Each partner shall not be held personally liable for all the debts of the partnership.
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Summary of Recommendations on Limited Liability PartnershipsRECOMMENDATION 1 Show
The study team recommends that the limited liability partnership ("LLP") should be a separate legal entity from its partners that comes into existence upon registration with the Registrar of LLPs. The LLP should have unlimited legal capacity to contract and conduct business and with perpetual succession. The study team also recommends that the following information should be provided for registration of a LLP and be made available for public inspection:
RECOMMENDATION 2 The study team recommends that a partner’s contribution can take the form of cash and property. RECOMMENDATION 3 The study team recommends that the words “Limited Liability Partnership” and/or the abbreviation “LLP” should constitute a part of the name of every LLP and that every invoice, order, receipt or business correspondence of any LLP should state its registration number and that it is registered as a LLP. RECOMMENDATION 4 The study team recommends that the law should not prescribe any upper limit on the total number of partners in a LLP. RECOMMENDATION 5 The study team recommends that a LLP should have at least two partners. In the event that there are less than two partners, the sole remaining partner should be given a grace period of two years to either find a new partner or to commence winding up the LLP. If he does not find a new partner or commence to wind up the LLP within that grace period, he should be liable for all the liabilities and obligations of the LLP incurred after the end of the grace period and the Court may also order the winding up of the LLP. RECOMMENDATION 6 The study team recommends that the disqualification criteria for company directors in the Companies Act should apply in determining whether the Court should disqualify any person from managing a LLP. A person who is the subject of a disqualification order under the LLP Act or the Companies Act should be automatically disqualified from being involved in the management of a LLP. In deciding whether to issue a disqualification order, the Court will take into consideration the person’s conduct in other companies and LLPs. RECOMMENDATION 7 The study team recommends that the LLP legislation should provide for (a) the transfer to and vesting in the LLP of all the business, undertaking and assets of a partnership firm or company which proposes to reconstitute its business under the LLP and (b) the assumption by the LLP at the same time of the liabilities and obligations of the partnership firm or company subsisting at the time. Both the transfer and assumption should take effect upon the registration of the LLP. The study team also recommends that the partners of the firm before the transfer should continue to remain liable (jointly and severally together with the LLP) for the liabilities and obligations of the firm which were incurred prior to or which arise from any contract entered into prior to the “conversion” into the LLP and that the partners should be entitled to be indemnified by the LLP in respect of those liabilities and obligations. RECOMMENDATION 8 The study team recommends that a LLP should be tax transparent and the partners should be taxed on their share of the income or gains of the LLP according to their personal income tax rates. RECOMMENDATION 9 The study team recommends that a LLP registered for the purpose of the transfer to it of all the business, assets and liabilities of a partnership firm should be allowed to claim the tax attributes incurred previously, with no time limit imposed on the utilisation and that a LLP constituted for the purpose of the transfer to it of all the business, assets and liabilities of a company, should be able to claim the tax attributes incurred previously at least for the initial period. Both such partnerships and companies should also enjoy relief from stamp duty with respect to any transfer of property to the LLP in connection with any “conversion”, at least for the initial period. RECOMMENDATION 10 The study team recommends that the LLP legislation should not impose any obligation on the LLP or its partners to prepare and/or file its financial statements or to have its accounts audited. However, a LLP should be required to keep proper accounting records that will enable true and fair financial statements to be prepared. The LLP should also be required to file with the Registrar annually, a declaration as to whether or not it is solvent. RECOMMENDATION 11 The study team recommends that a partner of a LLP should not by reason only of being a partner of the LLP be held personally liable for the conduct of other partners or the transactions or liabilities of the LLP. However, his liability to any person for his own wrongful acts or omissions, including negligence, in the situations where the law imposes liability on him to such person should not be affected or extinguished merely on the basis that the acts or omissions were carried out or occur in his role as a partner of the LLP. RECOMMENDATION 12 The study team recommends that a partner should be liable to refund any distribution made by the LLP to the partner (or his assignee) of any profits or capital of the LLP within three years prior to the commencement of the winding up of the LLP if the partner knows or ought to have known that the LLP was at the time of the distribution insolvent or would be rendered insolvent by the distribution. RECOMMENDATION 13 The study team recommends that a partner of a LLP should not be allowed to transfer his partnership but should be allowed to transfer or assign to any person his right to receive any payment or distribution in respect of his partnership interest in the LLP subject to such limitations, restrictions or prohibitions that may be imposed by the partnership agreement. RECOMMENDATION 14 The study team recommends that the LLP should not be dissolved or wound up by the death or bankruptcy of a partner subject to Recommendation 5. RECOMMENDATION 15 The study team recommends that a LLP may be wound up by the Court (“compulsory winding up”) under the following circumstances: (a) the number of partners of the LLP is below two for a continuous period of two years;
The study team also recommends that in a Court-ordered dissolution of a LLP, the Official Receiver should act as the liquidator of the LLP if no other person has been appointed as the liquidator or in the event there is no liquidator. RECOMMENDATION 16 The study team recommends that a LLP should be allowed to voluntarily wind up (a) if all the partners agree to do so or (b) in accordance with the partnership agreement. The LLP Act will provide the procedure for the voluntary winding up of LLPs. These procedures should be modelled after the existing winding up regime for companies that are incorporated in Singapore. Report of the Study Team on Limited Liability Partnerships
The Study Team on Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs) was appointed by the Ministry of Finance in November 2002. Its terms of reference are to work out the details of the legal framework governing LP and LLP. The study team members are:
3.3 The study team has completed its work on LLPs and this report constitutes the team’s final recommendations on LLPs. A separate final report on LPs will be published later this year. 4 NATURE OF A LIMITED LIABILITY PARTNERSHIP 4.1 The objective was to create in the LLP a business structure which confers limited liability on its investors or partners while allowing them to retain the flexibility of operating the LLP as a partnership firm and which has perpetual succession. Therefore, the LLP would be a legal entity separate from that of the partners of the LLP, and with its own rights and liabilities distinct from those of the partners. The LLP structured as a legal entity separate from the partners of the LLP effectively shelters the individual partners from personal liability for the acts of another partner carried out in the course of business and for the debts and liabilities of the LLP. However, the LLP should not insulate a partner of the LLP from the liability which he would otherwise incur under general principles of law by his own wrongful acts or omissions, even though such acts or omissions of his are carried out or occur in his role as a partner of the LLP.
5.1 The study team has carefully considered all feedback received during the public consultation exercise. The creation of any business structure involves the consideration of the balance between the requirements of its potential users (namely the potential investors or owners of the business) and the protection of persons dealing with the structure (whether as customers, suppliers, lenders or otherwise). The balance should be set with reference to the objective and purpose for which the structure is created. In finalising its recommendations, the team was guided by the objective to create a new business vehicle that is business friendly (offering their owners privacy, flexibility and ease in making and revising the arrangements which relate to capital contributions, profit sharing, management and control and privacy of these arrangements) and at the same time, offers a certain level of creditors’ protection. The public disclosure requirements relating to the LLP should be kept to a minimum to maintain privacy of the arrangements between and amongst the partners and to minimise the business and compliance costs of the LLP structure. The team is of the view that the objective of creating the LLP structure would be undermined if it is invested with all the features and incidents of a company. While there should be safeguards to maintain a certain level of creditors’ protection, the principle of caveat emptor should apply since every person is free to decide whether or not to deal with any particular business.
7.1 Legal structure and information required for registration 7.1.1 In Jersey, the UK and US-Delaware, the LLP is a separate legal entity from its partners and it only comes into existence from the date of registration/incorporation with the regulator. Being a separate legal entity, the LLP is able to hold property, sue and be sued in its own name and enjoy perpetual succession and therefore the death, retirement or bankruptcy of a partner will not dissolve the LLP. Consistent with the approach in other jurisdictions, the study team recommends that a Singapore LLP should also be a legal entity separate from its partners with unlimited legal capacity to contract and conduct business. It should come into existence as from the date of registration with the Registrar of LLPs. 7.1.2 In the UK, LLPs are required to submit an incorporation document to the Registrar of LLPs at the point of incorporation[1]. The incorporation document sets out the name of the LLP, the address of its registered office, the name, address and date of birth of each partner as well as details of the designated members. The designated members are responsible for appointing auditors, delivering accounts to the Registrar, notifying the Registrar of any changes in the LLP and acting on behalf of the LLP if it is dissolved etc. The incorporation document must be signed by all the partners and lodged with the Registrar. The incorporation document will be available for inspection by any member of the public.
Similar to the UK model, the registration document should be endorsed by all the partners.
RECOMMENDATION 1 The study team recommends that the limited liability partnership (“LLP”) should be a separate legal entity from its partners that comes into existence upon registration with the Registrar of LLPs. The LLP should have unlimited legal capacity to contract and conduct business and with perpetual succession. The study team also recommends that the following information should be provided for registration of a LLP and be made available for public inspection:
(b) the registered place of business of the LLP; (c) the name, address and nationality of every partner, and where a partner is a corporation, the corporation’s name, country of incorporation, registration number and registered office; and (d) the person appointed as the designated compliance officer.
RECOMMENDATION 2 The study team recommends that a partner’s contribution can take the form of cash and property.
RECOMMENDATION 3 The study team recommends that the words “Limited Liability Partnership” and/or the abbreviation “LLP” should constitute a part of the name of every LLP and that every invoice, order, receipt or business correspondence of any LLP should state its registration number and that it is registered as a LLP.
RECOMMENDATION 4 The study team recommends that the law should not prescribe any upper limit on the total number of partners in a LLP.
RECOMMENDATION 5 The study team recommends that a LLP should have at least two partners. In the event that there are less than two partners, the sole remaining partner should be given a grace period of two years to either find a new partner or to commence winding up the LLP. If he does not find a new partner or commence to wind up the LLP within that grace period, he should be liable for all the liabilities and obligations of the LLP incurred after the end of the grace period and the Court may also order the winding up of the LLP. 7.6 Suitability of partners
RECOMMENDATION 6 The study team recommends that the disqualification criteria for company directors in the Companies Act should apply in determining whether the Court should disqualify any person from managing a LLP. A person who is the subject of a disqualification order under the LLP Act or the Companies Act should be automatically disqualified from being involved in the management of a LLP. In deciding whether to issue a disqualification order, the Court will take into consideration the person’s conduct in other companies and LLPs.
RECOMMENDATION 7 The study team recommends that the LLP legislation should provide for (a) the transfer to and vesting in the LLP of all the business, undertaking and assets of a partnership firm or company which proposes to reconstitute its business under the LLP and (b) the assumption by the LLP at the same time of the liabilities and obligations of the partnership firm or company subsisting at the time. Both the transfer and assumption should take effect upon the registration of the LLP. The study team also recommends that the partners of the firm before the transfer should continue to remain liable (jointly and severally together with the LLP) for the liabilities and obligations of the firm which were incurred prior to or which arise from any contract entered into prior to the “conversion” into the LLP and that the partners should be entitled to be indemnified by the LLP in respect of those liabilities and obligations.
8.1 Taxation framework for LLP 8.1.1 In US-Delaware and the UK, LLPs are taxed as partnerships instead of corporations. In US-Delaware, LLPs are even given the choice to decide whether they prefer to be taxed as corporations or as partnerships.
RECOMMENDATION 8 The study team recommends that a LLP should be tax transparent and the partners should be taxed on their share of the income or gains of the LLP according to their personal income tax rates. 8.2 Concessionary tax measures for “conversion” of partnership/company to LLP
RECOMMENDATION 9 The study team recommends that a LLP registered for the purpose of the transfer to it of all the business, assets and liabilities of a partnership firm should be allowed to claim the tax attributes incurred previously, with no time limit imposed on the utilisation and that a LLP constituted for the purpose of the transfer to it of all the business, assets and liabilities of a company, should be able to claim the tax attributes incurred previously at least for the initial period. Both such partnerships and companies should also enjoy relief from stamp duty with respect to any transfer of property to the LLP in connection with any “conversion”, at least for the initial period.
RECOMMENDATION 10 The study team recommends that the LLP legislation should not impose any obligation on the LLP or its partners to prepare and/or file its financial statements or to have its accounts audited. However, a LLP should be required to keep proper accounting records that will enable true and fair financial statements to be prepared. The LLP should also be required to file with the Registrar annually, a declaration as to whether or not it is solvent. 10 LIABILITY OF A PARTNER
RECOMMENDATION 11 The study team recommends that a partner of a LLP should not by reason only of being a partner of the LLP be held personally liable for the conduct of other partners or the transactions or liabilities of the LLP. However, his liability to any person for his own wrongful acts or omissions, including negligence, in the situations where the law imposes liability on him to such person should not be affected or extinguished merely on the basis that the acts or omissions were carried out or occur in his role as a partner of the LLP. 11.1 Capital withdrawal 11.1.1 The UK Insolvency Act[5] provides that withdrawals made by LLP partners during the two years prior to the commencement of winding up will be subject to a clawback, if the partner knew or had reasonable grounds for believing that the LLP was, or would be unable to pay its debts at the time of withdrawal. The clawback applies to all forms of withdrawals (including profits, salaries, interests on loans to the LLP). 11.1.2 In Jersey, it was provided that where any LLP property, including a share in the profits, is withdrawn by a partner at a time when the LLP is insolvent, or if the LLP becomes insolvent as a result of the withdrawal, the partner should be liable, with his liability limited to an amount equal to the value of the withdrawal, less any amount previously recovered from him. Jersey also provide that six months prior to the insolvency of a LLP, any partner who is found withdrawing partnership property, other than in the ordinary business affairs of the LLP, would be liable for the amount withdrawn[6]. 11.1.3 In US-Delaware, if a partner of a LLP knew, at the point of withdrawal, that the LLP had failed the asset test (namely, its liabilities exceed its assets), he has an obligation to repay the amount withdrawn for a period of three years after the withdrawal date. This clawback provision applies to most types of distribution, including share of profits. However, compensation for benefits or payments made in the ordinary course of business pursuant to a bona fide retirement or benefits programme are not subject to clawback. 11.1.4 The study team recommends that a partner should not be required to repay any distributions made when the LLP is solvent and is not rendered insolvent thereby. The LLP is solvent if it can pay its debts as and when they become due and payable and the fair value of its assets exceeds its liabilities. However if at the time of any distribution, the LLP was insolvent or is rendered insolvent thereby and the partner receiving the distribution knew or ought to know this, then the partner should be liable to repay the amount paid or distributed if the payment or distribution occurred within three years prior the commencement of the winding up of the LLP and if they comprise any of the following:
The study team believes that the liability of a partner or his assignee to refund any repayment of any loan made to the LLP and any payment of any interest on such loan should be determined with reference to the law relating to unfair preference which should apply in the event of the liquidation of the LLP. 11.1.5 During the consultation, the team received differing comments from respondents on the proposed clawback period. Some proposed that the clawback period should be pegged to the usual time bar of six years, so as to offer a reasonable degree of protection to creditors of the insolvent LLP. Others however expressed the view that the three years clawback period is too long and proposed that it should be reduced to one year. The team believes three years is a suitable timeframe as there is a need to balance the need to provide certainty to partners in the conduct of their affairs and at the same time provide protection to creditors of the LLP. The limitation period imposed by the Limitation Act will however continue to apply to actions against a partner for personal liability for his own misconduct or breach of duty owed to the LLP or the persons dealing with the LLP[7]. RECOMMENDATION 12 The study team recommends that a partner should be liable to refund any distribution made by the LLP to the partner (or his assignee) of any profits or capital of the LLP within three years prior to the commencement of the winding up of the LLP if the partner knows or ought to have known that the LLP was at the time of the distribution insolvent or would be rendered insolvent by the distribution.
11.2.1 In US-Delaware, sections 15-502 and 15-503 of the Delaware Code provide that a partnership interest is personal to the partner and only a partner’s right to receive any payments or distributions in respect of his partnership interest may be transferred. The transferee only has the right to receive the payments or distributions but cannot participate in management or inspect the LLP’s books or records. Similarly in the UK, a transferee is entitled to receive distributions but may not participate in management or administration of the LLP. The effect is that a partner cannot unilaterally assign his status as a partner (with the accompanying rights e.g. management rights) such that the transferee becomes a partner in his place. 11.2.2 The study team agrees with the practice in the UK and US-Delaware, i.e. a partner of a LLP should only be allowed to transfer or assign to any person his right to receive any payment or distribution in respect of his partnership interest, but not his status as a partner. If a new partner is to be introduced in place of an old one, this should be regarded as a change in the composition of the partners of the LLP namely, by retirement of a partner and admission of a new partner. This should be governed by the partnership agreement. 11.2.3 In the June consultation paper, the team asked whether the consent of the other partners in the LLP should be sought before a partner can transfer his economic interests to a third party. Most respondents are of the view that consent of the other partners are needed, however they differ on whether this consent should be unanimous (100%), a qualified majority (75%) or a simple majority (50%). The study team proposes this should be the subject of the contractual agreement between the partners and should not be prescribed by the LLP legislation. RECOMMENDATION 13 The study team recommends that a partner of a LLP should not be allowed to transfer his partnership but should be allowed to transfer or assign to any person his right to receive any payment or distribution in respect of his partnership interest in the LLP subject to such limitations, restrictions or prohibitions that may be imposed by the partnership agreement.
12.1.1 In the UK, the death or bankruptcy of a partner will not dissolve the LLP, to the extent where the number of partners in the partnership does not fall below two. Article 20 of the Jersey LLP Act also provides that unless the partnership agreement states otherwise, the death or bankruptcy of a partner will not result in the dissolution of the LLP. Similarly, in US-Delaware, the death or bankruptcy of a partner will not lead to an automatic dissolution. This is consistent with the principle that the LLP is a separate entity from its partners. 12.1.2 The study team hence recommends that LLP should not be affected by the death or bankruptcy of a partner subject to Recommendation 5. Normal partnership tax treatment will apply with regard to the death or bankruptcy of a partner (in this case, the deceased partner's interest in the partnership would devolve to his estate). RECOMMENDATION 14 The study team recommends that the LLP should not be dissolved or wound up by the death or bankruptcy of a partner subject to Recommendation 5.
12.2.3 The study team is of the view that similar to the UK and US-Delaware, the LLP Act should specify the circumstances whereby the Court may wind up a LLP. The team proposes that the grounds for a Court-ordered dissolution should be:
12.2.4 The team notes that currently, in a Court-ordered dissolution of a company, if no private liquidator is appointed, the Official Receiver would be appointed as the liquidator for the company. The same arrangement exists in the UK, where the Official Receiver becomes the liquidator of the LLP, by virtue of his office, until another person is appointed the liquidator. Hence the team recommends that in the event of a Court-ordered winding up of a LLP, the Official Receiver shall be the liquidator of the LLP if no other person is appointed as the liquidator or if there is no liquidator. RECOMMENDATION 15The study team recommends that a LLP may be wound up by the Court (“compulsory winding up”) under the following circumstances: (a) the number of partners of the LLP is below two for a continuous period of two years; (b) the LLP is unable to pay its debts; (c) the Court is of the opinion that it is not reasonably practicable to carry on the partnership business in conformity with the partnership agreement; (d) the Court is of the opinion that it is just and equitable to wind up the LLP; or (e) the LLP is being used for an unlawful purpose or for purposes prejudicial to public peace, welfare or good order in Singapore or against national security or interest. The study team also recommends that in a Court-ordered dissolution of a LLP, the Official Receiver should act as the liquidator of the LLP if no other person has been appointed as the liquidator or in the event there is no liquidator. 12.3 Voluntary dissolution
RECOMMENDATION 16 The study team recommends that a LLP should be allowed to voluntarily wind up (a) if all the partners agree to do so or (b) in accordance with the partnership agreement. The LLP Act will provide the procedure for the voluntary winding up of LLPs. These procedures should be modelled after the existing winding up regime for companies that are incorporated in Singapore. ~The End~ [1] The Registrar of LLPs in the UK is the same as the Registrar of Companies. [2] Section 15-1001, Delaware Revised Uniform Partnership Law [3] Article 9, Limited Liability Partnerships (Jersey) Law 1997 [4] Section 15-306(c) of the Delaware Code provides that “an obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in contract, or tort or otherwise, is solely the obligation of the partnership. A person is not personally liable, directly or indirectly, by way of indemnification, contribution, assessment or otherwise, for such an obligation solely by reason of being or acting as a partner.” [5] Section 214A of the UK Insolvency Act. [6] Article 5(3) and 5(4) of the Jersey LLP Act [7] Under common law, the limitation period for actions in contract and tort is six years from the date on which the cause of action arose. AustLII: Feedback | Privacy Policy | Disclaimers URL: http://www.austlii.edu.au/au/sg/other/slrc Are partners liable for partnership debts?Liability for partnership debts
Partners are 'jointly and severally liable' for the firm's debts. This means that the firm's creditors can take action against any partner.
Is one who does not have total responsibility for the debts of the partnership?A limited partner is one who does not have total responsibility for the debts of the partnership. The most a limited partner can lose is his investment in the business. The trade off for this limited liability is a lack of management control: A limited partner does not have the authority to run the business.
What are personally liable for the debts and obligations of the general partnership?A general partnership is an unincorporated business with two or more owners who share business responsibilities. Each general partner has unlimited personal liability for the debts and obligations of the business. Each partner reports their share of business profits and losses on their personal tax return.
What are the obligations of the partners to the partnership?What are the Responsibilities of Partners to the Partnership?. a duty of loyalty and care,. equal profit sharing (unless there's an agreement that says otherwise), and.. equal control and no salary (unless there's an agreement).. |