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- A limited partnership is a type of partnership that comprises a minimum of two partners – one general partner and one or more limited partners.
- For tax purposes, limited partnerships are considered pass-through entities, meaning that profits and losses flow directly to the partners. Each partner reports their share of the partnership’s profits on their individual income tax returns.
- Unlike a private limited company, a limited partnership offers a range of benefits. It clearly defines roles, offering limited partners the chance to invest capital while keeping their personal financial risk in check. The setup is cost-effective and straightforward.
- A Limited Partnership must be registered with the Accounting and Corporate Regulatory Authority (ACRA). One of the obligations is to update any changes to the partnership’s information within 14 days and renew it annually.
What is a Limited Partnership?
A limited partnership (LP) is a business partnership which consists of a minimum of two partners, with at least one general partner and one limited partner.Limited Partnership Meaning
So, what’s the difference between these two roles, since both invest money in the company? In this partnership, the general partner oversees and manages the business, bearing unlimited liability for all debts and obligations. A limited partner, on the other hand, does not engage in management of the company and is not liable for the debts and obligations of the LP beyond their agreed investment. An individual or a corporation can either be a general partner or a limited partner of the LP. The good thing is that it is not mandatory to appoint a local manager unless all the general partners reside outside Singapore.Definition Under the Limited Partnership Act in Singapore
Under the Limited Partnership Act in Singapore, a limited partnership is a business structure which must have at least one general partner and one limited partner. The act specifies the roles and responsibilities of each type of partner, including limiting the involvement of limited partners in management.What Are the Characteristics of a Limited Partnership?
A limited partnership has a few distinctive characteristics. First is its two-tier partnership structure. The general partners bring their managerial expertise while the limited partners provide capital. This mix of expertise and capital makes this structure attractive to venture capital and other investment-driven ventures. Second is the management restriction. Limited partners enjoy liability protection only if they do not actively participate in the daily management of the business. Finally, an LP is not a separate legal entity. Unlike a private limited company, it can’t own property, sue or be sued in its own name.Features of a Limited Partnership in Singapore
Beyond the distinctive characteristics of a limited partnership, there are a few key features you should know when setting one up in Singapore: Taxation – Singapore Limited partnerships are typically considered pass-through entities for both general and limited partners. This means that any profits and losses incurred by the business will be passed directly to the partners. Partners will then report their share of the partnership’s profits on their individual income tax returns. Separation of roles – In the structure of a limited partnership, roles are clearly defined. General partners oversee daily operations and make key business decisions. Limited partners, meanwhile, assume a quieter role as passive investors, with their risk capped at the amount they’ve invested.Limited Partnerships vs General Partnerships
Limited partnerships and general partnerships have significant differences in terms of liability, management and the roles of partners involved. Let’s review the difference between these two partnership structures:| Limited Partnerships | General Partnerships |
|---|---|
| The structure consists of one general partner and one limited partner | The structure consists of all general partners |
| The general partner has unlimited liability for the partnership’s debts and obligations. The limited partner is limited to the amount they invested in the partnership and is not personally liable for debts. | All partners have unlimited personal liability for the business debts, which means that their personal assets are at risk. |
| A general partner assumes full operational control and is liable for any debts or legal issues. A limited partner functions primarily like financial backers. | All partners share equal management rights. |
| Based on the partnership agreement, the general partners typically hold the majority of shares due to their active managerial role and greater personal risk. | All profits and losses are shared equally among the partners. |
| A partnership agreement is required to outline the profit shares. | A partnership agreement is not mandatory when forming a general partnership. |
| Limited partnerships use pass-through entities transaction. | General partnerships use pass-through entities transaction. |
Which Structure is Better for Your Business?
It depends on your risk tolerance and the roles each member plays in the business. A limited partnership is ideal for investors who want to pool capital while minimising personal risk. It also works for entrepreneurs with managerial expertise while bringing on business partners who prefer to limit their liability in a new business venture. A general partnership, on the other hand, gives every partner equal management rights: everyone shares management responsibilities, as well as liability and profits and losses. Still unsure which partnership structure fits your venture? It’s advisable to consult a corporate service expert who can guide you through the decision-making process and help you fully understand your obligations and the protection in each structure.Benefits of a Limited Partnership
For entrepreneurs starting a new venture, forming a limited partnership in Singapore has several benefits. Here’s why it can be an ideal choice:Limited Partnership Advantages for Entrepreneurs
Compared to a private limited company, forming a limited partnership offers entrepreneurs greater flexibility and simplicity in terms of formation and maintenance. It has less complexity and administrative burden, which requires minimal paperwork. With few formalities and minimal paperwork, the formation process is straightforward. It also protects limited partners, especially investors, by capping their liability at the amount they’ve invested, keeping their personal assets safe from the partnership’s debts and obligations.Investment-Friendly Structure
The limited partnership structure is designed with investors in mind. It attracts investors who seek a share of the profits and growth without the responsibility of managing day-to-day business operations. As such, it becomes an appealing option for funding business ideas. Furthermore, raising funds for a limited partnership is easier than for other types of businesses. Its limited liability protection tends to attract risk-averse investors who have no interest in the challenges of running a business.Why Investors Prefer Limited Partnerships in Singapore
Investors are drawn to limited partnerships in Singapore for a few reasons. Globally recognised as a preferred structure for private equity and private funds, limited partnerships combine key advantages: limited liability for investors, flexible contracts and tax transparency. A report from Singapore’s Company Legislation and Regulatory Framework Committee highlights these strengths: “As an investment vehicle, it affords passive limited liability, privacy (as the accounts are not publicly filed) and tax transparency (as partnership is not treated as a distinct tax entity from the partners).” For investors in private capital markets, that privacy is an advantage. Startups and private companies may also find it beneficial in their fundraising campaign. When traditional financing is hard to secure, limited partnerships become essential channels for venture capital, directing vital funding to growth-stage businesses and fuelling Singapore’s innovation.Overview of the Limited Partnership Act
The Limited Partnership Act 2008 governs the limited partnerships (LP) in Singapore, which requires one general partner and one limited partner. As highlighted earlier, the key distinctive feature between these two is that a general partner is liable for all debts and obligations of the company, while limited partners are limited to their agreed contribution and are prohibited from participating in day-to-day management.Filing Obligations with ACRA
Entrepreneurs who want to set up a startup must register with the Accounting and Corporate Regulatory Authority (ACRA), which oversees business registrations in Singapore. The crucial ACRA obligations include updating any changes to the partnership’s information within 14 days and renewing annually. It’s important to download your free Business Profile within 30 days of renewing your registration. Unlike the Limited Liability Partnerships (LLPs), LPs are not required to file annual declarations or financial statements with ACRA.Renewal and Compliance Requirements
For Limited Partnerships, staying compliant means renewing business registration with ACRA annually. This process ensures that the partners’ Medisave contributions are up-to-date with the Central Provident Fund (CPF) board, and the LP’s business information is accurate. To renew, you will need to submit a renewal application for your Limited Partnership to BizFile, a one-stop digital service platform.How to Start a Limited Partnership in Singapore
Getting started with a Limited Partnership in Singapore is relatively simple. Here’s how to get it started:Step 1 – Reserve a Business Name
Choosing the right business name is crucial in establishing your business. Once ACRA approves it, the proposed name will be reserved for 120 days from the date of name approval. However, the reservation will expire without any extension if you miss the reservation deadline.Step 2 – Appoint General and Limited Partners
Every Limited Partnership must appoint at least one general partner and one limited partner. There is no limit to the number of partners. The general partner can be an individual or a company. Similarly, the limited partner can be an individual, a company or an unregistered foreign company.Step 3 – File Registration with ACRA
After appointing the relevant partners, the next step is to register your LP with ACRA. This will require submitting an online application via the Bizfile portal, with online endorsement from all proposed partners. If you are unsure, it’s advisable to engage a professional corporate service that can assist you with the registration.Step 4 – Receive LP Number and Begin Operations
After successful registration, ACRA will send a notification to your email inbox containing the LP’s Unique Entity Number (UEN), which is the registration number, and a link to download the free Business Profile. It’s essential to ensure that all invoices and official correspondence, including official receipts and letters to government authorities, bear the LP’s name and the Unique Entity Number.Is a Limited Partnership Right for You?
With so many types of business structures in Singapore, you might wonder if a Limited Partnership is the right fit for you when starting a new business idea. The options can be daunting, with many factors to consider. To help clarify things, we’ve answered some key questions below to assist your decision.Who Should Consider This Structure?
Limited partnerships are a popular choice among private equity firms and investors, as they typically acquire privately owned companies or invest in them to increase their value. Additionally, the structure is similar to that of a private equity firm, where the fund manager serves as the general partner. At the same time, investors participate as limited partners, enjoying the benefits of investment without assuming day-to-day management responsibilities.Startups vs Professional Firms Vs Investors
Startups For startups, a limited partnership is ideal when seeking passive investors who want liability protection and prefer not to be involved in daily management. This structure allows capital to be pooled efficiently while limiting investors’ risks. Limited partnerships are also attractive for startups seeking to raise capital, as they attract investors who wish to provide funding without becoming involved in the business operations. Professional Firms However, limited partnerships are not recommended for professional firms. Designed with investors in mind, LPs are not suitable for businesses providing professional services due to the structure’s inherent nature. General partners face unlimited liability, while limited partners are prohibited from participating in daily operations, rendering the structure impractical for service-focused firms. Investors Investors, on the other hand, are the ideal fit for this structure, as the LP structure is common in private equity and venture capital funds, where investors (limited partners) and a firm (general partner) jointly manage the investments.Alternative options: Sole Proprietorship, Pte Ltd
The high personal liability, which is a risk for general partners, can feel daunting, especially for entrepreneurs launching a new venture. However, there are other alternative options to consider, such as a private limited company and a sole proprietorship. A Private Limited Company (Pte Ltd) is also another alternative for startups aiming to scale, raise significant funds, or build long-term credibility with investors, offering limited liability for all shareholders. Though it’s one of the least popular business structures, a sole proprietorship can be a good starting point for entrepreneurs to test a business idea. This is because it is simple, low-cost and has minimal administrative requirements. The only drawback is that the owner has full personal liability for business debts and is limited in their ability to raise funds from investors or banks.How Lanturn Can Help with Your Limited Partnership
If you’re considering setting up a Limited Partnership for your business, understanding its structure, roles, and tax implications is crucial. This knowledge helps you maximise the benefits while reducing the risks. At Lanturn, we recognise the challenges of establishing a limited partnership. Whether you are a local or foreign entrepreneur, we’re here to guide you every step of the way.End-to-end set-up with ACRA
Forget about a mountain of paperwork and the endless follow-ups. Lanturn provides an end-to-end solution for your ACRA registration, from submitting your application to tracking its progress, making the entire process smooth, simple and stress-free.Compliance & Filing Management
Staying compliant is key to a successful business, and we’ve got you covered. Our team of compliance experts ensure you stay on top of the deadlines, reviews all your documents and guides you through smooth and timely filing submissions.Advisory on Business Structures in Singapore
At Lanturn, our team is well-versed in Singapore’s business structures and regulatory landscape. Whether you’re considering a limited partnership or a private limited company, our team is here to offer valuable advice on selecting the structure that best aligns with your business goals, as your success is our top priority. Ready to launch your business in Singapore? Look no further. Schedule a call with us today to set up your Limited Partnership fuss-free.FAQs
What is a Limited Partnership in Singapore?
A Limited Partnership in Singapore is a partnership comprising at least one general partner, who manages the company and has unlimited liability, and one or more limited partners, who invest in the business but do not engage in day-to-day operations.
What are the benefits of a Limited Partnership?
A Limited Partnership offers several benefits. There’s a clear separation of roles, offering limited partners the chance to invest capital while minimising their personal financial risk. Additionally, its straightforward, cost-effective setup and maintenance make it especially appealing to small businesses and ventures seeking a hassle-free start.
What are the features of a Limited Partnership?
One of the key features of a limited partnership is the taxation. Unlike other types of business structures, limited partnerships are typically considered pass-through entities for both general and limited partners. Partners will usually report their share of the partnership’s profits on their individual income tax returns.
A clear distinction of roles is another key feature of a limited partnership. General partners are responsible for day-to-day operations and decision-making within the company, while limited partners remain in the background as passive investors. They do not fulfil their daily company responsibilities. This is what makes Limited Partnership unique from the other types of business structures.
What is the difference between a General Partnership and a Limited Partnership?
The key difference lies in the roles and responsibilities of the partners. In a Limited Partnership, the general partner manages the daily business operations and carries unlimited liability. In contrast, a limited partner remains in the background as a passive investor with liability limited to their investment.
In a General Partnership, all partners share equal management rights and have unlimited personal liability for the business debts.
How do I start a Limited Partnership in Singapore?
Starting a Limited Partnership in Singapore begins with choosing a business name and obtaining its approval from ACRA. Once approved, the name will be reserved for a period of 120 days. Next, appoint at least one general partner and one limited partner.
With all the relevant information, you can submit an online application via the Bizfile portal, accompanied by online endorsements from all proposed partners. Once successfully registered, ACRA will email you the LP’s Unique Entity Number (UEN), your official registration number, along with a link to download your free Business Profile.
What is covered under the Limited Partnership Act in Singapore?
The Limited Partnership Act 2008 outlines the roles and responsibilities of partners in a limited partnership, which typically require one general partner and one or more limited partners. During the registration of the LP, it is necessary to indicate if the proposed LP falls under Regulation 12 of the LP Regulations and indicate the name of the licensed fund manager in the application.
Can Foreigners Be Limited Partners in Singapore?
Foreigners can be limited partners in a Limited Partnership in Singapore. However, if they wish to actively manage the operations of an LP, they will need to appoint a local resident manager and obtain approval from the Ministry of Manpower (MOM).
What are the Compliance Requirements for LPs?
LPs are not required to file annual declarations or financial statements with ACRA. However, they are required to renew their business registration annually. This ensures that the CPF contribution for the partners is accurate and maintains compliance with general regulatory requirements for businesses.
