A partnership is a formal arrangement and agreement between two or more parties who wish to pursue a specific business activity. Ideally, the mutual expectation of any partnership is to earn profit. The involved parties or individuals in the partnership choose to bring together their assets, skills, and resources.
For this reason, all parties have the right to share the overall profit accrued from the partnership. But that’s not all; they will also be liable for any debts and other obligations that arise from the collaboration.
What is The Partnership Agreement?
The parties must sign a binding legal document called the partnership agreement in any partnership. This document outlines all the critical information relevant to their unique collaboration. The Partnership Agreement contains the following:
- The relationship between all the partners and what responsibilities each of them will have
- Information regarding the ownership of assets
- Details of every party’s rights in the partnership
- Overview of how profits will be distributed among the parties
- The obligations of the involved partners
- The liabilities that each party is supposed to bear
- The terms and conditions that will be applicable if any of the parties wish to exit the partnership
- The requirements and conditions if the parties want the dissolution of the partnership
If there are any lapses in this agreement, emphasis will be given to the provisions of the Partnership Act.
Types of Partnership
Based on structures, partnerships can be broadly classified into two types. They are:
1. General Partnership
2. Limited Partnership
What is a General Partnership?
A General Partnership is registered with ACRA under the Business Name Registration Act. It can consist of a minimum of two partners but cannot exceed more than 20 partners. If the number of partners is more than 20, the partnership will no longer be considered a General Partnership and should be registered as a company.
Parties in a General Partnership are expected to maintain their personal responsibilities of the dues and liabilities incurred by the business. Moreover, the partners are liable for losses and debts incurred by other partners as in a General Partnership, it is not limited to their personal liabilities.
What is a Limited Partnership?
Limited Partnerships are formed with a minimum of one general partner and one limited partner. The general partners in this arrangement can be either a company or an individual, and they will participate actively in the management activities of the firm. Similar to General Partnerships, general partners must also bear unlimited liabilities in Limited Partnerships.
There is no limit to how many partners can be a part of a Limited Partnership, and the parties only have limited liabilities. They will not be included in management activities, and their liabilities will only be limited to their contributions to the Limited Partnership. Limited Companies, foreign-registered companies, or individuals can be partners in Limited Partnerships.
Limited Partnerships in Singapore are registered under the Limited Partnership Act with ACRA, a relatively new concept in Singapore. The partnerships are subject to the provisions of the Limited Partnership Act, but both the general law and the Partnership Act apply to partners.
A Limited Partnership will be suspended if it does not have a limited partner. It will then be converted to a firm and registered under the Business Names Registration Act. The status of a Limited Partnership can be later restored by adding a Limited Partner.
Features of General and Limited Partnerships
There are some common features that General and Limited Partnerships share. They are:
No Separate Legal Identity
When registered with the Accounting and Corporate Regulatory Authority (ACRA), neither General nor Limited Partnerships have a separate legal identity. What’s more, partnerships also cannot own any properties in their name. One difference between the two types of partnerships is that entities can sue General Partnerships but cannot sue Limited Partnerships in their names.
As only a legal entity has the power to register other legal entities, neither General nor Limited Partnerships can register legal entities. These Partnerships are not legal entities themselves.
Renewal and Validity of Partnership Registrations
Partnership registrations with ACRA must be renewed before expiry. This can be done once annually or once every three years.
Eligibility
Any individual over the age of 18 years is eligible to be a partner. The individual must be a Singaporean citizen or a self-employed permanent resident. Additionally, they must register for the Central Provident Fund (CPF) and top-up their Medisave account if they wish to register or renew their registration. Singapore-based companies can join partnerships without worrying about any of these conditions.
Officers and Managers
In the case of General Partnerships, if none of the owners is currently residing in Singapore, a neutral individual must be assigned the role of manager. This individual can be a permanent resident, Singapore citizen, or even a foreigner working in Singapore on an independent pass or employment pass.
In the case of Limited Partnerships, if none of the owners is residing in the country, a manager should be chosen. The chosen manager will be responsible for discharging all partnership obligations. If the manager defaults in his or her obligation, he or she will be subject to similar liabilities and penalties as a General Partner.
Physical Address
A Singapore-based physical address is required for the operations of both types of partnerships.
Perpetuity
Both types of partnerships will continue to exist until the partners agree to discontinue. However, the business will cease if the registration expires or is not renewed. Alternatively, it may cease to exist if authorized individuals or partners file a cessation notice.
Things to Consider in a Partnership
Limited Vs. Unlimited Liability
While Limited Partners have limited liabilities, parties in General Partnerships have unlimited liabilities. In case any claims are made against partnership liabilities, debts, and losses, the personal assets of partners are unprotected and vulnerable in General Partnerships. Moreover, each partner is liable to bear losses incurred by other partners. This unlimited liability is why many people choose Limited Partnerships over General Partnerships.
Disputes Amid Partners
Even though partnership agreements are signed, disputes are common in partnerships. Usually, disputes revolve around the management of the partnership. Disputes among partners not only hamper interpersonal relationships amid partners but can also cause dissolution.
Taxes Rates
Another discouraging factor of partnerships is taxes. Partners are charged individual personal tax on their share of business profits as corporate tax rates do not apply to individuals. Furthermore, partners who have higher consolidated income from other revenue sources are bound to pay steeper tax rates.
Pooling of Resources and Capital
The best thing about partnerships is that partners can pool their resources and capital together. In terms of Limited Partnerships, capital can be pooled from partners who wish to contribute financially but do not want to actively participate. The intention is to limit their liabilities in the partnership.
Responsibilities of Partners
In both General and Limited Partnerships, all the partners share the responsibilities of operating the business.
Cost of Setting Up
Setting up partnerships costs comparatively lower than company incorporation. The administration saves a lot of resources and time as setting up partnerships is simpler.
Foreigners as Partners
Foreigners who do not want to relocate to Singapore must appoint authorized representatives or local managers. This might, however, disrupt the operations and control of the business. In case they choose to relocate to Singapore, it is advised to seek advice from the Singapore Ministry of Manpower (MOM) before they register.
Required Documents for Registration
To register with ACRA, partnerships need to submit a few documents. They are:
- The approved name for the partnership
- The physical address of the involved managers and parties
- Identification (Singapore Identity Card and foreign passport) of the partners and managers
- Physical Singapore-based business address for the partnership
- Declaration of Non-Disqualification and The consent to act as Manager
- The company registration details, applicable registered companies applying to be partners
- Declaration of compliance of all the involved parties
The Partnership Registration Process
If all the authorized representatives and partners endorse the online application, the partnership registration process can be completed within 24 hours. However, even though unusual, the process may sometimes take as long as two months. If ACRA refers the application to other government agencies before approval, such unusual circumstances may arise.
Upon completion of successful registration, partners will be notified via email. A registration number will be issued, and partners can get the business profile online.
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Things to Remember After Registration
All registered partnerships must adhere to the following:
- All business-related communication material such as letterheads and invoices must have the partnership registration number on them
- In case any changes are made to the registration details of the partnership, the changes must be reported to ACRA promptly
- Carrying on partnership activities after its registration expires or after the registration is cancelled by the registrar is considered an offence
- Partnerships need not file any regular financial statements with the Accounting and Corporate Regulatory Authority. They also do not need any annual audits
- Partnerships need to file personal income returns and convey the profits and revenues to the IRA
- Partnerships should keep records and accounts for five years duration.
