Comment: NATURE AND LIABILITY SHIELD OF LIMITED LIABILITY PARTNERSHIPS IN SINGAPORE

Citation(2007) 19 SAcLJ 409
Published date01 December 2007
Date01 December 2007

In 2005, the Singapore Parliament passed the Limited Liability Partnerships Act after having studied the approaches adopted by other jurisdictions (especially UK and US). With an eclectic mixture of provisions, this Act has arguably given rise to a business structure that can be considered a novel corporate business vehicle somewhat different from its US predecessor and bearing a stronger resemblance to its UK counterpart. The article will examine the conceptual nature of the limited liability partnership spawned by this statute and the extent of liability shield afforded to such partners.

I. Introduction

1 The developments that led to the enactment of the Limited Liability Partnerships Act1 (“LLPA”) may be traced to the 1997-1998 Asian financial crisis which prompted the Singapore Government to embark on a systematic overhaul of the nation’s economic infrastructure. In December 1999, the Company Legislation and Regulatory Framework Committee (“CLRFC”) was appointed by the Ministry of Finance, Attorney-General’s Chambers and Monetary Authority of Singapore to “undertake a comprehensive and coherent review of company law and regulatory framework and recommend a modern company law and regulatory framework for Singapore which accords with global standards and which will promote a competitive economy”.2 One of the major proposals put forward by the CLRFC in October 2002 was to introduce

new business structures3 in order to offer “market players more options in deciding how they want to structure their businesses.”4

2 With the benefit of hindsight gleaned from the experience of other pioneering jurisdictions which had already introduced LLPs, the CLRFC took the view that the Delaware Code “appears to be the more preferred model … [with] an orderly and seamless transition for an existing partnership to convert to an LLP”.5 The Study Team which the Ministry of Finance convened in November 2002 (to formulate the legal framework for the new business structures) thus asserted at the outset that their deliberations were “guided by the CLRFC’s recommendation to model the Singapore LLP Bill after the Delaware Revised Uniform Partnership Act.”6

3 However, the Study Team’s final report (which was released in February 2004) additionally incorporated “other suitable discrete elements from the UK and Jersey legislation”.7 In fact, the LLPA has arguably given rise to a business structure that is conceptually different from that outlined in the Delaware blueprint. One may even view this new business entity as bearing a much closer resemblance to the UK counterpart; if this perception is indeed valid, it may be necessary to re-visit the central premise concerning the conceptual nature and extent of liability shield afforded to the individual members of such an entity (especially with regard to shielding errant partners accused of personal malpractices).

II. Nature of proposed LLP

4 To understand the operating parameters of the new business entity, one first needs to examine the wording of the LLPA which appears

to be an eclectic mixture of provisions borrowed from different jurisdictions (as indicated in brackets in the following extracts):

S 4 — Separate Legal Personality

(1) A limited liability partnership is a body corporate which is formed by being registered under this Act and which has legal personality separate from that of its partners.

[UK LLPA 2000 s 1(2)]

(2) A limited liability partnership shall have perpetual succession.

(3) Any change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the limited liability partnership.

[UK LLPA 2000 s 1(2); Jersey LLP Law 1997 art 2(4)]

s 5 — Capacity

A limited liability partnership shall, by its name, be capable of —

(a) suing and being sued;

(b) acquiring, owning, holding and developing or disposing of property, both movable and immovable;

(c) having a common seal; and

(d) doing and suffering such other acts and things as bodies corporate may lawfully do and suffer.

[Singapore Companies Act (Cap 50, 1994 Ed) s 19(5)]

S 6 — Non-applicability of Partnership Law

Except as otherwise provided by this Act, the law relating to partnerships shall not apply to a limited liability partnership.

[UK LLPA 2000 s 1(5)]

5 It is evident from s 4 of Singapore LLPA that the new business entity is a body corporate formed by being registered under the Act and is a separate legal entity from its partners. This provision has clearly been extracted from s 1(2) of UK LLPA where their LLP entity is unambiguously portrayed as a corporate vehicle.

6 In addition, it may be inferred from the items listed in s 5 of Singapore LLPA that this new business entity has been imbued with attributes that are characteristic of a company incorporated under the Singapore Companies Act. Accordingly, a local LLP is allowed to, inter alia, own property, enter into contracts, sue and be sued in its own name,

and perform “such other acts and things as bodies corporate may lawfully do.”

7 Furthermore, many of the provisions incorporated into Singapore LLPA (including the Schedules) have been derived from the Singapore Companies Act; examples include the provisions relating to accounts and audit,8 restriction of undischarged bankrupts acting as managers9 and disqualification of managers.10 There is even a provision that regards the new business entity as a body corporate for the purposes of offences committed.11 Much like a company, the local LLP also possesses perpetual succession.12 Additionally, the Fourth and Fifth Schedules have made extensive references to the Singapore Companies Act on issues concerning receivership and winding up. In contrast, little has been drawn from the Singapore Partnership Act which has been specifically excluded13 from application to the new business entity (with the exception of certain internal management provisions serving as a default constitution for the Singapore LLP in a manner not dissimilar to its UK counterpart).14 Hence, the LLP conceived by statute is apparently more akin to a corporation and seems rather unconnected to a partnership.15

8 In contrast, the US Delaware position is governed largely by partnership principles. It is important to note that there was actually no intention in the US to create a new or separate corporate vehicle for the LLP16 which was spawned via amendments to their ordinary partnership statute, viz Revised Uniform Partnership Act (“RUPA”), instead of via the

enactment of new legislation as in the UK and Singapore. In fact, § 15-202(a) of RUPA states that “a limited liability partnership is for all purposes a partnership.” As can be seen from the following RUPA provisions, the Delaware LLP is a business vehicle that retains the fundamental aspects of the partnership with the added significant feature of, inter alia, limited liability for its members:17

§ 15-201 — Partnership as Entity

(a) A partnership is a separate legal entity which is an entity distinct from its partners unless otherwise provided in a statement of partnership existence and in a partnership agreement.

(b) A limited liability partnership continues to be the same entity that existed before the filing of a statement of qualification under Section 15-1001.

(72 Del Laws, c 151, § 1; 72 Del Laws, c 390, § 11)

§ 15-306 — Partner’s Liability

(c) An obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in contract, tort or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of indemnification, contribution, assessment or otherwise, for such an obligation solely by reason of being or so acting as a partner.

9 Another point to note for US partnerships is that RUPA has already adopted the entity theory and partners are thus accorded a separate legal entity status under the Delaware Code. Extrapolating from the entity theory, RUPA makes a partner an agent of the partnership18 with no mention of mutual agency.19 In terms of liability, however, all of the partners are jointly and severally20 liable unless the partnership is an LLP21 (with its limited-liability shield excepting it from this joint and several liability obligation). Such a position is structurally different from that of the general partnership in Singapore (as well as the UK) where no separate entity status has been accorded to general partnerships; hence, a seamless transition to the Delaware LLP structure may not be readily

arranged for an ordinary Singapore partnership unless the basic partnership model22 is imbued with an entity status as per the Delaware model. In contrast, the Singapore LLP comes into being by registration of a ‘body entity’ or a partnership converting into a LLP.23

10 The Delaware LLP is bound by “the large body of already existent general partnership law, in so far as the partnership law is not in conflict with the provisions of the state LLP statute”;24 in other words, partnership ethos applies. On the other hand, the corporate model (which Singapore has borrowed from the UK LLP) impels the application of corporate ethos and principles;25 such a model is inconsistent with the preference implicit in the Study Team’s acknowledgement that “the popularity of the Delaware model stems from its approach which regards LLPs primarily as partnerships instead of treating them as companies as in the UK.”26

11 Although bearing a fraternal relationship with the UK model, the structure adopted for Singapore LLPs is not a facsimile of that for UK LLPs. Neither does it conform to the Delaware partnership-variant model as advocated by the CLRFC. The Singapore model has drawn on an eclectic mixture of provisions comprising discrete portions from various jurisdictions27 (including the Singapore Companies Act), the upshot being that the LLP introduced here is more of a...

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