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Difference between Limited Liability Partnership and Limited Liability Company

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What is the Difference between LLP and Pte Ltd in Singapore?

Expats revere Singapore as the best place to start a business. It is even renowned as a startup hub. More than 10,000 companies were incorporated in Singapore from January 2019 to March 2019. This data proves how Singapore's atmosphere had encouraged thousands of entrepreneurs to set up their business here.

People sometimes get confused between a Limited Liability Partnership and a Limited Liability Company. This guide will ensure that you understand the difference between a Limited Liability Partnership & a Limited Liability Company, two of the most common entity types that you can register in Singapore. However, keep in mind that if you are a foreigner, then the Limited Liability Partnership entity type is not generally available to you for registration.

What is an LLP?

When two or more partners incorporate a partnership business entity, this business structure is called an LLP or a Limited Liability Partnership. Co-partners in an LLP are shielded from liabilities due to negligence or misconduct of other partners.

Around 1,710 LLPs were registered in Singapore in 2019, which amounts to 2.78% of the total companies registered in Singapore in 2019.

An LLP possesses several characteristics of both an LLC and a sole proprietorship. Therefore, most of the LLPs are an ideal business model for SMEs.

An LLP has the potential to dominate a specific niche area in its industry. It is a great entry-level business model that works for SMEs, especially those that are more niche-specific with a small customer base.

What is an LLC?

Difference LLP LLC - LLC

A limited liability company, or a private limited company, is the most preferred business structure in Singapore. Often, it is also referred to as Private Limited (Pte Ltd) company. Out of 61, 573 companies registered in Singapore in 2019, there were 43,920 LLCs. It is more than 71% of the total companies registered.

An LLC business model is generally the most preferred business model in Singapore due to Singapore's business-friendly policies.

An LLC is also a separate legal entity from its owners, just like an LLP. There are multiple owners as shareholders in an LLC. They are only liable for their invested amount in the company. Any misconduct or dishonest behavior from any of the shareholders or directors does not affect the other owners.

Characteristics of an LLP and an LLC

In order to find which of these two models is best for you, you must understand their differences and characteristics in a detailed manner.

Both business structures have the following characteristics of a separate legal identity:

Difference LLP LLC - Characteristics
  • Can purchase and sell properties in the company's name
  • Can incur and receive obligations
  • Can enter into contracts and agreements with its directors, shareholders, employees, and third parties
  • Can retain its identity even if the identity of the owners change
  • Can hold legal relationships with shareholders and directors
  • An enduring structure that allows perpetuity even if a member dies or withdraws
  • Can be registered in 1-2 days (some registration applications need more time to process due to permissions required from other regulatory bodies)

Differences between an LLP and an LLC

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.

LLP

Generally, LLPs struggle with raising funds; for capital, they are dependent on private finances or the partners' contributions to the company.

LLC

LLCs can acquire funds easily from banks and other financial institutions. A limited liability company is viewed as being credible due to the legal separation between personal and business assets. The different funding options available to an LLC are equity partners, venture capitalists, private funds, and angel investors.

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.

LLP

Personal tax rate capped at 22%

LLC

Corporate tax rate, up to 9% if profits do not exceed S$300,000 and capped at 17% if profits exceed S%300,000, dividends are 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:

Net Chargeable Income

Tax Payable LLP

Tax Payable LLC

S$100,000 S$300,000 S$600,000
S$5,650 S$40,550 S$106,100
S$4,250 S$29,750 S$80,750

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.

LLP

Ownership transfer is difficult

LLC

Partial or full ownership transfer is easy

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.

LLP

Moderate setup, hence registration, maintenance, annual compliance, and paperwork cost is not too high

LLC

Complex setup, hence registration, maintenance, annual compliance, and paperwork cost is high

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.

LLP

Lesser credibility and lower public perception compared to LLC

LLC

Highest credibility and most robust public perception

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.

LLP

More apt for professionals like lawyer, consultants, and accountants

LLC

More apt for entrepreneurs who want to conduct 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.

LLP

Strike off procedure required, less complex and lesser compliances requirements

LLC

Strike off procedure required, intricate process with many legal compliances

Which option is better: Limited Liability Partnership or Limited Liability Company?

Difference LLP LLC - Better option

An LLC is far better than an LLP for aspiring entrepreneurs in Singapore. It is the most commonly found company type in Singapore. There are many reasons why entrepreneurs should pick LLC over LLP.

  • No personal liability, so your assets are protected
  • Tax incentives from the Singapore government
  • Strong public perception
  • Ease of raising funds due to the credibility
  • A structure that favors the growth

The maintenance cost of an LLC is relatively higher than an LLP. However, it is also more profitable. Once the profit starts to roll in, the maintenance cost would seem like a tiny fragment of it.

If you want consistent growth and long-term business, go with a limited liability company. To learn more about registering different company models in Singapore, go through our Singapore company registration guide.

It is also advised to hire a company service provider for Singapore company incorporation and to fulfill the annual ongoing compliances. Epica provides Singapore company registration services and assists you with all the ongoing compliances after registration, such as accounting, annual tax filing, nominee director services, corporate secretarial services, and annual returns filing. Our team of experts deeply cares about serving clients' needs by providing them complete support and consultancy.

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