have an opportunity to fully utilise their expertise and specialization for smooth functioning and to generate profits.

Winding of Partnership

No business can sustain without profits. Suppose a business is no longer profitable for the partners. In that case, they can initiate the process of winding up of Partnership by making a simple representation to the regional office of the Suruhanjaya Syarikat Malaysia.

Conclusion

Choosing a suitable business form is significant for setting up a successful business. A partnership business is easy to start with and has low operating cost, attracting entrepreneurs and lost cost start-ups in a developing economy.