Introduction
Limited Liability Partnership (‘LLP’) is a business entity introduced under the Limited Liability Partnership Act 2012 (‘LLPA’) to offer business owners and traders an additional option for their incorporation of business. Although the LLP has come into effect for almost a decade, issues surrounding the conduct or misconduct of a LLP’s Partner are rarely tested in Malaysian Courts.
Key Features Of A LLP
A LLP has identical features with a company. Similar to a company, LLP which is recognized as a body corporate, has a separate legal personality from that of its partners[1]. 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 exclude the application of provisions of the Partnership Act 1961 and the rules of equity and common law applicable to partnerships to a LLP. It is therefore observed that a LLP is more of a “company” than that of a “Partnership”.
Statutory Duties Of A LLP Partner
Unlike a company under the companies act, there are no board and group of shareholders per se. The “business owners” in a LLP are known as the partners. Subject to the express provisions in 2nd Schedule in the LLPA, the decision-making power of a LLP is dependable on the private agreements between a LLP’s partners[2]. 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 and a LLP’s Partners duties under the LLPA. A LLP partner must not carry on 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 partner must account for all profits made by him or her in the competing business[3]. Section 11 of the 2nd Schedule of the LLPA also prohibits any LLP partner from making personal gains and benefits from any transactions concerning the LLP and he / 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 a LLP is by its own an entity and like any director to a company, he or she must not treat the LLP as its own vehicle.
Conclusion
In the event of any breach of duties by a partner, it is straightforward for a LLP to commence a derivative action against a wrongdoer partner or a third partner. It is however unclear the mode of commencement of a derivative action in the event of a deadlocked. Unlike the laws in the U.K where it’s civil procedure provides for the reversion to the companies act for commencement of derivative proceeding in a LLP, the LLPA in Malaysia is silent on this area.