A 'Partnership' is formed where two or more persons carry on a business in common with a view to making profit. Generally, the maximum number of partners allowed in a partnership is 20. The partners can either be individuals or bodies corporate. Should more than 20 persons wish to carry on business together, they will have to do so through a Company. This does not apply to partnerships formed solely or mainly for the purpose of carrying on any profession that is regulated by other legislation (eg. law firms, accounting firms, medical practices).
A business partnership is also called a 'firm'.
The law does not treat a partnership as a separate legal entity from its partners. The partners collectively own the assets of the partnership and are each individually liable for the debts and liabilities of the partnership. Each partner is personally liable for the full amount of debt owing by the partnership without any limit.
General rules governing Partnerships may be found in the Partnership Act (Cap 391).
There is no need to take any formal step to create a partnership. So long as there exists a relationship where two or more persons carry on business in common with a view to making profit, the law will recognise the existence of a partnership.
The Partnership Act provides some rules in determining whether or not a partnership exists. It also has rules to assist in determining whether or not a person is a partner of a firm. The most significant of these rules is that the receipt of a share of profits in a business by a person is strong evidence that the person is a partner in the business.
In most situations, partnerships are created through a partnership agreement entered into by the partners in the business. The agreement may be made orally or in writing.
The relationship between partners is governed by the partnership agreement. The main elements usually found in such an agreement include details of:
How profits and liabilities of the firm should be shared amongst the partners;
The responsibilities of the various partners for the running of the business;
The obligations that the partners have to each other (eg. to render proper accounts);
How a partner may leave the firm; and
How the residual assets of the firm should be distributed should the partnership be dissolved.
Where there is no partnership agreement or where the agreement is not comprehensive, the relationship between partners is governed by the relevant provisions of the Partnership Act (Cap 391).
Partners are agents of each other and of the firm. A partner's acts in relation to the normal business operations of the firm will be treated as being the actions of the firm and all its partners. While the authority of any individual partner may be restricted by agreement, such a restriction will not affect an outside party dealing with the partner unless the restriction is known by that party or that party either does not know or believe that the person he is dealing with is a partner of the firm.
A partnership will automatically be dissolved should any partner die or leave the firm. The partnership agreement may also provide for other instances in which the partnership is to be dissolved. This may include situations where any one of the partners becomes bankrupt or becomes of unsound mind. It is also possible for an application to be made to the Court to have the partnership dissolved under circumstances specified in section 35 of the Partnership Act (Cap 391).
Every partner (and if he dies, his estate) is liable for all debts and obligations of the firm that have been incurred while he is a partner of the firm. The firm and all its partners may also be sued for any wrongful act committed by any partner in the course of the business of the firm or with the authority of his co-partners.
There are two situations where a person who is not a partner may be made liable for a partnership's debts. First, a retired partner who continues to appear to be a member of the firm may, in circumstances specified under section 36 of the Partnership Act (Cap 391), be treated as still being a partner by parties dealing with the firm. Such a person may be made liable for the debts of the firm until he has done the necessary to notify others of his retirement from the firm. Secondly, where any person either by words or by conduct represents himself or allows himself to be represented as a partner of a firm, he will be liable to any person who has given credit to the firm on the strength of the representation.
Persons who wish to carry on business in Singapore through a partnership must register their business under the Business Registration Act (Cap 32). They must also subsequently comply with the requirements under the Act.
As a partnership is not an entity in law, the partnership does not pay income tax on the income earned by the partnership. Instead, each partner will be taxed on his or its share of the income from the partnership. Where the partner is an individual, his share of income from the partnership will be taxed based on his personal income tax rate. Where a partner is a company, its share of income from the partnership will be taxed at the tax rate for companies.
While the partnership does not pay tax, it still has to file an annual income tax return to show all income earned by the partnership and deductions claimed for expenses incurred in carrying on the partnership business.
While a partnership does not pay tax, it still has to file an annual income tax return to show all income earned by the partnership and deductions claimed for expenses incurred in carrying on the partnership business. The income tax return to report partnership income is called Form P.
We have a team of Accountants,Bankers and compliance experts who can advice on Singapore's Tax Regime(IRAS) & various regulatory frameworks such as ACRA to offer you a customized advisory services that include: