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Limited Liability Partnership Act Introduces New Business Vehicle
June 2005 | Corporate | Business Bulletin

The Limited Liability Partnership Act 2005 of Singapore came into effect on 11 April 2005. In introducing this new business vehicle the Company Legislation and Regulatory Framework Committee looked into the best practice in other jurisdictions and decided to bring Singapore in line with other countries in terms of the range of vehicles available for business. The LLP will provide a good opportunity for businesses currently operating as partnerships to restructure themselves so as to take advantage of the limited liability afforded by the LLP. This article briefly introduces the Limited Liability Partnership ("LLP").

Structure
Private agreements between the owners of an LLP govern organisational and operational issues in the LLP. These relate to profit-sharing, decision-making and other terms and conditions governing the relationship of the partners.

The LLP is not subject to full financial reporting and disclosure requirements, for example, relating to capital contributions and changes to capital, making this a suitable vehicle for small businesses and new start-ups. The mandatory requirement that a local manager must be a natural person aged 21 years and above and not of questionable character, acts as a safeguard to protect parties dealing with LLPs. An LLP manager must also meet other requirements specified under the LLP rules, including those pertaining to solvency.

LLPs are required to ensure that the partnership name is followed by the words 'limited liability partnership' or the acronym 'LLP'. Invoices and official correspondence are required to carry the name, registration number and a statement that the partnership is registered with limited liability. Additionally, LLPs formed by conversion of existing unlimited partnerships are required to carry a statement regarding the conversion and the effective date on all official correspondence and invoices for 12 months.

Checks and Balances
LLPs are required to keep proper accounting records to ensure the ready availability of financial statements that accurately reflect the state of the partnership. The LLP is required to file a declaration of solvency or insolvency – which will be publicly available. Failure to file a declaration of solvency implies insolvency leaving the LLP vulnerable to winding-up action by creditors. There is a claw-back mechanism, which allows LLPs to recover amounts distributed to its partners within a period of three years preceding the commencement of the winding up of an LLP.

In the case of negligence, a person dealing with LLPs comprising professionals such as doctors, lawyers or engineers has the option of taking action against the negligent partner, the LLP or both. However in the latter two instances the non-negligent partners bear no personal liability for acts committed by the negligent partner.

LLPs are required at all times to have at least two partners, with the exception that if an LLP is left with only one partner, the sole remaining partner will be given a grace period of up to two years to look for a new partner. If no new partner is found at the end of two years, the sole remaining partner assumes unlimited liability and is vulnerable to winding-up by the courts.