Outline
Partnerships in Singapore and setting up a business, there are a few entities you can choose from. The most popular would be to set up a private company. For instance a sole proprietorship, a partnership, or a representative office. In this article, we explore the three common types of partnerships in Singapore:
- Partnership
- Limited Partnership (LP) and
- Limited Liability Partnership (LLP)
There are often varying reasons for business owners to decide on each of these partnerships in Singapore. To start, we need to first understand the differences among the three partnerships in Singapore.
What is a Partnership?
A Partnership is when two or more partners carry on a business in common with a view to making a profit.
- 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 steps to create partnerships in Singapore. In most situations, partnerships will be through a partnership agreement (orally or in writing)
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.
- 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(LLP)?
However, a Limited Liability Partnership (‘LLP’) is a business organization comprising two or more persons associated with carrying on a lawful business to profit.
- OWNERS: At least 2 partners, no maximum limit.
- FORMATION: Instead of registering a business or a company in Singapore, interested parties may choose to register an LLP to carry out their business activities.
Types of Partnerships in Singapore Comparison
After understanding the different types of partnerships in Singapore, we can now take a closer look at the deciding factors:
- What liabilities and responsibilities need to prepare 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?
| Factors | Partnership | Limited Partnership | Limited Liability Partnership in Singapore |
|---|---|---|---|
| Legal status | Not a separate legal entity | Not a separate legal entity | A separate legal entity from its partners, i.e. it can sue or be sued or own property in its own name. |
| Liabilities | Partners have unlimited liability | The general partner has unlimited liability A 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 Partnership | Automatically dissolved if any partner dies or leaves 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 in Singapore?
- Easy to Start. There is no need to take any formal steps to create a partnership. In most situations, partnerships will be through a partnership agreement (orally or in writing)
- Low operation cost. Due to the lack of formality in partnership, there are 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 has a limitation 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 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, an LLP must upkeep its financial records as well as report its financial status of solvency or insolvency annually.
- Cannot be terminated as easily as a 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 for the creditors.
- Financial institutions and potential business partners may be more reserved for collaboration. However, as 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 an LLP.
What are Partnership Agreements?
Partnerships in Singapore are regulated by the Partnership Act; hence a Partnership Agreement is not mandatory. However, it is still need to create a Partnership Agreement as certain disputes which the Act does not adequately address might occur. While verbal agreements hold legal weight, they can lead to conflicts without strong evidence of the agreed terms.
Although, a Partnership Agreement acts as a formal contract that ties together two or more business partners. This document outlines their rights, responsibilities, and how profits and losses among them. Moreover, it sets up essential rules for the partnership, covering areas such as capital investments, withdrawals, and financial reporting.
What do I Include in a Partnership Agreement?
Consider these aspects when creating your partnership agreement:
- Basic Company Information: Vital details about the partnership, such as the name, location, partners’ names, effective agreement date, and information required by tax authorities for official recognition.
- Partnership Rules and Structure: Define membership criteria, decision-making protocols, dispute resolution mechanisms, partner termination, and onboarding processes.
- Capital Contributions: Specify the types of contributions (monetary, assets, or non-monetary) that each partner brings to the partnership.
- Dispute Resolution: Having a mediation strategy ready is equally crucial, should you encounter unresolved conflicts using your existing documentation. While comprehensive contracts often prevent irreconcilable disputes, having an alternative course of action prepared can be beneficial.
- Profit and Loss Distribution: Detail how profits and losses need among partners, on equal shares, proportional contributions, or percentages.
- Tax Matters: Address tax implications, reporting, and IRAS audit policies, especially for pass-through taxation.
- Responsibilities and Remuneration: Specify partners’ roles, responsibilities, performance expectations, and compensation.
- Withdrawal and Admission: Outline procedures for partners leaving or joining the partnership, including buy-out and valuation processes, duration and the conditions for termination.
Conclusion
As a result, we have discussed, there are different advantages and disadvantages to the different types of partnerships in Singapore. 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.
FAQs
Yes. Sleeping partners are allowed for LLP.
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.
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.
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.
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.
Any individual or body corporate may be a partner in a LLP. This includes a natural person, company, foreign company, or another LLP.
Yes, a partner of LLP can be a partner of another LLP.
We would recommend that the company fulfill all its outstanding filing obligations before converting into an LLP
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