Your Guide to Partnership Agreements in Singapore

A partnership is a relationship between two or more persons carrying on a business with a view to profit. Partnership agreements go hand-in-hand with setting up a partnership firm–partners can use the agreement to spell out their respective rights and duties with precision.

Why set up a partnership?

Partnerships in Singapore offer some of the following advantages:

1. Minimal formalities and administrative duties;
2. Low start-up costs;
3. Ease of dissolution;
4. High degree of privacy;
5. Freedom to change business plans;
6. Loans made to partnership are based on personal credit; and
7. Taxation at the individual partner’s income tax rate (and not of the entire partnership).

Read our other article for more information on forming a partnership in Singapore.

Why use a partnership agreement?

The Partnership Act provides a default framework of statutory rules regulating the rights and duties of the partners. However, partners are free to deviate from the statutory rules and stipulate their own set of rules for regulating their partnership, in the form of their partnership agreement.

Although oral agreements are also legally binding, they are more open to disputes if there is insufficient compelling evidence of the terms of these agreements. Partners are therefore encouraged to draft their own partnership agreement at the inception of the partnership to reduce the terms of their agreement into writing.

In addition, the terms of the partnership agreement must be carefully scrutinised. This is because partners are generally clothed with the authority over the firm’s assets and may subject their fellow partners to unlimited liability in respect of contractual or tortious obligations incurred by the firm.

If a partnership agreement is used but is not all-encompassing, the statutory rules of the Partnership Act may still intervene to fill in the gaps. This is the best of both worlds – the partners can spell out the most important terms of their partnership and leave the rest to the operation of the Partnership Act.

What terms should a partnership agreement contain?

Ideally, a well-drafted partnership agreement will have dealt with the following matters:

1. Name and purpose of partnership;
2. Responsibilities, performance and remuneration of each partner;
3. Contributions of individual partners, in terms of cash or sweat capital;
4. Procedure for the withdrawal of old partners and the admission of new ones;
5. Buy-out procedures;
6. Dispute resolution;
7. Financial and accounting arrangements;
8. Term and termination of partnership; and
9. Valuation of partnership shares.

Partnership Agreement Template

Need a partnership agreement template? You can get one here.

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