General Partnerships: Definition, Examples and Features
- Published: 18 December 2024
- 6 min read
- Starting a Company
Heather Cameron
Business Writer
From expert guidance and helpful accounting tips to insights on the latest trends in fintech, Heather is here to empower entrepreneurs and small business owners in Singapore with great content. With a background in digital marketing spanning eight years, she has experience writing for various industries and audiences. As Osome’s copywriter, she’s here to inform and inspire our readers with great storytelling.
A general partnership (GP) is one of the simplest business structures in Singapore, requiring at least two partners who share responsibilities, profits, and liabilities equally. This type of partnership does not create a separate legal identity, meaning the partners are personally liable for the business's debts and obligations.
What Is a General Partnership?
In a general partnership (GP), two or more individuals operate a for-profit business together. Unlike private limited companies or a limited partnership, individual partners and the business are considered one entity, making partners' personal assets tied to the business's debts and obligations.
General partnerships in Singapore are governed by the Partnership Act (Cap. 391) with minimum compliance requirements. However, since the partnership doesn't function as a separate legal entity, each general partner is personally responsible for business debts and losses incurred. While the partnership is not taxed, each partner must pay income tax on their share of profits, often at personal tax rates.
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Despite these risks, general partnerships are popular for individuals seeking partnerships with less paperwork, are less time-consuming yet still come with the ability to pool resources, skills, and expertise together easily.
General Partnership Features and Characteristics
Unlike limited liability partnerships, general partnerships (GPs) are not separate business entities. The partnership and partners function legally in identical ways, impacting its ability to own property or enter contracts under the business's name. Under the Partnership Act, each partner has unlimited liability, personally responsible for business activity outcomes with personal assets at risk if additional debts were to be incurred.
Management and profit-sharing in a GP are inherently collaborative. Responsibilities, profits, and losses are shared equally by default or proportionally based on agreement terms. Active management is expected from individual partners, and profits are taxed as personal income.
However, a general partnership has a simpler and more cost-effective setup than a limited partnership as the Limited Partnership Act has more regulations and compliance requirements. As a result, entrepreneurs moving forward from a sole proprietorship may still find GPs attractive as long as they establish a solid partnership agreement to address potential challenges.
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What Are the Benefits of a General Partnership?
A general partnership (GP) offers several key benefits. Ease of setup and low cost are two of the key advantages.
To register a business organisation as a GP, you need a valid name following the Business Names Registration Act, a minimum of two partners with at least one partner with Singapore voting rights (18 years and older and a Singapore citizen with a Singapore ID or a permanent resident), a partnership agreement, and completed application. All owners or their authorised representatives must endorse the application before submitting it. GP allows a maximum number of 20 partners.
Partners can pool resources and expertise. Flexibility in decision-making allows partners to act quickly, which is especially valuable in competitive industries, such as medical practices.
Additionally, GPs come with tax benefits since each partner will pay taxes on the profits as individual income, potentially lowering tax burdens. Finally, the simplified management structure reduces administrative burdens, enabling partners to focus on growth and operations. However, it’s crucial to weigh these advantages against the risks, such as unlimited liability, before proceeding.
Disadvantages of a General Partnership
A general partnership has unlimited liability, making partners personally liable for the business's debts and obligations. Another significant disadvantage is the potential for conflicts between partners since decisions are often made collectively, particularly if there is no written partnership agreement in place.
Each partner is also responsible for the actions of the others. If one partner makes a mistake or engages in unethical behaviour, other partners may be held liable regardless of their direct involvement, which can negatively impact the reputation and financial standing of the entire business. Finally, a general partnership may face challenges when raising capital, as investors often prefer limited partnerships due to the additional protection provided for personal assets.
Therefore, a strong partnership agreement is key to running a successful GP. Entrepreneurs may want to explore alternative business structures like a limited liability partnership (LLPs) or a private limited company, which offer greater protection and flexibility.
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General Partnership Business Examples in Singapore
In Singapore, small businesses often choose general partnerships to prioritise simplicity and collaboration. Family-owned businesses, such as local retail stores or eateries, often operate as GPs to share responsibilities and combine resources easily. For example, two partners running a café or boutique might form a general partnership to streamline decision-making and operations. Similarly, professional services like law firms, accounting companies, or consultancies may operate as general partnerships, where each partner shares the risks and rewards of the business according to the agreement.
This business structure is suitable for industries emphasising flexibility and direct management, so long partners trust one another and have complementary skills. However, the unlimited liability and shared decision-making can become challenging if the business expands or if there are disagreements between partners.
Summary
A Singapore-registered company operating as a general partnership (GP) has two or more partners who share responsibilities, profits, and liabilities. Unlike other business partnerships, a GP does not create a separate business entity. Therefore, one partner's mistake can easily become the other partner's liability. The structure offers benefits such as ease of setup, low cost, and the ability to pool resources and expertise, though at the cost of increased risks and redundancy in decision-making. GPs are often favoured by small, family-owned businesses or professional services like law and accounting firms. Partners in a GP must establish a clear agreement to mitigate risks and ensure smooth operations.
FAQ
What is the meaning of a general partnership?
A general partnership is a business structure where two or more individuals equally share responsibilities, profits, and liabilities. It does not create a separate business entity, meaning partners are fully liable for the business's debts and obligations. This structure is often chosen for its simplicity and flexibility.
What is the general form of partnership?
A general partnership involves multiple partners who manage the business and share in its profits and losses. All partners have equal control and liability in a general partnership, with decisions typically made jointly unless otherwise specified in a partnership agreement.
What defines a general partner?
A general partner is an individual who has the authority to make decisions on behalf of the business and is personally and unlimitedly liable for the partnership's debts and obligations. General partners share in both the business's profits and risks.
What is an example of a general partnership company?
Examples of general partnership companies include small family-owned businesses like cafes or boutiques and professional service firms such as law firms and accounting firms. In these companies, partners share responsibility and liability whereas a limited liability partnership protects partners from being directly impacted by business pitfalls.
What are the types of partnerships in Singapore?
In addition to a general partnership (GP), where general partners share profits and liabilities with unlimited liability, Singapore also has other forms of partnerships from which business owners can choose. A Limited Partnership (LP) makes each limited partner only liable for the amount of their investment. A Limited Liability Partnership (LLP), protects limited partners and their assets from business debts and legal disputes.
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