News Stop: Limited Partnerships This Year

An interesting development comes from the Ministry of Finance. The introduction of the Limited Partnerships might provide additional space for both entrepreneurs and investors to explore during the creation of new enterprises. Here is a pieces of news today about this development and some thoughts on this matter.

From a first read of news, Singapore has decided to implement the concept of Limited Partnerships for companies. The advantage of such a system claimed is that it allows sleeping partners to have limited liabilities. Of course, the other reason stated by the establishment is that it wants to be in sync with UK and US. This kind of business entity is very useful for investment groups, particularly for venture capital and private equity. In the US, it is common for film industry to adopt such a kind of system, because each film is considered a seperate project and the film production requires only capital from the people who invested in them. In the UK, it is slightly different, because this option has actually been explored by many technology companies there. I (BL) have encountered this situation once, as we considered the option of limited partnerships, because we are raising funds for a proof of concept and our investors wanted limited liability from our project. However, the option was off the table because we were not sure whether our company would be allowed the tax incentives and benefits granted by the UK government for tech companies. Hence it is important to take note of these things when you are starting such a partnership in the UK or US.

An excerpt of the article is taken from Today Online (3 August 2006).

To attract more investments and give investors greater flexibility in business structures in Singapore, the Government is planning to pass a law to allow the formation of limited partnerships (LP).

The target is for businessmen to be able to set up LPs by the middle of next year.

This structure is suitable for investors who wish to be “sleeping partners” in a business, and who will not be held fully responsible should there be a collapse or any mismanagement.

Such flexibility is likely to appeal to “niche markets like the private equity and fund investment businesses”, the Ministry of Finance (MOF) said yesterday in its call for public feedback on the draft Limited Partnerships Bill 2006.

The call comes after the Government enacted the Limited Liability Partnerships (LLP) Act last year.

The feature which distinguishes the LP from the LLP is that the liability of all the partners of the LLP for the debts, obligations and liabilities of the LLP is limited whereas the LP will have at least one partner whose liability will be unlimited. This unlimited liability partner is known as the general partner and will be liable for all the debts, obligations and liabilities incurred by the LP during the period when he is a general partner.

Under the LP structure, the passive investor known as a “limited partner” will assume limited liability, but will not be allowed to participate in management.

There must be at least one general partner although there is no cap on the total number of partners in an LP. Should a general partner go bankrupt or should any partner die, the limited partnership will automatically dissolve.

No corporate tax will be levied, as all partners will be taxed according to their personal income tax.

The entity also enjoys some savings since a limited partnership will not be required to audit or file its accounts with the regulators. However, the firm will have to keep accounting records that would give a “true and fair view of the state of affairs”, according to the draft bill.

The introduction of the limited partnership will help Singapore’s regulatory structure be more globally relevant by keeping pace with developments in other jurisdictions such as the United States and the United Kingdom, the MOF said…..

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