What are the advantages and disadvantages of limited liability partnership in Singapore?

A Limited Liability Partnership (LLP) in Singapore is a hybrid structure that combines elements of partnerships and corporations, offering flexibility and protection to its partners. This business entity is popular among professionals like lawyers, accountants, and consultants. Here are the key advantages and disadvantages of setting up an LLP in Singapore:

I. Advantages of a Limited Liability Partnership

1. Limited Liability: One of the main advantages of an LLP is that partners have limited liability, which means they are not personally liable for any business debts incurred by the LLP or for the actions of other partners. Their risk is limited to their investment in the LLP.
2. Flexibility in Management: Unlike corporations, LLPs offer flexibility in management. Partners can directly manage the business without the need for a board of directors or corporate officers. The partnership agreement typically outlines the management structure.
3. Tax Benefits: LLPs are treated as “pass-through” entities for tax purposes. This means that the LLP itself is not taxed at the corporate level. Instead, profits and losses are passed through to the partners, who then report them on their personal tax returns, avoiding double taxation.
4. No Minimum Capital Requirement: There is no minimum capital requirement for setting up an LLP in Singapore, which lowers the barrier for entry compared to other types of business structures.
5. Perpetual Succession: An LLP has the characteristic of perpetual succession, meaning the LLP can continue its existence despite the change in partners, which is beneficial for the continuity of the business.

II. Disadvantages of a Limited Liability Partnership

1. Public Disclosure: LLPs are required to file annual declarations of solvency or insolvency and may need to disclose financial information. This requirement for transparency might be a disadvantage for those seeking more privacy in their business operations.
2. Limited Scope for Investment: Since an LLP does not issue shares, it can be less attractive to investors compared to a corporation. This might make raising capital more challenging.
3. Partner Dependence: The success of an LLP can heavily depend on the qualifications and reputation of its partners. If a key partner leaves, it can impact the business’s operations and client relationships.
4. Registration and Compliance Costs: While there are no statutory audit requirements unless the LLP’s turnover is exceedingly high, there are still costs associated with registration, maintaining proper compliance, and potentially higher legal costs to draft a comprehensive partnership agreement.
5. Restricted to Certain Professions: In some jurisdictions, only certain types of professionals are allowed to form LLPs, which can be a limitation if the business wishes to expand into new areas that do not fall under these categories.

For those considering an LLP in Singapore, it is important to weigh these pros and cons in relation to your specific business needs, the industry you are operating in, and your long-term business goals. The decision should align with your strategic plans for growth, management style, and the level of risk you are prepared to manage.