ZRC INTERNATIONAL TRUST INC

A. Introduction

 

 

The rapid pace of globalisation and competition has changed the dynamics of doing business. For businesses, it’s a case of staying agile and relevant or risk losing out to other players if they don’t evolve with the times. Increasingly, regulatory authorities are pressured to offer more business structure options to enable businesses to compete healthily in the marketplace. In line with this, Labuan FSA has introduced various new legal entities such as the limited liability partnership ("LLP") in the year 2010. The LLP made its appearance in the US in the 1980s, in the aftermath of the collapse of the real estate and energy industries in Texas. This collapse led to a wave of failures of banks, savings and loan facilities due to the huge claims against partners in businesses that were affected. LLPs were introduced to protect the “innocent” members of these partnerships from liabilities. Since then, use of this business vehicle has steadily grown across the globe. In Asia, the LLP has been introduced in various countries such as India, China, Singapore and Thailand. 

 

In general a business partnership refers to a formal agreement between two or more persons who have agreed to carry on business together in the pursuit of common goals to make profit. Whereas a company is treated by the law as a person distinct from its shareholders, with the liability of shareholders being limited to the amount they have agreed to pay for their shares. The partnership in a “traditional” partnership is not treated as a person separates from its partners, meaning each partner is personally liable for any partnership debts that cannot be paid out of partnership assets. As partners are personally exposed to the partnership debts in a traditional partnership structure, there has been a recent move from traditional partnerships towards alternative commercial vehicles. This shift has been particularly strong in professional services firms (e.g. in the fields of law, accounting and tax). Incorporation has been a popular alternative to the traditional partnership, however many entities are choosing to maintain the partnership structure but change to a limited partnership or limited liability partnership.

 

 

B. Labuan LP & LLP 

 

Labuan Limited Partnership & Limited Liability Partnership was introduced as a part of the new product offering by Labuan IBFC in 2010. To enhance the Labuan IBFC jurisdiction appeal the Authority (Labuan FSA) had introduced new set of law to add more offerings by Labuan IBFC. The new law which came into force on February 11 2010 has introduced Labuan Limited Partnership & Limited Liability Partnership. The Limited Partnership (LP) & Limited Liability Partnership (LLP) has been used by professionals in many jurisdiction for the purpose of corporate and business structuring. Generally Labuan LP and LLP can be utilised as an alternative business structure which merges the features of corporation with those of a partnership. It can be used for a range of purposes such as estate planning, asset protection, income tax savings, professional practices special projects and Special Purpose Vehicle or SPV.

 

The new Labuan IBFC legislation currently provides the regulation, formation and dissolution of Labuan LP & LLP and the conversion of Labuan companies and LP into Labuan LLP pursuant to Labuan Limited Partnership and Limited Liability Partnership Act (“LP & LLP”) 2010. The LP & LLP Act 2010 provides a flexible partnership vehicle for sophisticated or institutional investors who wish to participate in a partnership with the benefit of limited liability but without taking part directly in the management of the partnership affairs, such management being undertaken by the general partner.

 

 

 

C. Labuan Limited Partnership ("LP")

 

 

A Labuan limited partnership (LP) is a business entity comprising two or more partners who operate or manage a business together. The minimum number of partners for a Labuan LP is two partners, ie one general partner and one limited partner; the maximum number of partners allowed is fifty partners. Partners may be a corporation except for firms which are set up for professional practice, in which case it must consist of natural persons only and supplemented with professional indemnity insurance coverage issued by an insurer approved by Labuan FSA.

 

1. General Partner

 

• The Act provides that a general partner has all the rights and power and is subject to all restriction and liabilities of a partner in a general partnership. Despite the fact that a general partner has all the rights and powers of a partner in a general partnership, the general partner authority is limited and not authorized to do certain matters without the written consent or ratification of all the limited partners or unless the general partner specifically authorized under the Partnership Agreement. For example, a general partner doesn’t have any power or right to admit any person to the partnership as a general or limited partnership and to possess and dispose the partnership property or right unless they are given power to do so under the Partnership Agreement. However any assets vested on behalf of the general partner or under the partnership name is deemed to be held by the general partner whether it is held separate or jointly and in held in accordance with the partnership agreement.

 

2. Limited Partner

 

• Under the Act a limited partner has the same right as a general partner. However the limited partner usually contributes to the capital of the partnership but is not liable for the debts and obligations of the partnership (unless the partner is also a general partner) and does not take part in the control of the partnership business. The limited partner shall contribute to the partnership in the form of cash, property or services and has a right to return of their contribution and to receive a share of the profits of other compensation. A limited partner may become liable for the obligations of the partnership if they actively participate in the management and control of the partnership business and any persons transacting business with the limited partnership with the actual knowledge and reasonably believe that they (the limited partner) are the general partner. The Act sets out a none exhaustive list of the kind of actions a limited partner may performed without being deemed to “participate in the management of a Labuan limited partnership” this is stipulated under section 19 (5) (a) to (g) of the Labuan LP & LLP Act 2010.

 

 

D. Labuan Limited Partnership Registration

 

The general process for registering a Labuan LP involves the following:

 

• The applicant must appoint a Labuan trust company for the registration, which would conduct due diligence on the applicant. All documentation required to be submitted to Labuan FSA must be filed through a Labuan trust company. A Labuan LP shall have the words "Limited Partnership", "Ltd.P.", "LP" or "L.P" as part of its name (any other abbreviations in romanised characters or words in the applicant's national language which connotes a limited partnership or any abbreviation may be approved by Labuan FSA). The name may be in foreign characters, alphabets or languages provided that an accurate and certified rendition of the name in the English language is clearly stated on all its documents. The application for registration must be accompanied by the relevant documents and payments.

 

• For LP registration under the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA) Section 131(2) of the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA) requires that the applicant appoint a qualified person to act as a Shariah adviser for the partnership. The duties of the Shariah adviser pertain to the management and operations of the Islamic partnership to ensure compliance with Shariah principles.

 

 

 

E. Labuan Limited Liability Partnership 

 

 

Limited Liability Partnership (“LLP”) can be classified as a hybrid vehicle which consist the element and privileges of a limited liability company and a partnership. The LLPs concept was introduced in response to the personal liability problems faced by partners in law and accounting partnerships as a result of the many malpractice claims related to thrift and financial institution failures in the early 1990s United States of America. In 1991 Texas enacted the first LLP statute, largely in response to the liability that had been imposed on partners in partnerships sued by government agencies in relation to massive savings and loan failures in the 1980s. The Texas statute protected partners from personal liability for claims related to a co-partner’s negligence, error, omission, incompetency, or malfeasance. LLP concept is usually employed by attorneys, physicians, architects, dentists, engineers, accountants and others professional practice.

 

The following are some of the salient features of the LLP:-

 

• The LLP is an alternative vehicle that would give the benefits of limited liability but also allows its members the flexibility of organizing their internal structure as a partnership based on a partnership agreement.

 

• There is no restriction on the benefit and use of the LLP structure to any classes of professionals and it would be available for use by any person(s).

 

• The liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decision or misconduct.

 

• LLP enjoys perpetual succession where a change of members will not affect the LLP.

 

• The partners enjoy the shield created under the LLP. This protection offered in the form of limitation to the liability of the partners in the LLP without strict management and procedures as in the corporation.

 

• Compared to traditional partnership concepts, LLP is as a legal entity having an independent body and depending on the membership. LLP can hold and own an asset, enter into contact, sue and be sued.

 

A Labuan limited liability partnership (LLP) is a business entity comprising two or more partners who operate or manage a business together for any lawful purpose and an individual or a corporation may be a partner in a Labuan limited liability partnership. Labuan LLP is a body corporate and has a legal personality separate from its partners thus as a corporate body the Labuan LLP has the power of the natural person, capable of suing and being sued and can acquire, own, hold, develop and dispose any of its property movable and immovable property. As stated in the aforementioned facts Labuan LLP has the perpetual succession therefore any changes of partners in the Labuan LLP will not affect the existence, rights or liabilities of the Labuan LLP. The minimum number of partners for a Labuan LLP is two partners, ie one designated partner and one limited partner. A Labuan LLP is a type of business entity that permits a partner to be shielded from liability for partnership obligations created by the misconduct of another partner or person. It protects members from personal liability, except to the extent of their investment in the Labuan LLP. The Labuan LLP is a taxable entity for income tax purposes. Distributions out of the after-tax profits are tax-exempt in the hands of the partners.

 

 

E. Labuan Limited Liability Partnership Registration

 

 

The general process for registering a Labuan LLP involves the following:

 

The applicant must appoint a Labuan trust company for the registration, which would conduct due diligence on the applicant. All documentation required to be submitted to Labuan FSA must be filed through a Labuan trust company. A Labuan LLP shall have the words "Labuan Limited Liability Partnership", "(Labuan) L.L.P." or "Labuan LLP" as part of its name (any other abbreviations in romanised characters which connotes a limited liability partnership may be approved by Labuan FSA).

The name may be in foreign characters, alphabets or languages provided that an accurate and certified rendition of the name in the English language is clearly stated in all its documents. The application for registration must be accompanied by the relevant documents and payments.

 

For LLP registration under the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA)Section 131(2) of the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA) requires that the applicant appoint a qualified person to act as a Shariah adviser for the partnership. The duties of the Shariah adviser pertain to the management and operations of the Islamic partnership to ensure compliance with Shariah principles.

 

 

F. Practical Uses of Labuan LP and LLP

 

The LP and  LLP may be formed by any business group to carry on any lawful business with the view to make profit. However, the main targeted business groups are:

 

• Professionals (e.g Lawyers, Accountant & Company Secretaries)

• Small and medium sized businesses

• Joint ventures

• Venture capitals

• Special Purpose Vehicle

• Mutual Fund

• Wealth Planning 

• Asset Protection Vehicle

 

 

Our dedicated teams are more than happy to assist you in establishing, structuring and planning your Labuan LP & LLP. Contact us today at info@zrctrust.com for free initial consultation without any obligation.