Difference between Limited Liability Partnership and Limited Liability Company

There are some critical differences between a Limited Liability Partnership and a Limited Liability Company. These differences are based on several factors that you must consider before incorporating a Singapore LLP or a Singapore LLC.

Ease of raising capital

The most crucial thing for a business to expand is capital, especially when the business is new. The ease of acquiring funds for your company is also somewhat directly proportional to your company type.

Different taxation regime

Both business entities get different tax treatments.

Profits in an LLP are distributed among partners as per their partnership agreements. These profits are treated as the LLP members' personal income and are taxed at individual income tax rates in Singapore.

However, an LLC in Singapore is taxed at Singapore's corporate tax rate. The city-state follows a single-tier tax system. It means that once the tax is imposed on the company's chargeable income, shareholders' dividends become tax-free.

Tax Exemption Schemes

A private limited company (LLC) in Singapore enjoys tax exemption benefits for the first three years after its incorporation. For eligible companies, there is zero tax or 75% tax exemption for the first S$100,000 of chargeable income.

There are no tax exemptions applicable in an LLP.

Here is a table to understand the difference between payable tax for an LLP and an LLC:

These calculations are rough estimations. Tax calculated for the LLC includes the tax exemption granted under the tax exemption scheme

The Ease of Transfer of Ownership

It is not easy to transfer the ownership of an LLP. The assets, permits, and licenses must be transferred individually and cannot be sold as a whole.

However, partial or full ownership of an LLC can be easily transferred by selling its stocks without disrupting its operations.

Maintenance Cost

The maintenance cost of an LLP is relatively low as compared to an LLC.

The maintenance cost of a limited liability partnership

The registration fee is relatively low for an LLP. However, you will need professional assistance while drafting a partnership agreement.

The cost required for annual compliance requirements is also relatively low. A limited liability partnership is only required to submit an annual declaration to the authorities about the company's solvency or insolvency status.

The maintenance cost of a limited liability company

The registration fee is higher as compared to LLP. The incorporation procedure is a little more complicated as compared to an LLP. Annual filing requirements are also complex.

An LLC must comply with the following annual filing requirements of ACRA (Accounting & Corporate Regulatory Authority):

• Must file tax returns
• Must file ECI (Estimated Chargeable Income)
• Must file annual accounts
• Must hold AGM (Annual General Meeting) with the Board of Directors
• Must conduct an annual audit (if not exempted)

It isn't easy to fulfill all these compliances while conducting business. Therefore, it becomes imperative for an LLC to hire a CSP (Corporate Service Provider) for the registration procedure and handle the annual compliance requirements. You can say that a private limited company's benefits, power, and flexibility come at a price.

Perception of Public

Public perception is also an essential part of your business. The feeling of your customers, employees, bankers, and vendors toward your business can alter its destiny. This is why most companies spend hundreds of thousands on marketing every month to create credibility for their brands.

The public point of view regarding an LLP is moderate. It holds lesser credibility as compared to an LLC.

An LLC has the most potent public perception among all business types. It holds higher credibility than an LLP or other business model.

Appropriateness of Models in Industries

A limited liability partnership is a more appropriate business model for professions like accountants, lawyers, and consultants. The professionals from these fields come together under a partnership agreement. This helps them leverage each individual's experience, skills, and networks to grow the business and maximize profits.

A private limited company or an LLC is a more feasible company type for entrepreneurs who want to scale their business. It is best suited for conducting long-term business.

Dissolution Procedure

Both LLPs and LLCs offer two different dissolution procedures:

• Striking off
• Winding-up

Winding up is a more intricate procedure than striking off. However, there are a few statutory requirements you must fulfill before applying for a strike off.

However, the procedure to strike off an LLP is less complicated than an LLC due to lesser paperwork and lesser compliances involved. It takes 4-5 months for ACRA to strike off a company. It depends on the complexities and compliances involved in the termination procedure.