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Forms of Business Organisations

[refer to Figure 9.1 on p.200 text]
1. Sole Proprietorship

LAW OF BUSINESS 2. Partnership

• Ordinary Partnership
• Limited Partnership (LP)
ORGANISATIONS • Limited Liability Partnership (LLP)
3. Company
• Private Limited Company (Pte Ltd Co)
• Public Company

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Main distinction between forms of Unlimited Liability

business organisations - Liability
• Liability of the people operating the business form
may be limited or unlimited
• Limited liability refers to the personal liability of the
person concerned to pay the creditors of the business
form upon the business being dissolved
• Generally the business form itself has unlimited
liability to its creditors; it’s liability in the event of a
dissolution is not limited in any way; creditors may
seize its assets and claim the amount owing to them
subject to proof of their debt
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• Sole Proprietor (SP)
• Partners in an Ordinary Partnership (OP)
• General Partners in a Limited Partnership (LP)
Effects of unlimited liability
• Personal assets of the person operating the business (SP or OP or the
general partner in an LP) can be seized to pay off the business debts
of the business form
• If personal assets are insufficient, the person can even be made a
bankrupt
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Limited Liability Forms of Business Organisations

[refer to Figure 9.1 on p.200 text]
• Liability is capped at the amount invested in the business; no further 1. Sole Proprietorship
personal liability to the creditors of the business 2. Partnership
• Partners in a Limited Liability Partnership (LLP), except for the partner • Ordinary Partnership
who has committed a personal wrongdoing (e.g. negligence)
• Limited Partnership
• Members in a Limited Liability Company (either public or private
company/ single member company) • Limited Liability Partnership
• Limited Partners in a Limited Partnership (LP) 3. Company
• Private Limited Company
• Public Company

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Sole Proprietorship Sole Proprietorship

[refer to pages 201 – 205 text]
• Business operated by 1 person
• Law: Business Names Registration Act (Cap 32 Singapore Statutes)
• Registration: required unless exempted under s.4 (see 1st Schedule
of the Act for list of exempted businesses)
• Effect of failure to register: Offence and sole proprietor will not be
able to enforce contracts entered into relating to the business
• Registration at ACRA: simple, cheap and can be done online – refer
to Figure 9.2 on p.203 text
• Additional licences may be required from appropriate authorities
depending on the type of business - e.g. HDB or URA approval
required to run business from home
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• Can be dissolved easily by giving notice to ACRA, or if
proprietor dies or is made bankrupt
• Not a separate legal entity from the proprietor:
• The debts and rights of the business belong to the
sole proprietor
• Though easy to set up, run and dissolve, proprietor is
not protected from business debts
• Proprietor has personal and unlimited liability for
the business debts of the sole proprietorship and can
be made bankrupt if he fails to settle the debts of the
business
What are the advantages & disadvantages of a
sole proprietorship? (see Figure 9.3 on p.204 text)
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Partnership - Ordinary
Partnership - Ordinary
[refer to pages 205 – 210 text]
• Formalities
• A partnership is a relationship which subsists between
persons carrying on business in common with a view to • Partnership agreement: can be oral or
profit - s. 1 Partnership Act(PA) written
• The partnership firm is not a separate entity from the
• Registration: required under the Business
partners Names Registration Act (Cap 32)
• Minimum: 2 partners
• Maximum: 20 partners • Persons running a partnership (partners)
• Exception: Professional firms (e.g. lawyers, doctors, can be collectively called the firm
accountants) - no maximum limit

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Relationship Between Ordinary Partners

Relationship Between Ordinary Partners and Outsiders(third parties)
• Partnership Act provisions can be overridden by the [refer to Figure 9.4 on p. 206 text]
partners if they agree otherwise
• Profits and losses: shared equally amongst the • Every partner is an agent of the firm and the other
partner(s) – what a partner does can bind the firm and
partners the other partner(s)
• Management: Every partner has the right to take part • S. 5 PA – to enable any partner to bind the firm to a third
in the management of the firm party the following must exist:
• Decisions on ordinary business matters: based on 1. the act done by the partner appears to be in the usual
majority of the partners course of business of the firm;
• Remuneration: Partners are not entitled to salary for 2. unless, the partner so acting has no authority to act for
their services the firm in that matter; and
3. the person with whom he is dealing (3rd party) either
• Relationship between partners: utmost good faith knows that he has no authority or does not know or
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Types of authority of a partner to enter into contracts on Relationship Between Ordinary Partners and
behalf of the partnership Outsiders (suing and being sued)
• Liability of partners: joint and several – S.9 PA
• Express authority: authority expressly conferred on a partner by the • One partner is liable for the wrongdoings of another
other partner(s).
• If a partner is sued, and if the claim is not paid the claimant may subsequently
• Implied authority: authority a partner would usually have for the still sue the other partners
particular type of business; any act done by a partner in the usual way
of business will bind the partnership and the other partner(s), unless • Easier alternative:
the third party knew that the partner had no actual authority - • A single action may be brought against all the partners at once by suing in the
Mercantile Credit Co Ltd v Garrod (p.208 text).
name of the firm
• Apparent authority: arises if the firm represents to the third party that • Once the firm is held liable the judgment can be enforced against the firm
the partner has authority to do certain acts and that person relies on • If the firm’s assets are insufficient, the partners’ personal property may be
that representation – Freeman & Lockyer (Law of agency case) – p.142
text. seized to satisfy the partnership firm’s debts since the partners have unlimited
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Dissolution (termination) of Ordinary Forms of Business Organisations

Partnership [refer to Figure 9.1 on p.200 text]
• Dissolution may be by agreement or under the 1. Sole Proprietorship
Partnership Act (PA) or by the court
• Examples under the PA 2. Partnership
• S 32 PA: partnership for a fixed term will dissolve at the • Ordinary Partnership
end of the term; partnership for a particular purpose • Limited Partnership
will dissolve upon the achievement of that purpose; or
by notice given by a partner
• Limited Liability Partnership
• S 33 PA: partnership is dissolved when a partner dies or 3. Company
becomes bankrupt • Private Limited Company
• Public Company
What are the advantages & disadvantages of a
partnership? (see Figure 9.5 on p.209 text)
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Limited Partnership (LP) Limited Partnership (LP)

[refer to Figure 9.6 on page 212 text]
General partner
• Law: Limited Partnership Act •manages the LP
• Not a separate legal entity from the partners
• Minimum: 1 general partner and 1 limited •liable for all the debts and obligations
partner of the LP; thus has unlimited liability
• No maximum number of partners
• Generally similar to an ordinary partnership •benefits from the investment by the
with a notable difference on the liability of limited partners, but remains liable for
limited partner(s) all the debts of the LP

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Limited Partnership (LP) Limited Liability Partnership (LLP)

Limited partner
•liability for the firm’s debts is limited - capped at the
amount of his agreed contribution to the LP provided
he does not take part in the management of the LP
•once he takes part in the management of the LP he
loses his limited liability
•does not have the power to bind the LP; is not an
agent of the firm
•ideal for investors who do not want active roles in
the management of the business or incur liability
beyond what they have invested
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[refer to pages 211 – 212 text]
• Law: Limited Liability Partnership Act
• Combines features of an ordinary partnership and a
company
• Individual partner’s liability is generally limited
• Distinguishing characteristic from other partnerships -
Separate legal entity
• The LLP firm is a separate legal entity from its partners
• Minimum: 2 partners and at least 1 manager, who may
also be a partner
• No maximum limit on the number of partners
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Limited Liability Partnership (LLP) Dissolution of LLP

• Internal relations between partners are very much like an
ordinary partnership It can be dissolved by
• In external relations it is very much like a company: • (i) winding up – voluntarily by partners or creditors; or
• Body corporate – s.4 LLP Act (separate legal entity) compulsorily by the Court
• Has perpetual succession
• Can sue and be sued in its own name • (ii) Striking off from the ACRA register
• Can acquire, own and hold property in its own name
• Partners have limited liability – limited to their investment; • The above is similar to a company
Except: own wrongdoing – s.8 LLP Act
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Advantages of LLP over Ordinary COMPANIES

Partnership Regulated by the Companies Act (Cap 50)

1. Limited liability of partners

Foreign Singapore incorporated companies
• Upon dissolution or winding up of LLP, liability is limited to companies
the amount of capital contributed registered in
• No personal liability of partners for the debts of the firm or Singapore Limited liability company Unlimited company
for another partner’s wrongdoing
• Only personally liable - incurring unlimited liability for their Company limited by guarantee Company limited by shares
own wrongdoing – e.g. negligence
2. Perpetual succession Public company Private company
• The LLP continues to exist despite the death, bankruptcy, or
change in partners, unlike an ordinary partnership which
may end abruptly Unlisted Listed (SGX) Exempt Non- exempt
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Effects of incorporation of a company Members and Directors

[refer to pages 213 – 224 text]
• A company is an artificial person with a legal personality which is • S.20A CA: Every company (public or private) must have
separate from its shareholders and directors at least 1 member (shareholder)
• Private company: max limit of 50 members [S.18(1) CA]
• S.19(5) Companies Act :
• Public company: no max limit for number of members
• Company is a body corporate (separate legal entity) [S.18(1) CA]
• May sue and be sued in its own name • Exempt private company: max limit of 20 members and all
its shares must be held by natural persons and not
• Has perpetual succession corporations [S.4(1) CA]
• Has a common seal • S.157A: The board of directors manage the company
and members (shareholders) cannot interfere or
• Has power to own land and other property in its own name represent the company
• Limited liability of members • the directors (and not the members) are the agents of
Must Read Salomon v Salomon & Co Ltd [1897] House of Lords – the company who can represent the company
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Incorporation Process Forms of Business Organisations

[see figure 9.7 on p.216 text]
1. Check availability of name (ACRA website) 1. Sole Proprietorship
2. Reserve name and apply for its approval
2. Partnership
3. Prepare/adopt the relevant model constitution • Ordinary Partnership
4. Submit relevant documents (which can be done • Limited Partnership
online via Bizfile in the ACRA website) together
with the registration fee (currently S$300) • Limited Liability Partnership
5. Registrar issues notice of incorporation if all in 3. Company
order • Private Limited Company
How is a single-member company different • Public Company
from a sole proprietorship since both are
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Summary of Lecture
[refer to Comparison Table on p. 225 – 228 text
Factors that will affect the choice of a business
structure:
1. Liability
2. Capital
3. Management rights
4. Type of business activity
5. Expansion plans
6. Maximum number of members
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