In Singapore, a Partnership, Limited Partnership (LP) and a Limited Liability Partnership (LLP) are three different business structures designed for situations where two or more people want to run a business together. While they allow multiple owners, they differ significantly in terms of legal liability, taxation, and credibility.
1) Partnership
This is the most basic partnership form, involving between two to twenty partners. The partnership structure addresses the expansion limitations of a Sole Proprietorship by allowing two or more individuals to co-own a business. Similar to a Sole Proprietorship:
- It is not a separate legal entity from its owners. This means all partners face unlimited personal liability for the business’s debts.
- Partners are also held legally responsible for the losses and liabilities incurred by the actions of other partners, a feature that necessitates an exceptionally high degree of mutual trust.
- A partnership also lacks continuity, as it can be dissolved upon the death, retirement, or insolvency of any partner.
| Feature | Details |
|---|---|
| Legal status | Not a separate legal entity |
| Ownership | 2 to 20 partners (individuals or companies) |
| Liability | Unlimited. Each partner is personally liable for the business’s debts and the actions of other partners |
| Management | Managed collectively by the partners |
| Tax treatment | Business income is taxed as personal income of each partner |
| Compliance | Minimal. Annual renewals with ACRA and simple record keeping |
Advantages Of A Partnership
| Advantage | Details |
|---|---|
| Easy to set up | Quick registration process with ACRA. |
| Low start-up costs | Registration fees are lower than a Pte Ltd. |
| Shared responsibilities | Workload and decision-making can be divided among partners. |
| Small compliance burden | Minimal compliance requirements compared to a Pte Ltd. |
Disadvantages Of A Partnership
| Disadvantage | Details |
|---|---|
| Unlimited liability | Partners’ personal assets are at risk for business debts. |
| Joint and several liability | Each partner is personally responsible for the actions and debts incurred by other partners. |
| Lower credibility | Seen as less reliable by banks, investors, and clients compared to Pte Ltd or LLP. |
| Potential conflicts | Disputes may arise if roles and profit-sharing aren’t clearly defined. |
| No perpetual succession | The partnership dissolves if a partner leaves, dies, or becomes bankrupt. |
Who Is A Partnership Suitable For?
This structure is often chosen for joint ventures among trusted collaborators, such as family or friends, where the focus is on shared management and risk. These include small businesses with limited risk exposure or short-term projects where perpetual succession isn’t necessary.
2) Limited Partnership (LP)
A Limited Partnership (LP) is a company structure that involves at least one general partner and at least one limited partner.
- The general partners manage the business and has unlimited liability
- The limited partners are passive investors whose liability is capped at the amount of their investment. However, limited partners are prohibited from participating in the management of the business.
This business structure is designed to allow passive investors to participate in a business while limiting their risks.
| Feature | Details |
|---|---|
| Legal status | Not a separate legal entity |
| Ownership | Minimum 2 partners — at least 1 general partner + 1 limited partner |
| Liability | – General partner: Unlimited liability – Limited partner: Liability limited to capital contributed (if not involved in management) |
| Management | Managed by general partners only |
| Tax treatment | Business profits are taxed as personal income of the partners |
| Compliance | Moderate. Must file annual declarations with ACRA |
| Perpetual succession | No. The LP ceases if there are no general or limited partners |
Advantages Of A Limited Partnership (LP)
| Advantage | Details |
|---|---|
| Attracts Passive Investors | Limited partners can invest capital without being involved in day-to-day management. Encourages silent investors to fund businesses while protecting their liability. |
| Flexible Profit-Sharing | Partners can customize profit-sharing arrangements in the partnership agreement. |
| Simple to Set Up | Straightforward registration process with ACRA. Lower setup costs compared to a Pte Ltd. |
| No Corporate Tax | Income is taxed at the partner level, not the partnership level. |
Disadvantages Of A Limited Partnership (LP)
| Disadvantage | Details |
|---|---|
| No separate legal entity | LP cannot own property, sue, or be sued in its own name. |
| Unlimited liability for GPs | General partners are personally liable for all debts. |
| Limited partners can lose protection | If limited partners participate in management, they lose their limited liability status. |
| Lower credibility | Less attractive to banks, clients, and investors compared to LLPs and Pte Ltd. |
| No perpetual succession | If a general partner or limited partner leaves, the LP may need to be dissolved. |
When To Choose A Limited Partnership (LP)
An Limited Partnership (LP) makes sense if:
- You need passive investors who don’t want to manage the business.
- The business involves low financial risks.
- You want a simple structure with flexible profit-sharing.
- You don’t need high credibility with banks or venture capitalists.
3) Limited Liability Partnership (LLP)
What Is A Limited Liability Partnership (LLP)?
The LLP is a hybrid model that combines the operational flexibility of a partnership with the liability protection of a private limited company.
An LLP is a separate legal entity, meaning partners are not personally liable for the debts of the business or the misconduct of other partners.
For tax purposes, an LLP is treated like a partnership, with profits “passed through” to the partners who are then taxed at their individual rates.
| Feature | Details |
|---|---|
| Legal status | Separate legal entity from its partners |
| Ownership | At least 2 partners, no maximum limit |
| Liability | Limited liability for business debts, but partners are personally liable for their own wrongful acts |
| Management | Managed by the partners, unless otherwise agreed |
| Tax treatment | Not taxed as an entity; income flows to individual partners, who pay personal income tax |
| Compliance | Moderate. Must file annual declarations of solvency or insolvency |
Advantages Of A Limited Liability Partnership (LLP)
| Advantage | Details |
|---|---|
| Limited liability | Partners’ personal assets are protected from the LLP’s debts. |
| Separate legal entity | The LLP can own property, enter contracts, and sue or be sued in its own name. |
| Professional credibility | Preferred by lawyers, accountants, architects, and consultants |
| Operational flexibility | Partnership agreement allows customization of profit sharing and management structure. |
Disadvantages Of A Limited Liability Partnership (LLP)
| Disadvantage | Details |
|---|---|
| Higher compliance | Must file an Annual Declaration and maintain accounting records. |
| Personal liability for misconduct | Partners remain personally liable for their own negligence or wrongful acts. |
| No corporate tax benefits | Profits are taxed at personal income tax rates, which can be higher than corporate tax. |
| Harder to raise capital | Cannot issue shares, making it less attractive to investors. |
Who Is Limited Liability Partnership (LLP) Suitable For?
This structure is highly suitable for professional services firms, such as lawyers, accountants, architects, or management consultants, where partners wish to operate collaboratively while protecting their personal assets. This include business owners that want liability protection but also flexible profit-sharing as well as entrepreneurs who want perpetual succession without the complexity of a Pte Ltd company.
Explore Other Business Structures In Singapore
If you like the simplicity of a Partnership and you are the sole business owner, you can consider setting up a Sole Proprietorship.
Or if you are keen on scaling your company and attracting investors, consider starting a Private Limited (Pte Ltd) company instead.
