There are several forms of business activities. In this article, we will focus on the partnership form of business. Unlike a sole proprietorship, which depends on one person for all the activities, a partnership has combined efforts. It is easy to raise funds and manage the business appropriately. However, both partners under this form of business must agree on the terms and conditions that favor the trade.
2 or more persons come together to form a business mainly to make profits. A partnership agreement governs all partners. The partnership agreement covers all the liabilities, rights, and responsibilities of each partner. Again, the document covers conditions under which a partner might decide to leave. As well as the procedure to take when dissolving the partnership business.
How to Form a Partnership in Singapore
If the members decide to dissolve the partnership, they are entitled to equal shares of the profits as stated in the agreement. In case some issues arise in the process of operating the partnership business, the parties involved use the Partnership Act to resolve the matter.
Forms of Partnership
There are two forms of partnerships; LP- Limited partnership and GP- General Partnership.
The general partnership requires a minimum of two partners and a maximum of 20 partners. These partners play a significant role in managing the business’s debts and liabilities. The company must be registered with ACRA under the Business Name Registration Act. Again, all the partners are responsible for other expenses such as debts and losses incurred by other partners.
On the other hand, the limited partnership has one limited partner and at least one general partner. There is no limitation on the number of partners required. The general partners must be active in the business operations, and they have unlimited liability.
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Each partner has limited liability, basing on their contribution to the business. The LP must as well be registered under Limited Partnership Act with ACRA. In case there is no limited partner, the company seizes its operation, and it becomes a firm with a new name according to Business Name Registration Act rules. However, the firm can be restored to limited partnership business if there are limited partners.
What you should know about Partnership Business in Singapore
- Eligibility: A person who is 18 years and over can register a partnership in Singapore. Again, a legally registered business in Singapore can as well transform into a partnership business.
- Suppose you are self-employed and you are a permanent resident or a citizen in Singapore. In that case, you must have a Medisave account then register for the CPF when you want to renew or register a new business.
- Officer: In GP, if all owners don’t reside in Singapore, a neutral manager who lives in Singapore has to be appointed. The appointed manager can be a citizen in Singapore, a foreigner who has a dependent pass or an employment pass, or a permanent Singapore resident.
- On the other hand, if none of the general partners live in Singapore, another manager who lives in Singapore must be appointed. The manager then controls all the activities of the business. The neutral manager can overtake all the general manager’s penalties and liabilities when the general manager fails to act as required.
- Continuity: As long as all the partners agree, the business will keep operating. However, if both partners fail to renew the business or register the business within the required time, the company will cease to exist.
- Taxation: All the profits are tax as the personal income of the individuals who must pay tax according to the laid rules and regulations. For instance, corporate partners pay corporate taxes.
- Registered Address: The business must have a physical address in Singapore
- Validity/ Renewal: The partnership business must renew its registration for 1 or 3 years. The procedure for renewal must happen before the expiry dates.
- Limitation: A partnership business cannot register another legal entity since it doesn’t constitute one.
Requirements for Setting up a Partnership in Singapore
- Compliance declaration
- Valid business name
- Address of the managers and partners
- The details of a company when the partner is a company
- Identification cards of the managers and partners
- Address of the business.
- Agreement to act in place of a manager and declaration of not qualified to serve as a manager.
All the processes for registration can happen within a day if all partners provide everything for online processing. However, when other government agencies have to review the details, it can take up to two months. Once the entire process is successful, you get an email notification together with the business registration number.
After registration, what next?
Once the business undergoes a successful registration, both partners should understand the following.
- Add business documents like invoices and letterheads must have the business registration number.
- All the responsible parties must learn how to keep records for five years
- The partnership doesn’t have to file annual financial statements with ACRA, and the business isn’t entitle to yearly auditing.
- ACRA must get notified of any changes related to the business.
- Both partners have to file personal income returns based on profits from the partnership.
- You can’t continue with the business operation if its validity expires or if the registrar cancels the process.
Before you decide to form a partnership business, you must know the following:
Disputes: Disagreements can happen at any given time, even when there is a binding document. To avoid destructive conflicts that can lead to dissolution and hostility between the partners, the partners must agree to review terms and conditions more often.
Tax: Individual partners pay taxes according to the profits incurred from the business.
Shared Responsibility: Both partners can take action for the wellness of the business. They share all the responsibilities of business success.
Consideration for foreigners: A foreigner who doesn’t have a physical address in Singapore must hire an operation manager who is a Singapore resident to oversee the business activities.
The pooling of Capital: Partnership business is advantageous because it doesn’t rely on a single individual to generate capital. Both partners can source capital from other members who aren’t interested in becoming active partners.
If you want to open a partnership business in Singapore, the process is relatively easy. You only need to agree with your partner(s) and follow the business’s legal procedures.