Advantages and Disadvantages of General Partnership and Limited Liability Partnership

With the increased globalised business practices, the choice of the business medium is
one of the most crucial choices for the owners of the entity (Witt & Redding, 2013). The
popular choices of the business mediums are the corporates, ordinary partnership, and the
limited liability partnership. The following work is aimed at analysing the statement that
“The formation of an ordinary general partnership to do business with although simple is not
justified in any way, considering the advantages that partners would enjoy as a result of
forming a Limited Liability Partnership.” The analysis would highlight the advantages of the
business conduct in the partnership form and the weaknesses of the same. Additionally, the
advantages of the limited liability partnership would be evaluated.
One of the most popular forms of business organisations is the ordinary partnership.
The characteristics of the ordinary partnership form of business and the advantages are
elaborated as follows. The partnership refers to an association of two or more individuals for
the common motive of sharing of the profits arising out of the conduct of the business. The
essential characteristic of the partnership is that the minimum limit on the number of
individuals is two and the maximum limit is twenty. Thus, a partnership firm comprised of
more than 20 partners must be incorporate as a company under the Companies Act, as per the
rules stated in the Chapter 50, except in the case of the professional partnerships. The chief
benefit of the setting up of a partnership structure is that the same allows for the pooling of
the resources and the capital. The structure of the partnership firm is further beneficial in
context of conduct of the business under the mutually agreed terms. The clarity of the duties
and the authorities can be determines by the efficient designing of the partnership agreement
that sets out the rights, responsibilities and liabilities of the partners towards each other and
the firm. The ease of doing business is further lies in the fact that the dissolution of the firm
and the leaving of the partners can take place as per the pre decided terms. The yet another
disadvantage can be listed to be the sharing of the responsibilities unlike in the sole
partnership. In addition, the yet another key benefit is that the set up cost in the general
partnership is comparatively lower than the company incorporation, management and
compliance cost. The partners are regarded as the agents of the firm as well as that of each
other as held in the popular case law of Birtchnell v Equity Trustee, Executors & Agency Co
Ltd.
Some of the yet another features of the said business medium are that the firm has no
separate legal entity from that of the partners. Thus, the partners are exposed to the unlimited
liability due to which their personal assets may be used for the pending debts and obligations

of the firm and to make good the losses of the firm. Additionally, the firm in Singapore
cannot hold the property in firm’s own name. Hence, the legal status of the partnership is not
separate from the partners. There are requirements of the firm to be registered under ACRA
under the Business Name Registration Act. Hence, there are certain disadvantage of the
formation of general partnership as stated above, which leads to reluctance in establishing the
said business medium.
In contrast to this, the Limited Liability Partnership refers to the arrangement where
the individuals associated for the conduct of the business in a manner that where there is at
least one limited partner in the firm and one general partner in the partnership firm (IRAS,
2019). In Singapore context, the said form of business structure came into existence by the
virtue of the recommendations of the Company Legislative and Regulatory Framework
Committee (CLRFC), in the year 2005. One of the key benefits of the formation of the
limited liability partnership can be stated to be that there is no upper limit in the number of
individuals for the said association. Hence, this allows for greater pooling of resources and
capital unlike the general partnership where the upper limit is restricted to twenty individuals.
The limited liability partnership is further distinct from the partnership that a protective shield
is implemented on the co-partners arising from the liabilities in context of the wilful
misconduct or gross negligence of one of the individuals or the group of partners. The limited
liability partnership do possess a separate legal identity, due to which the partners cannot be
held personally liable for the acts of the firm or other partners unlike the joint and several
liability of partners in the ordinary partnership (Accounting and Corporate Regulatory
Authority, 2019). This further allows the power to third parties to sue the firm in its own
name for the matters pertaining to a contract which has been entered into by LLP in its own
name. Further, the LLP can possess a property in its own name. Thus, the liability of the
partners is to the extent of the partner, allowing the full claims on the assets of LLP.
However, that does not mean that the partners in the shield of the limited partnership can
carry on the illegal and unlawful acts to deceive the other stakeholders. It is efficient to note
that a partner would be during the course of the business, possesses a personal responsibility
for the liabilities, the origin of which is his or her own acts of omission, commission, or
negligence. This implies that the claims in context of the liabilities can be made against the
said partner or his personal assets. This however leads to the implication that the personal
assets of the innocent partners remain insulated from such acts of negligence, and the
liabilities. The liability of the said partners would be limited only to the extent of the capital