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Choosing the Right Business Type – Limited Partnership
Among the four business types that is available in Singapore, Limited Partnership (LP) was considered as the most recent business form that was being introduced in 2009. LP was formed in the same way as the formation of Partnership.
LP is a business organization that comprises of one or more “general partners” and one or more “limited partners”. Well, LPs are in essence Partnerships and are created pursuant to the LP agreement between the partners. They do not have a legal personality that is separate from their constituent partners. Similar to Partnership, the Partnership Act applies to LPs as the general law as well, subject to the provisions of the Limited Partnership Act 2008.
Termination of Limited Partnerships
However, with the presence of the limited partners, it made some difference to the termination of the LPs, comparing to private limited companies. For instance,
- Limited partners are NOT entitled to dissolve the LP by notice.
- LP is dissolved on the death, dissolution, bankruptcy or liquidation of a limited partner.
In the event of termination of an LP, its affairs are to be wound up by the general partners unless there is a court order to the contrary.
Registration and Formation of Limited Partnerships
An LP may be registered under the Limited Partnership Act where it has limited partners that are registered as such under the Act. An LP is deemed to be a general practitioner unless one or more persons are registered as limited partners of the firm in accordance with the Act.
Another way of registration for LP is through the conversion from the Partnership, whereby one or more (but not all) of its partners register themselves as limited partners. The resulting LP formed must also register itself as an LP under the Limited Partnership Act. The registration of the LP is done through the lodging of prescribed documents by one of its general partners. The LP must comply with all the requirements set our under the Act, for instance the filing of changes in particulars of the LP, publication of its name and registration number on invoices an official documents and the keeping of proper accounts.
If every general partner of an LP is ordinarily resident outside Singapore, the Registrar may require a local manager to be appointed to be responsible for the discharge of all obligations attaching to the LP as prescribed by the Limited Partnership Act.
Taxation and Liability
LP is treated as a partnership instead of a separate legal entity, this means that an LP will not be liable to tax at the entity level. Similar to Partnership, each partner will be taxed on his or its share of the income from the LP. What differentiates between LPs and Partnerships is that, LPs have ‘limited partners’.
As mentioned earlier, a limited partner is defined as any partner, who under the terms of the partnership agreement, shall not be liable for the debts or obligations of the firm beyond the amount of his agreed contribution. Meanwhile, the general partners are regarded in exactly the same manner as partners in a Partnership and are liable for all the debts and obligations of the LP incurred while they are general partners.
Limited partners should not take part in the management of the LP and should not have the power to bind the LP. In addition, limited partners may increase, reduce or draw out their contribution with the approval of the general partners, subject to the LP agreement.
Apart from that, any distribution of capital or profits to the limited partners must be refunded if the following conditions are present:
- Every general partner of the LP was insolvent at the time of the distribution or became insolvent as a result of the distribution
- Limited partner knew or ought to have known at the time of the distribution that every general partner was insolvent or would become insolvent as a result of the distribution
- Every general partner is adjudicated bankrupt or is ordered to be wound up within one year after the date of distribution
Knowing more about business forms that are available in the market now and having more understanding will help you to choose the right types of business to incorporate. One of the ways to achieve this is through engaging services provider. Feel free to contact 3E Accounting for more information.