A partnership is a legal business relationship that is formed between 2 to 20 co-owners to carry on a business with a view to profit. With the exception of professional partnerships, a partnership of more than 20 partners is required to incorporate as a company under the Companies Act, Chapter 50. A partnership is not a separate legal entity from its owners; thus, partners have unlimited liability and can sue or be sued in the firm’s name. Each partner is also fully responsible for the action of the other partners. Therefore, partners are personally liable for the firm’s debts and losses incurred by other partners. Business profits are taxed through the partners’ personal income tax rates. Properties cannot be bought under the firm’s name.
In general, each partner has equal responsibility and authority to run the business. However, the partnership should develop an agreement to clarify issues such as work division, financial responsibility, the death of a partner, divorce, and dissolution of the partnership.
The Advantages of Partnership
- Easy, fast, and inexpensive to form.
- Easy to administer and manage.
- Unlike a private limited company, a partnership has less administrative duties to adhere to.
- With more than one owners, a partnership has the increased ability to raise funds.
- Increased ability to attract quality employees if they are given incentives to become a partner.
- A partnership benefits from the wider pool of knowledge, skills, experience, and contacts of the various partners.
- Partners are able to provide moral support to each other and allow for creative brainstorming to arrive in business solutions efficiently.
The Disadvantages of Partnership
- Each partners are jointly and individually responsible for the actions of the other partners.
- Profit sharing may be tricky, as partners may have different views on individual’s financial contributions, skill sets, time spent in the business, dedication towards the business, etc.
- As there are more than one owner, disagreements and conflicts may occur, which may lead to traumatic break-up of the firm.
- A partnership may end prematurely upon the withdrawal or death of a partner, depending on the agreements in the partnership contract.
- Partners are personally liable for the firm’s debts and losses incurred by other partners.
- The owner must be at least 18 years old and a Singapore Citizen/ Singapore Permanent Resident/ Employment Pass Holder/ Dependant Pass Holder.
- If the owner is not a resident in Singapore, he/she must appoint a local manager who is a resident in Singapore.
- Self-employed persons must make sure that they have paid their Medisave account with the CPF Board before they can register a new business, join an existing business, or renew the license of an existing business.
- An undischarged bankrupt needs an approval from the court or Official Assignee before he/she is allowed to manage a business.
- Registration of a Partnership must be renewed every year.
- The registration fee is $50.00 and the business name application fee is $15.00.
Cessation of Business
- By the Partners.
• Cessation of Business or dissolution of Partnership.
- By the Registrar (The Accounting and Corporate Regulatory Authority – ACRA).
• If the partners do not renew the yearly business registration.
• If the Registrar is satisfied that the business is defunct.