Second Reading Speech by the Acting Second Minister for Finance, Mr Raymond Lim, on the Limited Liability Partnerships Bill 2005 at The Parliament, 25 Jan 200526 Jan 2005
Mr Speaker, Sir, I beg to move, "That the Bill be now read a second time".
2 The Bill before the House seeks to introduce a new business structure called Limited Liability Partnerships, or LLP in short.
3 Currently, the company is the only business structure in Singapore which offers limited liability for its owners, i.e. the shareholders.
4 In October 2002, the private sector-led Company Legislative and Regulatory Framework Committee, or the CLRFC, recommended the introduction of the limited liability partnership business structure as an additional business form for Singapore. LLPs are already a well-known concept in other leading jurisdictions such as the United States and the United Kingdom.
5 After extensive public consultation, the Government decided to accept the CLRFC's recommendation to introduce LLPs in Singapore. The introduction of LLPs demonstrates the Government's resolve to ensure that Singapore always remains responsive to changing business needs.
Nature of a LLP
6 The LLP, as its name implies, is essentially a partnership with limited liability. The LLP structure gives businesses the option of becoming a limited liability entity with the internal flexibility of a partnership. An LLP is a separate legal entity from its partners, meaning that it will be able to enter into contracts, hold property and exist independently of changes in its partners.
Flexibilities and Safeguards in the LLP Bill
7 The LLP gives its partners the flexibility of limited liability compared to none for usual partnerships but yet with less onerous reporting requirements than companies. However, this comes with safeguards in the LLP Bill to minimize abuse and protect the LLP's other stakeholders.
8 While an LLP gives the benefit of limited liability to its partners, the LLP itself will be fully liable to its clients for the actions of its partners. Claims can therefore be made against an LLP to the full extent of its assets. Also, if a partner is negligent, claims for losses resulting from his own negligence can be made against him and his personal assets. The LLP only protects "innocent" partners from personal liability for the negligence of other partners. The "innocent" partners' liability is limited only to the amount they have contributed to the LLP. The Bill requires the name of an LLP to contain the words "limited liability partnership", or the acronym "LLP", so that the status is clear to those it transacts with.
9 An LLP is not required to file its accounts or have them audited. Nor does it need to disclose its capital. The Bill, however, has several safeguards to protect creditors' interest. An LLP is required to declare its solvency status annually, and to keep proper accounting records so as to enable true and fair views of financial statements to be prepared. The Registrar of LLPs is empowered to require the LLP to produce the accounting records for inspection where appropriate. In addition, all LLPs must have at least one locally resident manager whose responsibilities include ensuring that such requirements are satisfied.
10 The LLP has features to ensure equity in the treatment of creditors in the event it is wound up. The Bill provides a structured winding up process, modelled after the Companies Act, where an independent party, namely the liquidator, will objectively collect all assets and distribute them fairly amongst the creditors. To prevent partners from siphoning off funds, the Bill provides that, if a partner receives a distribution from the LLP when the LLP is insolvent or which results in the LLP becoming insolvent, the LLP is allowed to "claw back" the amount distributed if the distribution occurred within a period of three years preceding the commencement of the winding up of the LLP. This safeguard is unique to LLPs. Other safeguards include the provision that partners can be held personally liable for the debts of the LLP if they carried on the business of the LLP with intent to defraud creditors.
11 The LLP's partners can be disqualified from being managers of an LLP and from being a company director. Also, a person who receives a disqualification order from the High Court under section 149 of the Companies Act will automatically be disqualified from managing another LLP or company during the period of the disqualification order.
Other Provisions in the Bill
12 Sir, I shall now briefly touch on some of the other provisions in the Bill. The Bill provides that the Accounting and Corporate Regulatory Authority, or ACRA, shall be responsible for the administration of the Bill. It also provides for the appointment and duties of the Registrar of Limited Liability Partnerships.
13 The Bill requires that every LLP shall have at least two partners at the point of registration. The LLP and its partners must be registered at ACRA.
14 To facilitate partnerships and private limited companies who may wish to convert to LLPs, the Bill sets out a conversion process which may be used by such partnerships or companies if they wish, whereby the properties, assets, interests, rights, privileges, liabilities, obligations and the undertaking of the partnership or company may be transferred to the LLP under the conditions set out in the Second and Third Schedules.
15 Sir, the creation of the LLP business vehicle will increase the options available to businessmen and investors. It is consistent with our overall policy to make Singapore a good and progressive place for business.
16 Mr Speaker, Sir, I beg to move.