What is an LLP?
An LLP (Limited Liability Partnership) is a type of business that is owned by at least two partners. Partners can be private individuals, or corporate entities (e.g. a Private Limited company). Corporate entities can either be local companies or foreign companies.
Is an LLP a separate legal entity?
An LLP possesses its own separate legal entity from its partners. This is somewhat similar to Private Limited companies. This separation of legal entities means that partners in an LLP are generally protected from legal liability if the LLP is sued. Partners in an LLP are protected from liabilities incurred by other partners in the partnership. This is particularly important because you don’t want to be caught in a situation where one of your partners makes a mistake and gets sued and then drags you into the lawsuit. The major exception to this limitation of liability is for a partner’s own mistakes, negligence, omissions, and debts incurred, which we discuss in greater detail later on.
This limitation of liability is a critical factor in why many entrepreneurs who are thinking of incorporating a partnership will choose an LLP, instead of a plain-vanilla Partnership.
What types of businesses typically incorporate as an LLP?
Usually, only certain types of licensed & highly specialised professional services will incorporate as an LLP. These businesses include accounting/auditing firms, architectural firms, and legal practices. Most other services will incorporate as Private Limiteds.
In other countries like the US, it’s standard practice for investment funds, like Venture Capital funds, to incorporate as LLPs. This is because when dividends are distributed from profits that the fund makes, partners in an LLP are only taxed once (at their personal income tax rate). If the investment fund had been incorporated as a Private Limited entity, they would be double-taxed – taxed once at the corporate tax rate, then taxed another time at the personal income tax rate when paying out dividends. This is not a concern in Singapore, however, since dividends are not subject to personal income tax.
What are the pros and cons of LLPs?
Pro #1. Limitation of liability for other partners’ mistakes:
Partners in an LLP are not responsible for liabilities incurred by other partners. For instance, let’s say you are a partner in an Accountancy LLP. Two of your partners are working on a major client account, and they end up making major mistakes in an auditing project. The client sues the LLP for losses incurred due to these mistakes. You are not liable for the liabilities that your two other partners have incurred. If you had been part of a regular Partnership, then you would have become equally liable, and your personal assets (e.g. bank savings, house, car, etc.) would be fair game for litigants. However, in an LLP, you are protected from this liability, and your personal assets would remain safe in this example.
Pro #2. Perpetual existence:
An LLP, just like a Private Limited, will continue to exist forever, unless it is wound up, or becomes insolvent. This characteristic of perpetual existence makes it easier to pass the business on to other owners. For example, a family-owned LLP can pass ownership of the business on to the next generation. This is quite different from a partnership or a sole proprietorship, which ceases to exist when the owner(s) pass(es) away.
Pro #3. Relatively simple compliance requirements:
LLPs only need to lodge a Declaration of Solvency with ACRA each year. Also, LLPs will need to keep accurate accounts of all transactions made and their financial position, which any properly-functioning business would have anyway. These statements must be kept for at least 7 consecutive years, but they do not need to be filed yearly with ACRA.
Compliance requirements for an LLP are therefore simpler compared to a Private Limited entity. Compared to Private Limiteds, LLPs do not need to appoint company secretaries, hold AGMs, file annual returns with ACRA, have their accounts audited, etc. This saves the partners in an LLP both time and money when managing their business. Of course, given how simple requirements are for running a Private Limited, these cost and effort savings for compliance are not tremendously huge.
Con #1. Limitation of liability does not extend to mistakes made by you:
The limitation of liability only applies to liability incurred by other partners in the LLP. This limitation of liability does not include errors, omisssions, negligence, mistakes, or other liabilities incurred by you.
Con #2. No corporate tax benefits:
Partners in an LLC are taxed at their personal income tax rate. LLPs do not benefit from corporate tax rates which in Singapore 10 to be lower than personal income tax rates.
Con #3. Must always maintain at least 2 partners:
You must maintain a minimum of 2 partners in the LLP at all times. If you only have 2 partners, and you end up having a major disagreement with your sole partner and they threaten to leave, that could pose an existential problem unless you can find a replacement partner.
Con #4. Partners can enter into contracts without the consent of other partners:
Individual partners in an LLP can enter into contracts or other business agreements with others, without the need to first obtain consent from other partners in the LLP. This can be quite dangerous if the interests of the LLP partners are not aligned properly, and a partner potentially goes rogue.
Con #5. More difficult to transfer ownership or sell the company:
It is more difficult to transfer ownership in an LLP because any business assets, IP, licenses, permits, etc., must be transferred on an individual basis. The entire LLP, and all its assets, cannot simply be sold as one whole entity. This is quite different from a Private Limited, where the entire entity can simply be sold in one go, as long as sufficient shareholder consent is sought. If you want the flexibility to gain a nice exit from your company later on, incorporating an LLP may not be the most suitable option for you.
3 Steps to Register an LLP in Singapore
Step 1: Reserve your LLP name
Login to BizFile+. Apply to reserve your name. The name reservation fee is SGD $15.
In order to make sure that your name application is approved as quickly as possible you should bear the following points in mind:
- Do not use vulgar, sexually suggestive, or rude names
- Do not use reserved names, like “Temasek”
- Do note use names that are the same or very similar to existing company names, or names that are already reserved
- If you use certain words in your name (for example, “school” or “bank”), then your name application will be referred to the relevant Ministries for further approval. This will delay your name reservation
Once your name has been approved, it will be reserved for you for 120 days. You must then incorporate your LLP within this 120-day time frame. If you do not incorporate your LLP within this timeframe, your reserved name will be released. You will have to go through the whole reservation process again (and that includes paying the $15 fee once more).
A note on naming of LLPs
All LLPs in Singapore must have either the words “Limited Liability Partnership” or “LLP” in their name.
Step 2: Register your LLP
Log on to BizFile+ to register your LLP. The registration fee is SGD $100.
You will require the documents discussed earlier (under the section “What documents are required for registering an LLP). To save you from scrolling up, here are the required documents:
- Approved LLP name
- Personal particulars of all the LLP’s partners (name, identification/passport number, residential address, phone number, email)
- If the partner is another company, you must have the company name, company registration number, country of registration, and company address
- Declaration of compliance
- Registered business address for the LLP
- Signed consent to act as manager and statement of non disqualification to act as manager
ACRA will take about 15 minutes to process your LLP incorporation.
Step 3: Download your business profile
Upon successful registration, ACRA will email the appointed contact person with a free copy of your ACRA business profile. You’ll need this business profile to set up a corporate bank account, amongst other things.
FAQs on LLPs
Is there a limit on the number of partners in LLP?
No. There is no limit to the number of partners you can have in an LLP.
How can a new partner join an LLP?
Admitting a new partner to an LLP requires the consent of 100% of all existing partners.
How are decisions made in an LLP?
Decisions are governed by the Limited Liability Partnership Agreement. Most Limited Liability Partnership Agreements will state that decisions are to be made via a first-past-the-post vote (i.e. majority votes). Some partnerships may set varying standards for decisions to be made, for instance requiring 2/3 votes for certain major decisions.
Can a partner leave an LLP?
Yes. Methods of leaving an LLP are generally governed by the Limited Liability Partnership Agreement, if there is one. If the partners did not sign such an agreement while operating the LLP, then a partner can give 30 days written notice to other partners informing them of their decision to leave.
Can foreigners register LLPs in Singapore?
Yes. However, foreigners who want to incorporate an LLP must appoint a locally resident LLP manager (e.g. Singapore citizen, PR, or EntrePass/Employment Pass holder) to do so. Also, foreigners must appoint a registered filing agent (such as a corporate secretarial company, or law firm), to complete the incorporation process for them.
Can foreigners be partners in an LLP?
Yes. There are no restrictions on foreigners joining Singapore LLPs as partners.
Must I renew my LLP registration?
No. Once you’ve incorporated your LLP you do not need to renew your incorporation. Your LLP will exist forever unless you choose to wind it up, or the LLP becomes insolvent.
Must an LLP file corporate income taxes?
No. LLP profits are not taxed at corporate rates, so there is no need to file an LLP annual tax return. Instead, each partner in an LLP will file their own personal income taxes for payments/profits they received from the LLP.
Can an LLP apply for a bank loan?
Yes. However, LLPs are generally not viewed as favourably as Private Limiteds. This may potentially affect the terms of any bank loans you apply for.
Can an LLP own property?
Yes. Just be aware that if you buy a property under an LLP, that property’s ownership now rests with the LLP. If you want to sell that property later on, you will have to get the consent of a majority of partners. Getting this consent may not be so easy if the partners have differing views on what to do with the property.
Does an LLP have shares?
No. An LLP does not have shares in the way a Private Limited company does. However, it is possible to have partners receive varying levels of profit. Let’s take a simple example. An LLP providing architectural services has 3 partners. Partner A invests $600,000, Partner B invests $300,000, and Partner C invests $100,000. Partner A would therefore be entitled to 60% of the LLP’s profits, Partner B would be entitled to 30% of the profits, and Partner C would be entitled to 10% of the profits. Such an arrangement for differentiated profit sharing must be set out clearly in a Limited Liability Partnership Agreement, to minimise disputes later on.
It’s also best to speak with a lawyer to draft out a good Partnership Agreement. This is because in the absence of a Partnership Agreement, Singapore law sets out a default list of rules governing profit-sharing and voting power in LLPs. This is found in the First Schedule of the Limited Liability Partnerships Act. The Act specifies that profits are to be equally split amongst partners. Also, each partner is entitled to one vote. Under these default rules, this equal splitting of profit and one-person-one-vote arrangement stands regardless of the quantity of initial investment. This means that if you invested more than your other partners, the default rules would not reward you. If you don’t want to have these default rules in place, have a Partnership Agreement in place before you start your business!
Can other partners vote to kick out a partner?
Yes, but only if such a power has been agreed upon in a Partnership Agreement. If you have a Partnership Agreement, and the Agreement states that a majority of partners can vote to expel a partner, then you can proceed to do so.
However, if no such power has been granted in the Partnership Agreement (or if there isn’t even a Partnership Agreement), then other partners cannot vote to remove a partner. This is true even if a majority of partners agree to such a removal. In such a scenario, you’re pretty much stuck. You can choose to either buy out the troublesome partner, or start a new partnership.
What are the compliance requirements for LLPs?
Filing annual Declaration of Solvency
You will have to file a Declaration of Solvency with ACRA within 12 months after you first incorporate your LLP. Thereafter, you must file a Declaration of Solvency at least once every 15 months.
Keeping accurate financial records
Financial records of all transactions must be kept for at least 7 consecutive years. You should hire a bookkeeper to ensure your accounts are all in order.
Partners must pay taxes on payments received from LLPs
The profits that each partner in an LLP receives are taxed at their personal income tax rate. There is no corporate tax for LLPs.
Appointing an LLP manager
All LLPs must appoint at least one partner to be a manager. Managers are responsible for ensuring that the LLP maintains compliance with all relevant laws in Singapore.
A manager must be:
- At least 18 years old
- A natural person (i.e. an individual, and not a company)
- Ordinarily resident in Singapore
If there are any compliance breaches, LLP managers will face personal liability for these breaches. They must answer for these lapses to the relevant authorities.
Maintain official business address
All businesses in Singapore must maintain an official business address. Now, you don’t actually need to rent an office just to meet this requirement. There are plenty of virtual offices that you can use who will provide you with an address. These companies also usually offer additional business services such as mail forwarding, mail scanning, etc. Some of these virtual offices will even have meeting rooms for you to book so you can host clients or business meetings.
Clearly state company name and UEN on all business communication
As with all businesses in Singapore, LLPs must state their official business name and UEN on all business communications. This includes letters, invoices, quotes, and other correspondences.
Alert ACRA promptly if any changes are made to the LLP
If there are any changes to the LLP (e.g. change in partners’ details, change in business address, etc.), these changes must be reported to ACRA within 14 days from the date of change.
How do I close/wind up an LLP?
You can go on to BizFile+ and complete an application to wind up the LLP.
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