A businessman thinking of opening a start-up business in Singapore can come across two terms which sound similar but are two completely different business entities, the Limited Partnership and the Limited Company. Learn the difference between these two and hopefully make your pick upon starting your new business in the country.
A Limited Partnership is a new business platform introduced by the Accounting and Corporate Regulatory Authority through the Limited Partnerships Act. It refers to a somewhat special type of business partnership between two to twenty people.
A Limited Company, on the other hand, is a business entity made up of twenty or more business partners called shareholders. It can be either a Private Limited Company made up of twenty persons or more, or a Public Company made up of fifty or more shareholders.
A Limited Partnership (LP) can have a minimum of two partners under a partnership agreement, one of the partners will be the general partner, while the other will be the limited partner. The general partner is directly in-charge of the business’s operations, or in short, he or she runs the business. The limited partner provides support in the form of investment given to the business. This number of business owners can max up to twenty owners with varying numbers of general and limited partners.
Limited company is owned by twenty or more people, and they hire a Director to run the company for them, or one of them can be the director.
Now, here’s where things get a little complicated. A Limited Partnership, like a regular business partnership is not considered as a separate legal entity from its owners, but the good thing with this set-up is that there is a general partner and a limited partner. The general partner has unlimited liability when the business fails, his or her personal assets can be taken away by the creditors. A limited partner has limited liability which means he or she is protected from creditors.
A Limited company doesn’t have to worry about that because it is considered as a separate legal entity, it can buy properties in its name or sell properties it owns. Being a separate legal entity means that it has to pay its own debts, shareholders are not liable for its losses since they have limited liability.
Limited partnership taxation depends on who owns the business, if the business partners are made up of individuals then the business is taxed according to personal income. An LP owned by two corporations on the other hand is taxed at a corporate tax rate which is 17%. Personal income tax can range from 0% up to 22% in a progressive manner.
A Limited Company is taxed according to a corporate tax rate of 17%, a company tax has the advantage of staying constant, it stays at 17%.
It’s easier and less costly to set-up a Limited Partnership compared to a Limited Company. A Limited Partnership has only two requirements:
The registration fee for an LP is just $115 for 1 year or $175 for 3 years.
A Limited Company is more complex and as more requirements such as a resident Director, a corporate secretary, one resident shareholder, and an auditor (for large companies). The paperwork is also bulkier compared to an LP, with required documents such as a Company Constitution, filing annual reports.
A Limited Partnership and A Limited Company each have their perks and downsides, either way whichever suits your preferences you can be assured that the whole process will be transparent and trustworthy with no hidden fees and red-tape procedures.
If you have more inquiries about these two business entities feel free to give us a call or send us a message, we will be happy to clarify things for you.