Business Partner Disputes in Malaysia: Your Options in a Sdn Bhd, Partnership or LLP

Why does the structure of the business matter?

Many people describe their co-owner as their “partner” even when the business is a private limited company. Legally, the structure decides who owns the business, who owes what duties, how a partner leaves and which court remedies are available.

Check the business’s registration with SSM and find every agreement the partners have signed. See also Overview of Business Entities in Malaysia.

What if my business partner and I are shareholders of a Sdn Bhd?

A company is a separate legal person, so the business belongs to the company, not to the shareholders directly. Disputes are resolved through the company’s rules and the Companies Act 2016:

• if you are being treated unfairly as a shareholder, for example excluded from management or denied dividends, you may petition for relief under section 346;
• if your partner has taken company money or business, the claim belongs to the company, and you may need the court’s leave to bring a derivative action under sections 347 and 348;
• if the relationship has completely broken down in a company run like a partnership, the court may order a buy-out or, as a last resort, winding up on the just and equitable ground under section 465(1)(h).

A shareholders’ agreement may also give you specific rights, such as a deadlock procedure or a right to sell your shares. See Shareholder Disputes in Malaysia: A Practical Guide and Quasi-Partnership Disputes in Malaysia.

What if we are partners under the Partnership Act 1961?

In a conventional partnership, the partners own the business together and are personally liable for its debts. Partners owe each other duties of good faith. Under section 31 of the Partnership Act 1961, a partner who makes a private profit without the other partners’ consent from a transaction concerning the partnership, or from using its property, name or business connection, must account for it to the firm.

Under section 37, the court may dissolve a partnership on a partner’s application where, among other grounds:

• another partner has been guilty of conduct likely to prejudicially affect the business;
• another partner wilfully or persistently breaches the partnership agreement, or conducts himself so that it is not reasonably practicable to carry on the business with him;
• the business can only be carried on at a loss;
• circumstances have arisen which make it just and equitable to dissolve the partnership.

Following dissolution, the court can order accounts and inquiries so that the partnership’s assets are realised, its debts paid and the surplus divided between the partners.

What if the business is an LLP?

An LLP is a separate legal entity, and its partners generally have limited liability. The relationship between the partners is governed mainly by the LLP agreement. Where the agreement is silent on a matter, the default provisions of the Limited Liability Partnerships Act 2012 apply.

Under section 24 of the Act, a partner may cease to be a partner in accordance with the LLP agreement or, if the agreement does not provide for it, by giving 30 days’ notice to the other partners. Unless the agreement provides otherwise, the former partner is generally entitled to an amount equal to their capital contribution and their share of the accumulated profits after deducting losses, determined as at the date they ceased to be a partner. Disputes therefore often focus on the accounts on that date.

What should I avoid doing?

When trust breaks down, partners are often tempted to take matters into their own hands. These steps frequently backfire:

• changing passwords, locks or bank mandates to exclude the other partner without authority;
• withdrawing business funds beyond your entitlement;
• diverting customers or contracts to a new business while the partnership or company continues;
• deleting emails, accounts or records;
• making allegations about your partner to customers, staff or on social media.

Conduct like this can expose you to claims and undermine the remedy you are seeking. For the limits on competing with a business you still own, see Directors’ Conflicts of Interest.

What are the first steps?

In the early stages, we usually recommend:

• gathering the agreements, SSM records, bank statements, management accounts and correspondence;
• checking whether the agreement requires mediation or arbitration before court proceedings;
• putting concerns and requests for information in writing;
• getting an independent view of the value of the business if an exit is likely;
• considering an urgent injunction if assets or customers are being moved.

Many partner disputes are resolved by a negotiated exit once each side understands its legal position. See Joint Venture Disputes in Malaysia and How to Exit a Sdn Bhd as a Minority Shareholder.