There are four types of business partnerships found in Singapore’s busy economy. These four partnerships are what the Accounting and Corporate Regulatory Authority (ACRA) recognizes. Each type of business partnerships has its own mechanisms and way or running that we will discuss each one today.
Types of Business Partnerships Characteristics & Definitions
Business or Traditional Partnership
The traditional or, as ACRA calls it, Business Partnership is the popular business structure in Singapore. Its formed by two or more people who decide to start a business together.
Out of all the partnerships, this is the riskiest because it has unlimited liability. This means that it is not a separate legal entity from its owners. Assets owned by this partnership is vulnerable to the claim of creditors for any debts incurred by the business. What this means is that owners are personally responsible for paying for debts and losses of a business. Take a look at the example below.
Mr. Smith, Ms. Wong and Mrs. Lim decide to start a burger joint together, they each invest amount to the business and they all have a say as to how the burger joint is run. Now their burger joint suffers heavy losses after a fly scandal, where a fly was found embedded inside a customer’s burger patty, and it results into a bankruptcy. Now they owe the bank 300,000 dollars, all three of them will be liable for paying off the money they owe to the bank.
Their houses, cars and any asset they own can be taken by the bank to pay for the 300,000 dollar debt.
Limited Liability Partnership (LLP)
The Limited Liability type of business partnership was introduced in Singapore as a variation partnership. A Limited Liability partnership is similar to a Business or Traditional partnership in a way, allowing for two or more people to start its partnership. This is made possible by the Limited Liability Partnership Act. Now the feature that makes LLP standout is its structure, as stated earlier an LLP is like a traditional partnership but it is also like a company in that it allows its partners to have limited liability.
An LLP is considered as a corporate body and therefore it can be sued, sue and acquire or own properties. It can also hold, develop, and dispose of properties whether movable or immovable. This feature of an LLP saves its partners from losing any personal asset in the case of bankruptcy or lawsuit.
Section 8 of the LLP Act states that:
- The obligation of the limited liability partnership whether it be in contract, crime or other acts is solely the responsibility of the LLP and not the partners.
- A partner is not personally liable, directly or indirectly by way of any of the following contribution, assessment or other forms for any obligation or losses incurred by the LLP.
- A partner is not personally liable for any wrongful act or omission done by another partner but he or she will be liable for his or her wrongful deeds or omission.
- Should any partner in an LLP commit any wrongful acts while under the its authority, then the partnership will also be liable to the same extent as the partner.
- The liabilities of the LLP shall be met out of the property of the partnership and not out of the personal assets of its partners.
Limited Partnership (LP)
This partnership like the Business partnerships is formed by two or more people, but unlike normal business partnership, a limited partnership has distinctions. This business form is attractive to investors who don’t wish to be actively involved in running or managing the business. The management of the partnership is instead entrusted or placed into the hands of someone who is genuinely willing to run the enterprise. In a Limited Partnership, there are two types of partners, the general partner who takes on unlimited liability and a limited partner whose sole job is to invest in the business.
General partners are fully responsible for the losses of the partnership, their personal assets can be taken by the bank or creditors to pay for the damages incurred by the business. General partners also have powers to make decisions and participate in the management of the LP. Limited partners on the other hand, do not participate in the management of the business, and they are only liable based on the amount they invested in the company. They also do not have the power to bind the partnership.
Unlike the LLP, LP is not a separate or stand-alone legal entity from its partners that means that it can’t sue or be sued. It also cannot purchase property in its own name.
A company is basically the model structure of an LLP, but unlike LLP its larger in scale. A company is treated as a separate entity, an artificial person created by statute, therefore, it exists perpetually. Being a separate legal entity is one of a company’s greatest features because it prevents its shareholders from being liable to any of the company’s debts and financial loses. Shareholders are only liable up to the amount they paid or the shares they own in the business.
A company can own assets, contract and engage in business in its own name. The company can also enforce property rights by suing or defending itself in legal proceedings. There are two types of companies that anyone can form in Singapore:
- Private Limited Company – the number of shareholders is limited to fifty or less.
- Public Companies – the number of shareholders can range from fifty above. The company can raise its capital by offering shares and debentures to the public.
A Private Limited Company is the common type of company that most people prefer, it forms a bulk of the small and medium-sized enterprises in Singapore. It’s good to note that Singaporean Company can have a minimum of one shareholder, and a shareholder can be either an individual or a corporation. Foreign or local businessmen can be shareholders of a company. And the good news is that there is no minimum capital required for companies to incorporate in Singapore.
When doing business in Singapore being aware of these four business partnerships gives anyone the power of making informed choices. By knowing how they run and what risks are present for each one, businessmen will be able to start, and even create their own partnerships with confidence and ease.
Don’t have any idea as to what business structure to choose? Give us a call, ask us an enquiry or better yet email us! We’ll be glad to be of service.