• Types of partnerships

In setting up a business in Singapore, there are a few entities you can choose from. The most popular would be to set up a private company. Other options include a sole proprietorship, a partnership, or a representative office. In this article, we explore the three common types of partnership:

  • Partnership

  • Limited Partnership (LP) and

  • Limited Liability Partnership (LLP)

There are often varying reasons for business owners to decide on each of these partnership types, which will be explained later. To start off, we need to first understand the differences among the three partnerships.

What is a Partnership?

A Partnership is formed where two or more partners carry on a business in common with a view to makprofit. 

  • OWNERS: Between 2 and 20 partners. The partners can either be individuals or bodies corporate. * A partnership of more than 20 partners must incorporate as a company under the Companies Act, Chapter 50 (except for professional partnerships)

  • FORMATION: There is no need to take any formal step to create a partnership. In most situations, partnerships are created through a partnership agreement (may be made orally or in writing)

 Incorporation checker

What is a Limited Partnership?

A Limited Partnership (LP) is when two or more partners go into business together, with the limited partners only liable up to the amount of their investment.

  • OWNERS: At least 2 partners; one general partner and one limited partner. No maximum limit. An individual or a corporation may be a general partner or a limited partner of the LP.

Letitia
Tips: A general partner is the primary company’s owner who makes decision for the company while a limited partner is not involved in management of day-to-day business, he/she is merely an investor who supplies capital in exchange for a shared dividend in a business.
  • FORMATION: LPs are formed in the same way as partnerships. In Singapore, the first step in the formation of an LP is to register the LP with the Accounting and Corporate Regulatory Authority (ACRA).

What is a Limited Liability Partnership?

A Limited Liability Partnership (‘LLP’) is a business organization comprising two or more persons associated for carrying on a lawful business with a view to profit.

How do I know which one to choose?

After understanding the different types of partnership, we can now take a closer look at the deciding factors:

  • What liabilities and responsibilities are you prepared to assume?

  • What is the tax implications?

  • Is the business entity easy to close?

  • What are the advantages and disadvantages of the different business entities?

FactorsPartnershipLimited PartnershipLimited Liability Partnership 
Legal statusNot a separate legal entity Not a separate legal entityA separate legal entity from its partners, i.e. it can sue or be sued or own property in its own name.
LiabilitiesPartners have unlimited liabilityGeneral partner has unlimited liability

Limited partner has limited liability

Partners have limited liability
Tax Profits taxed at partners’ personal income tax rates Profits taxed at partners’ personal income tax rates (if individual)/ corporate tax rate (if corporation)Profits taxed at partners’ personal income tax rates (if individual)/ corporate tax rate (if corporation)
Terminating PartnershipAutomatically dissolved if any partner die or leave the firm. Limited partners are not entitled to dissolve the LP by notice.  

Dissolved on the death, dissolution, bankruptcy, or liquidation of a limited partner. 

Winding Up – Voluntarily by members or creditors, compulsorily by the High Court

With the above factors in mind, we are one step closer to our final decision on the type of partnership for your business. Let us break it down for you:

Why choose a Partnership?

  • Easy to Start. There is no need to take any formal step to create a partnership. In most situations, partnerships are created through a partnership agreement (may be made orally or in writing)

  • Low operation cost. Due to the lack of formality in partnership, there is fewer legal obligations hence no need to pay for fees such as registration fees.

  • Unlimited liability. Partners are personally liable for debts and losses incurred.

Why choose a Limited Partnership (LP)?

  • Limited Liability for limited partners. Give the owners the flexibility of operating as a partnership whilst giving them limited liability. The amount of their liability is limited to their investment in the LP.

  • Maintains control for General partners. General partners remain as the decision makers and direct the business of the partnership.

  • Unlimited liability for General partners. General partners are personally liable – their personal assets can be seized to pay off debts and losses incurred.

Why choose a Limited Liability Partnership (LLP)?

  • Flexibility. LLP allows the partners to retain the flexibility of a partnership agreement but it is not regulated by an identical set of legal principles governing partnerships.

  • Must upkeep its financial records, as well as report its financial status of solvency or insolvency annually. When compared to a partnership, a LLP must upkeep its financial records as well as report its financial status of solvency or insolvency annually.

  • Cannot be terminates as easily as general partnership. Also, as the partners enjoy limited liability, it cannot be terminated as easily as a general partnership. The law provides a comprehensive set of rules to govern the winding up of LLPs to ensure protection to the creditors.

  • Financial institutions and potential business partners may be more reserved for collaboration. However, as the LLP is a novel concept, we think financial institutions and potential business partners may be more reserved when dealing with it, as compared to a company or general partnership.

  • Law Restrictions. The law also places restrictions on certain categories of persons (see sections 33 to 37 of the Limited Liability Partnerships Act) who can manage a LLP.

Conclusion

As we have discussed, there are different advantages and disadvantages of a Partnership, Limited Partnership and Limited Liability Partnership. Before deciding on the type of vehicle your business is embarking on, you should consider the pros and cons of each carefully. While it may seem complicated, Paul Hype Page is here to help you find the best option in setting up your business. We wish you all the best.

FAQs

Can LLP have sleeping partners?2021-01-18T13:27:26+08:00

Yes. Sleeping partners are allowed for LLP.

Can a wholly owned subsidiary of head office be converted to a LLP?2021-01-18T13:27:05+08:00

No, because a wholly owned subsidiary of head office has only one shareholder. LLP must have at least 2 partners to be formed. However, if the number of shareholders in the wholly owned subsidiary is increased to 2 or more shareholders, conversion to LLP would then be possible.

What Business entities exist in Singapore?2020-06-24T15:41:21+08:00

Those who are interested in starting a Singapore business may select one of several business entities. Among these are the sole proprietorship, limited liability partnership, private limited company, and limited partnership. Foreigners have additional options such as the representative office, foreign branch, and foreign subsidiary.

Why is Singapore’s Corporate Tax Rate so low?2020-06-24T15:40:20+08:00

Historically and even today, Singapore’s government has been known to be extremely pro-business and supportive of corporations. By setting an extremely low corporate tax rate, the government intends to induce business owners from all over the world to conduct business operations in Singapore. It also serves as a means to encourage Singaporeans to start their own businesses.

What is the difference between an LLP and a general partnership?2020-06-24T15:40:44+08:00

A Limited Liability Partnership (“LLP”) allows the partners to retain the flexibility of a partnership agreement but it is not regulated by an identical set of legal principles governing partnerships. In addition, when compared to a partnership, a LLP is required to upkeep its financial records as well as report its financial status of solvency or insolvency annually. Also, as the partners enjoy limited liability, it cannot be terminated as easily as a general partnership. The law provides a comprehensive set of rules to govern winding up of LLPs to ensure protection to the creditors. However as the LLP is a novel concept, we think financial institutions and potential business partners may be more reserved when dealing with it, as compared to a company or general partnership. The law also places restrictions on certain categories of persons (see sections 33 to 37 of the Limited Liability Partnerships Act) who can manage a LLP.

There are different advantages and disadvantages of a LLP, as compared to a company and general partnership. Parties concerned should consider the pros and cons of each type of vehicle to decide which suits them the most. The Limited Liability Partnerships Act is available at https://statutes.agc.gov.sg/. We wish you all the best.

Who can be the partners in an LLP?2021-01-18T13:25:59+08:00

Any individual or body corporate may be a partner in a LLP. This includes a natural person, company, foreign company, or another LLP.

Can a partner of LLP be a partner of another LLP?2021-01-18T13:26:13+08:00

Yes, a partner of LLP can be a partner of another LLP.

For conversion from private limited company to LLP, must the private limited company file its audited/unaudited accounts up to the date of conversion?2021-01-18T13:26:31+08:00

We would recommend that the company fulfill all its outstanding filing obligations before converting into an LLP

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