A limited liability partnership and a private limited company are among the two types of business structures most often compared to one another when it comes to opening a business. It is worth noting that a private limited company is the most popular and preferred form of business structure in Singapore due to the benefits of the type of business entity.
The Accounting and Corporate Regulatory Authority (ACRA) in Singapore oversees the registration and regulation of both types of businesses, as it does with other business structures such as sole proprietorship, partnership, and more.
What is a Limited Liability Partnership (LLP)?
A Limited Liability Partnership (LLP) refers to a partnership agreement, where each partner is part-owner of a company. Limited liability refers to the legal obligations and liability protection of the partners to the company, which is kept distinct under the Limited Liability Partnership Act overseen by ACRA.
Not to be confused with a Limited Liability Company (LLC), the co-owners of a limited liability partnership are legally considered partners, and share responsibilities in the business. The company, however, is considered a separate legal entity under an LLP, and neither partner has any legal obligation over the actions of the other/s.
The liability of each partner in an LLP is determined by partners' contributions - the amount invested in the business. Unlike sole proprietorship business entities, where the sole owner takes all the risks and profits generated in the company, partners share risks and benefits in a limited liability partnership, utilizing individual talents in the company.
As a separate legal identity, the limited liability partnership prevents creditors from seizing partners' personal assets, and partners are not personally liable for any business debts incurred by the company during business operations.
What is a Private Limited Company (Pte Ltd)?
A Private Limited Company (Pte Ltd), on the other hand, is a type of Limited Liability Company (LLC) where company shares are not made available to the public. Pte Ltd is a popular form of business in Singapore as it includes tax exemptions, and separates personal and business assets.
As a separate legal entity, the assets and liabilities of a private limited company are kept distinct from the personal assets of its directors under the company's liability protection. As such, the company directors cannot be held personally liable for any debts incurred by the business.
A private limited company may also be called an exempt private company limited by shares, where there is a limited number of shareholders but no limit on the number of shares. All shareholders must be private individuals, and are considered members instead of owners. Partial or full ownership of the company may be transferred by selling shares.
LLP vs Pte Ltd: Benefits and Risks
Requirements for Incorporation
An LLP is a completely different ownership structure from a Pte Ltd, and would have a different set of requirements needed during incorporation. Major differences include the requirement for a resident director and corporate secretary for a Pte Ltd, and the details of the partners in a limited liability partnership. Here are the criteria for each business type:
Requirements for LLP
- Details of the partners and managers of the LLP;
- Residential address of the partners and managers;
- Details of any company acting as partner in the LLP, including:
- Business name;
- Registered address;
- Registration details;
- Consent to act as partner or manager in the LLP;
- Compliance declaration;
- Proposed business name of the LLP.
Requirements for Pte Ltd
- At least one (1) resident director who is a Singaporean citizen;
- At least one (1) corporate secretary;
- At least one (1) shareholder;
- Registered business address in Singapore;
- Minimum capital of SGD1;
- Proposed business name.
The Differences Between a Limited Liability Partnership (LLP) and a Private Limited Company (Pte Ltd)
Besides requirements, there are administrative differences between a Limited Liability Partnership (LLP) and a Private Limited Company (Pte Ltd), including differences in tax benefits between each type of business. Differences include:
Personal vs Corporate Tax Rates
Perhaps one of the major differences lies in the tax rates between each type of company. An LLP is charged with personal tax rates of up to 22%, while a private limited company enjoys a fixed corporate tax rate of 17%.
Number of Owners/Members
Private limited companies may have between 1 to 50 shareholders, while an LLP must have a minimum of 2 partners, but not exceeding 20 partners. Shareholders and co-owners may be private individuals, or entities such as companies and organizations.
Registration processes of each business type differ slightly, and a corporate service provider may help in incorporating each business type. Additionally, an LLP costs SGD115 to set up, while a Pte Ltd costs SGD315 to set up (costs subject to change depending on new regulations set by ACRA).
As previously mentioned, partners and shareholders cannot be held personally liable for any legal obligations or debt incurred by the company. The limited liability protection determines the liability of each member in a Pte Ltd to be limited to the contribution of each member in terms of investment, protecting shareholders from any legal obligations of the company.
However, a partner in an LLP may be held personally liable for their own wrongful act, such as any unscrupulous activities in the company, gross negligence or misconduct. Other partners are protected from such wrongful acts of their partner.
Annual Filing Requirements
Last but not the least, both LLP and Pte Ltd companies will need to file annual accounts and annual declaration documents. Private limited companies have additional annual compliance requirements, such as corporate secretarial reporting, and submission of financial reports without auditing.
Building with WealthBridge
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Make that call today, and contact us to see how we can work together to keep your business in good standing.