From partner to director
Though uncommon, partners in a Limited Liability Partnership will occasionally wish to operate as directors in a Sdn Bhd instead, and this post explains the steps involved in making the transition.
As Sdn Bhds are our preferred business entity, we’re glad you’ve seen the light!
At risk of jumping into the sales pitch too soon, though this guide shows you how to do it, our team can also handle the shift on your behalf starting with incorporating a new company.
After all, we imagine the average LLP partner is a very busy person.
Otherwise, let’s begin.
9 steps to go from LLP to Sdn Bhd
The process is more of a transfer of assets as there’s currently no way to directly convert an LLP to a Sdn Bhd.
Step 1: Agree on shareholding structure
Assuming all existing LLP partners will become shareholders and/or directors of the new Sdn Bhd, have a discussion to align everyone on the shareholding breakdown in the new entity.
You might even want to look into drafting a Shareholders’ Agreement to lay down clear guidelines on how shareholders can act based on the best interests of the company.
Step 2: Incorporate a Sdn Bhd
Register for a MyCoID account which allows you to incorporate a company online.
Bear in mind getting your MyCoID account requires physically visiting an SSM branch so they can verify your identity. Once that is done, the incorporation is a fairly quick four-step process.
1. Name search and application
- Lodge proposed company name via SSM online system with a fee of RM50
- If approved, name will be reserved for 30 days from the approval date
- You can extend the reservation for a RM50 fee to get an extra 30 days, up to 180 days
2. Submit incorporation application
- Submit required information to SSM within 30 days of name approval
- Documents not in Bahasa Malaysia or English require certified translations
3. Pay registration fee
- The registration fee is RM1,010
4. Receive Notice of Registration
- SSM issues notice of registration within one working day upon compliance and submission of completed documents
- Certificate of registration of company is issued upon request with prescribed fee
Step 3: Open a new bank account
Since your LLP will already have its own corporate account, it would probably be easiest to contact your bank and ask them to help set up a new account.
We’ll add this – if they require you to visit their branch, it’s time to find a more business-friendly bank!
Step 4: Transfer assets & liabilities to Sdn Bhd
As Sdn Bhds are subject to strict reporting standards, remember to properly record all assets in a balance sheet so the ‘sale’ between the LLP and Sdn Bhd is carried out at the correct book value.
You may also want to seek assistance from an attorney, accountant, and tax agent to get your creditors to list your new Sdn Bhd as their debtor.
Step 5: Re-sign contracts with stakeholders
Reestablish contracts with all LLP stakeholders, including:
- suppliers
- clients
- staff, and
- anyone currently in a contract with the LLP.
With this, they’ll now be doing business with your new Sdn Bhd.
Step 6: Register as a taxpayer
Your new Sdn Bhd must meet its tax obligations and filing returns under its own entity. You can register for an account via MyTax, LHDN’s online portal.
Within three months of operating, your new Sdn Bhd will have to begin submitting tax estimates. For a full list of Sdn Bhd tax obligations, check out LHDN’s Tax File Registration page.
Step 7: Register with EPF, SOCSO, EIS, & HRDF
If your LLP employed staff, this should come as no surprise!
Your Sdn Bhd must register as an employer with the EPF within 7 days and SOCSO within 30 days of hiring the first employee. Additionally, if you employ more than 10 staff, you must register with HRDF.
Step 8: Apply for business licenses
Again, this should come as no surprise, but all current business licenses will need to be applied for again under your Sdn Bhd.
This is especially important if your expansion plans involve new business activities that will require new business licenses.
Step 9: Dissolve the LLP
LLP dissolution can be done online via SSM’s MyLLP portal for RM100 by:
- a partner registered as a Verified User
- a partner registered as a Verified Professional User, or
- a Compliance Officer who is also a partner
With this, you’ve successfully transitioned from being a partner in an LLP to a shareholder and director in a Sdn Bhd!
3 additional considerations
Assuming by now you’ve completed transitioning to a Sdn Bhd, there are three additional points to keep in mind.
1. Appoint a Company Secretary
A Company Secretary is the Sdn Bhd equivalent of an LLP’s Compliance Officer, and you have a maximum of 30 days upon incorporation to appoint a Company Secretary.
2. Engage an independent auditor
Unlike LLPs, under the Companies Act 2016, every Sdn Bhd must submit to annual audits from a professionally certified and independent auditor.
As an average audit takes around three months, we recommend getting this out of the way asap since delaying could lead to a rushed job, and rushed jobs lead to fines!
3. Consider a Shareholders’ Agreement
As mentioned above, a shareholders’ agreement is a contract between the shareholders of a company detailing their rights, responsibilities, and obligations.
This agreement sets out rules about how the company should be run and provides a clear framework for decision-making and conflict resolution processes.
Let MISHU handle your LLP conversion
If you’re allergic to long queues and arguing with government officials, let MISHU handle it for you. We do it so much we’ve developed an immunity to both!