A partnership enables pooling of resources and capital, to pursue a business activity for the purpose of making profits. It partly addresses the shortcoming of a Sole Proprietorship, which is constrained by the limitations of a single owner. The structure of a partnership allows for complementing partners to establish business under mutually agreed terms.
In this structure, two or more individuals or corporations or both come together to conduct business activities for the purpose of making profit. The relationship and obligations between the partners are determined by a partnership agreement that the partners have entered into. The rights, responsibilities and liabilities of the partners towards the entity, are also determined by the terms of partnership agreement. It also contains the terms under which a partner can leave the partnership and the terms for dissolving the partnership.
Forming a Partnership in Singapore
The profits are divided among the partners and the partners own the assets collectively, as per the terms agreed in the Partnership Agreement. In the event of lapses in the partnership agreement, the provisions of the Partnership Act will take precedence.
Types of Partnership
The partnership structure is of two types:
General Partnership (GP)
A minimum of two partners is required and the maximum number of partners must be limited to 20. If the partners are more than 20, it must be incorporated as a company. All partners are personally liable for the debts and liabilities of the business. The partners’ liability remains unlimited. The partners are liable for the debts or losses incurred by the other partners. It is registered with ACRA under the Business Name Registration Act.
Limited Partnership (LP)
A LP must have at least one general partner and one limited partner. There is no upper limit on the number of partners. The liability of the general partners is unlimited. Their personal assets can be attached, in the event of a claim made on the LP. The general partners actively participate in the management of the company. A general partner can be an individual or a company.
The limited partners’ liability is limited to the amount of their contribution to the partnership and they do not involve in the active management of the business. A limited partner can be an individual, company or a foreign registered company.
LP is registered with ACRA under the Limited Partnership Act. It is relatively a new type of entity in Singapore. The Partnership Act as well as the general law applicable to Partnerships applies to LPs, subject to the provisions of the Limited Partnership Act. If there is no limited partner, the partnership will be suspended and will be converted to a firm registered under the Business Names Registration Act. When Limited Partners come on board the entity will be restored as a ‘live’ Limited Partnership.
Features of a Partnership
Lacks Legal Identity: The registration of a partnership does not constitute a separate legal identity. So both LP and GP lack legal identity of their own. A General Partnership cannot own property in its own name but it can sue and be sued in its own name. A Limited partnership can neither own property nor it can sue or be sued in its own name.
Validity/ Renewal: The registration must be renewed. It can be renewed for a period of one year or three years. Renewal must be done before the expiry of registration.
Eligibility: Any natural person whose age is 18 years and above can register a partnership. Another Singapore registered company is also eligible to register a partnership.
Singapore citizens and Permanent Residents who are self employed are required to register for CPF and top up their Medisave account in order to register or renew their business registration.
Officer: In a GP, if none of the owners are residing in Singapore, a natural person must be appointed, as a manager. Such person must be ordinarily resident in Singapore. Ordinarily resident means, a citizen or permanent resident of Singapore or foreigners on employment pass or dependent pass.
In the LP if none of the general partners are resident of Singapore, a manager who is ordinarily resident in Singapore must be appointed. The manager is personally responsible for the discharge of all obligations of the LP. He is subject to the same liabilities and penalties as a general partner of the LP if the general partner defaults in respect of such obligation.
Registered Address: A local Singapore physical address is required.
Taxation: Chargeable profits are treated as personal incomes of the partners who are individuals and are subjected to personal income tax rates. In the case of corporate partners chargeable profits are subjected to corporate tax rates.
Limitation: As it does not constitute a legal entity, a partnership cannot register another legal entity.
Continuity: It continues to exist as long the partners agree to keep the partnership. It will cease to exist if the registration is left to lapse and not renewed. Filing of cessation notice by the partners or authorized representatives will also amount to cessation of partnership.
Documents Required in Setting up a Partnership
- Approved name of the Partnership
- Particulars of the partners/managers (foreign passport or Singapore ID)
- Residential address of the partners/managers
- Local business address for the partnership
- Consent to Act as Manager and Declaration of Non Disqualification to Act as Manager
- If partner is a company, the registration details of the company
- Declaration of compliance
The registration can be completed in one day, provided all partners/authorized representatives have endorsed the online application. It may take up to two months in unusual circumstances, where ACRA has to refer the registration application to other government agencies for review. Upon successful registration you will be notified via mail and the partnership will be issued with a registration number. Soft copy of business profile can be retrieved online.
Post Registration Compliance
- All business communication materials such as, letterheads and invoices must bear the registration number.
- Any change in registered details must be promptly notified to ACRA.
- It is an offence to carry on the business after the lapse of validity of registration or after the registrar has canceled the registration.
- Partnerships are exempted from annual audit and are not required to file annual financial statements with ACRA.
- The partners must file personal income return and it must relay the revenue and profits of the partnership to the IRAS.
- It is mandatory to keep records and accounts for a period of five years.
Key Considerations in Forming a Partnership
Unlimited Liability: The liabilities of the partners in a general partnership remain unlimited. Their personal assets are vulnerable in the event of claims made against the partnerships for the debts, losses or liabilities that it incurs in the course of business. The unlimited liability in general partnership is a turnoff. Each partner being held responsible for the debts or losses incurred by other partners will result in rift in partnership.
Disputes: Disputes are common in partnership. Despite the presence of a partnership agreement, disagreements over the management of business do erupt among partners and it will impact the business. In the worst-case scenario, it may even lead to dissolution of business and strain the personal relationship among partners. In order to prevent this, the partnership agreement must be constantly reviewed and if needed, it must be revised after mutual agreement. All partners must be aware of their rights, responsibility and the course of dispute resolution, available under the agreement .
Consensus: Unlike sole proprietorship where the owner has absolute control over the company, a partnership is run on the basis of consensus. No body can have an absolute say and must go with the consensus although it may be detrimental to the business. Provisions may be made in the partnership agreement allowing rights to specific partners, based on their contribution, to take key decisions or override consensus.
Tax: The partners being charged personal tax rates on their share of the partnerships’ profit is another drawback. Individuals in the partnerships are not eligible for competitive corporate tax rates and individuals with higher consolidated income from other sources, may be charged higher rates.
Pooling of Capital: The major advantage is the ability to pool in capital and resources. In the case of Limited Partnership, additional capital can be sourced from partners who are willing to pitch in but not ready to actively participate and therefore wish to limit their exposure to liability.
Shared Responsibility: Unlike sole proprietorship where the single owner has to shoulder all the responsibility, in this structure the responsibility can be shared.
Lowered cost: The cost of setting up is low as against a company incorporation cost. The ongoing compliance requirements are less onerous, considerably saving the administration time and resources.
Consideration for foreigners: Foreigners not relocating to Singapore need to appoint local manager or an authorized representative, if situation warrants. This may distort the control over the business. If they wish to relocate to Singapore, they are advised to seek the opinion of the MOM prior to the registration. The likelihood of their application for an employment pass being rejected remains high.
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Incorporate a General Partnership or Limited Partnership in Singapore quickly and easily
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