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Choosing the Right Business Types – Partnership

Generally, business can present in four types. One of them that is available is Partnership. A partnership is formed when two or more persons carry on a business in common with a view to making profit. Maximum number of partners allowed in a partnership is 20, can be either individual or bodies of corporate.

As the partnership was not treated as a separate legal entity from its partner according to the law, thus the partners collectively own the assets of the partnership and are each personally liable for the debts and liabilities of the partnership, also liable for the full amount of debt owing by the partnership without any limit. However, this does not apply to the partnership formed solely or mainly for the purpose of carrying on any profession that is regulated by other legislation, such as law firms, accounting firms, medical practices, etc.

For anyone who wish to carry on business in Singapore through a partnership must register their business under the Business Registration Act (Cap 32), and subsequently comply with the requirements under the Act.


Formation and Relationship of the Partnership

Talking about the formation of partnerships, as long as there is a relationship where two or more persons carry on business in common with a view to making profit, the law will recognize the existence of the partnership. Whether or not the partnership exists, it will be determined by the Partnership Act. The most significant of these rules are that the receipt of a share of profits in a business by a person is strong evidence that the person is a partner in the business. In most situations, partnerships are created through a partnership agreement entered into by the partners in the business. The agreement may be made orally or in writing.

As mentioned earlier, the relationship between partners is governed by the partnership agreement, the main elements that can be found in such agreement usually are:

  • Distribution of the profits and liabilities of the firm amongst the partners.
  • Responsibilities of the various partners for the running of the business.
  • Obligations that the partners have to each other
  • How a partner may leave the firm
  • How the residual assets of the firm should be distributed should the partnership be dissolved

The relationship between partners will be governed by the relevant provisions of the Partnership Act (Cap 391) if there is no partnership agreement or the agreement is not comprehensive. A partner’s acts in relation the normal business operations of the firm will be treated as being the actions of the firm and all its partner. Although the authority of any individual partner may be restricted by agreement, such a restriction will not affect an outside party dealing with the partner unless the restriction is known by that party or that party either does not know or believe that the person he is dealing with is a partner of the firm.


Termination of the Partnership

What happen if any partner died or leave the firm? The partnership will be dissolved automatically. The partnership agreement may also provide for other instances in which the partnership is to be dissolved. Not only that, but also when one of the partners becomes bankrupt or becomes of unsound mind.

Besides, you also can make an application to the Court to have the partnership dissolved under the circumstances specified in section 35 of the Partnership Act (Cap 391).



As discussed earlier that every partner is liable for all debts and obligations of the firm that have been incurred while he is a partner of the firm, the firm and all its partners may also be sued for any wrongful act committed by any partner in the course of the business of the firm or with the authority of his co-partners.

However there are two situations where a person who is not a partner may be made liable for a partnership’s debts:

  • Retired partner who continues to appear to be a member of the firm
  • Any person either by words or by conduct represents himself or allows himself to be represented as a partner of a firm


Tax Rates

As partnership is not an entity in law, therefore the partnership does not pay income tax on the income earned by the partnership. Instead, each partner will be taxed on his or its share of the income from the partnership. Although the partnership does not pay tax, it still has to file an annual income tax return to show all income earned by the partnership and deductions claimed for expenses incurred in carrying on the partnership business, by using a Form P to report for partnership income.

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.