Limited Liability Partnership as a Hybrid Business Organization - Free Essay Example

The limited liability partnership; A hybrid of two different forms of business organizations – the partnership and the company. The Limited Liability Partnership (LLP) was introduced as a new business entity in Singapore in 2005. Its definition under S14 of the Limited Liability Partnership Act (LLPA) shares a resemblance to S1 of the Partnership Act (PA): it comprises of two or more persons carrying on a lawful business in view of profit upon registration with the Accounting and Corporate Regulatory Authority (ACRA). Partners may be individuals, other LLPs or companies registered under the LLP agreement and thus bounded by the laws governing the act. As a hybrid business entity, the LLP combines the limited liability features of companies with the operational flexibility of partnerships. The LLP is a corporate body recognized as a separate legal entity from its members S4(1) LLPA. This was previously existent only in companies locally. Hence, it can enter into legal contracts, own property, sue and be sued in its own name S5(1) LLPA. As such, it enjoys perpetual succession in S4(2) LLPA whereby any changes such as the resignation, death or bankruptcy of the members do not affect its existence, rights or liabilities S4(3) LLPA, thus being similar to S19(5) of Companies Act (CA) and in opposed to S33 PA whereby the partnership is dissolved due to such changes. Likewise to public companies, LLPs can have unlimited members but it must consist of at least two partners (S22 LLPA). Additionally, LLP managers share similar qualification and disqualification criteria to company directors as stated in S23 and S34 of LLPA and S145, S149, S149A and 154 of CA. Under S9(1) LLPA, just as in partnerships, every member of the LLP is recognized by law as its agents. Hence their actions within their scope of authority bind the LLP. However in S9(2) LLPA, it does not shields individual members from legal liability resulting from any personal acts not done on behalf of the LLP. Should a member commit tort in the name of the LLP he may be charged under the Tortious Act. Hence members are personally liable for their own negligence and other wrongful acts committed in their personal capacity. Conversely, due to the LLP members’ limited liability in S8(1) LLPA, they are protected from personal and unlimited liability resulting from negligent and wrongful acts done for the LLP S8(3) LLPA. Likewise to companies, such actions are solely attributable to the LLP by law. Hence it assumes the liability for its own debts and the members and stakeholders are subjected only to the extent of their respective stakes and contributions to the LLP. This protects the partners’ personal assets. Additionally, they are protected from the wrongful acts of other members. Furthermore the process of winding up LLPs is similar to companies. Members may voluntary wind up if it is able to pay all its debts within 12 months after winding up commences. It may opt for creditors’ voluntary winding up if its business cannot continue due to the weight of its liabilities. Lastly, it may undergo compulsory winding up by order of court if it is unable to pay off its debts. Like partnerships, administration is a easier process for LLPs than companies as per S25(1-2) LLPA, there is no requirement for it to audit or file annual returns with the ACRA. This benefits partners who intend to keep their profit contribution details private from competitors and to be free of costs and time in producing such information. However in S24(1-3) LLPA, the appointed manager must make an Annual Declaration to ACRA stating its solvency state in their normal course of business, in which failure to comply will result in penalties. In view of the way the business is being run, it enjoys similar flexibility to partnerships by allowing partners to adopt their preferred form of internal organization. The management structure may be centralized like a company or it may be decentralized with every member sharing the rights in the management of its business affairs. Most of the rules for the structure of partnerships can be overridden with consent of other members. Furthermore, as the members of the LLP share profits and losses in the partnership as stated in S24(1) PA, hence they owe a duty of good faith to each other. They must account to the LLP for any secret profits that they make from the partnership without the consent of the other members, including profits gained from any competing business S29(1) PA. Another similarity is in the capital raising process via partners’ individual contributions and bank loans which differs from companies whereby securities can be issued to raise funds. The aspect of limited liability also makes raising capital easier by attracting investors to join as silent partners. Lastly, LLPs are taxed similarly to partnerships as disclosed by the IRAS. No income tax is assessed at the entity level as the members are considered to be running a personal business. Therefore their personal income are assessed and taxed in accordance to their respective share of the profits in the LLP. In conclusion, the introduction of the LLP as a hybrid business entity encompassing traits of both partnerships and companies serve to cater to industries whereby there is minimal need for large organizations but a need for greater flexibility in business operations. Before its introduction, these businesses were grey areas whereby there was no proper provision of regulations to cater to these business forms. Through the consideration of its successes in the UK, it was eventually implemented locally in which regulations are ideally catered to but not limited to professional firms such as law and medical firms. Benefits include stronger rights to participate in management, less stringent financial reporting procedures, ease of tax and licensing regulations thus consisting of characteristics of both entities. References Websites †¢ †¢ †¢ †¢ †¢ †¢ †¢ https://statutes. agc. gov. sg/ https://www. iras. gov. sg/irashome/default. aspx https://www. acra. gov. sg/Services/LLP/ https://www. businesslink. gov. uk/bdotg/action/detail? type=RESOURCESitemId= 1073789611 https://www. aepronet. org/pn/vol12-no1. html https://www. singaporelaw. sg/content/BA. html#section4 https://www. business. gov. sg/EN/StartingUp/RegisterYour Business/ChooseABusin essStructure/regbiz_type_llp. htm https://www. rikvin. com/Partnership-in-Singapore. html Texts †¢ Singapore Business Law 4th Edition by Benny S Tabalujan and Valerie Du ToitLow