Partnerships and LLPs

Formerly, professionals were limited to using partnerships as their business vehicle. The problem with partnerships is that the partners face unlimited liability. This means that for partnership liability including claims of professional negligence, each partner was fully responsible for the liability. This was regardless of the individual partner's blameworthiness for the negligence and regardless of the size of the ownership of the partner in the partnership. In other words, a 5% partner in the partnership who never even met the complaining client could end up paying the entire claim against the partnership if he turned out to be the only person having the resources to pay the claim. Neither could partners protect their personal assets from their business liabilities.

However, now that the law allows partners to set up limited liability partnerships (LLPs), many professional firms have now converted to this form of business vehicle. For example the big 4 audit firms in Singapore are now all LLPs.

It should be noted however, that using an LLP may not shield the negligent professional from unlimited liability. Limited liability is important in contract law situations but it is possible that an unhappy client could sue the partner concerned in tort law, using the concept of negligent misstatment perhaps, which is likely to circumvent any limited liability protection. In Singapore, this area has not yet been tested in court.