Singapore Limited Partnership (LP)

Singapore Limited Partnership (LP)

Introduction of a Limited Partnership (LP) In Singapore

Singapore Citizen or Singapore Permanent Resident can register a partnership with one or more partners. In limited partnership, the number of partners should be at least 2 and maximum 20. In the business, at least 1 active partner and at least 1 limited partner is required to run a limited partnership business.

A partnership consisting of foreign individuals or persons will not be registered by the Registrar unless there is a Singapore local resident manager.

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 partnership unless one or more persons are registered as limited partners of the firm in accordance with the Act.

 

A Firm is treated as general partnership until reasonable notice of registration of LP

A Partnership (general) can also be converted into an LP where 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. Where a person deals with a firm after it becomes an LP, that person is entitled to treat the firm as a general partnership until he has notice of the registration of that firm as an LP. He is also entitled to treat any person who was a partner of the firm as a general partner of the LP until he has notice of the registration of that person as a limited partner.

 

Limited Partners

  • Limited Partners are not liable for debts or obligations of firm beyond agreed amount
  • The key difference between LPs and Partnerships lies in the fact that LPs have ‘limited partners’. 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.
  • The limited partner is thus said to enjoy ‘limited liability’ status. Anyone who is not a limited partner of an LP is a general partner. 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.

 

Requirements of Registration under the Limited Partnerships Act

Parties who wish to be limited partners in an LP have to register themselves as such under the Limited Partnerships Act. Failing to do so will result in the limited partners being treated as if they were general partners of the LP. They will thereby lose their limited liability status. Also, where a person deals with an LP after a partner becomes a limited partner, that person is entitled to treat that partner as a general partner of the LP until he has notice of the registration of that partner as a limited partner.

 

Limited Partners are not to take part in management of the Limited Partnership

Limited partners should not take part in the management of the LP and should not have the power to bind the LP. Limited partners who take part in the management of the LP are liable for all debts and obligations of the limited partnership incurred while they so take part in the management as though they were general partners.

 

Limited partners may vary contributions

Limited partners may increase, reduce or draw out their contributions with the approval of the general partners, subject to the LP agreement.

 

When capital or profits distribution need to be refunded?

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;
  • The 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; and
  • Every general partner is adjudicated bankrupt or is ordered to be wound up within one year after the date of the distribution.

 

Dissolution of Limited Partnership (LP)

  • The dissolution of LPs is similar to that for Partnerships (General). There are, however, some differences which relate to limited partners. For example, limited partners are not entitled to dissolve the LP by notice. Also, an LP is not dissolved on the death, dissolution, bankruptcy or liquidation of a limited partner.
  • In the event of the dissolution of an LP, its affairs are to be wound up by the general partners unless there is a court order to the contrary.

 

Pros or Advantages of a Limited Partnership

  • Tax benefits: As with a general partnership, the profits and losses in a limited partnership flow through the business to the partners, all of whom are taxed on their personal income tax returns. The difference is that the limited partners in the relationship get to share in the profits and losses, but they do not have to participate in the business itself.
  • Liability limits: A limited partner’s liability for the partnership’s debt is limited to the amount of money or property that individual partner contributed to the partnership. This is not true of the general partnership, where any money or property contributed becomes an asset of all the partners.
  • The general partners take charge: In a limited partnership, the general partners deal with the daily operations and responsibilities and don’t need to consult the limited partners for most business decisions.
  • No turnover issues: Limited partners can be replaced or leave without dissolving the limited partnership.
  • Less paperwork: Creating a limited partnership, like a general partnership, requires less paperwork than forming a corporation. However, it’s important to create and file a partnership agreement in the county where your company does business.
  • Investment opportunities: A limited partnership is a great way to offer investors the opportunity to benefit from the profits and losses of your business without getting them actually involved in the business.
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Cons or Disadvantages of a Limited Partnership

  • Risks to the general partners: In a limited partnership, the general partners must carry the burden of all the business’s debts and obligations. If the company is sued or enters into bankruptcy, all debts and liabilities are the responsibility of the general partners. Also, each general partner has the ability to make decisions on behalf of the company, and those decisions become the responsibility of all the general partners.
  • Compliance challenges: A general partnership does require less paperwork than a corporation, but because in essence you have investors (the limited partners), you must still hold annual meetings and create a detailed partnership agreement.
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