This the company). Here are the relevant characteristics:

This subset of the report provides a comparison of
Limited Liability Company and Limited Liability Partnership entity types to
assist a law firm merger in choosing the most appropriate business structure
for its business needs.

1.  Legal Identity

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A Singapore LLC and LLP have its own legal
identity, separate from those of its shareholders (who own the company) and its
directors (who manage the company). Here are the relevant characteristics:

a.     The entity can incur and receive
obligations and hold property in its own name, enter into contracts with its
members, directors, employees and with third parties.

The entity can sue and
be sued in its own name
The entity continues
unchanged even if the identity of its participants changes.
The entity can enter
into legal relationships with its members or directors.

 Each of the above characteristics will be
explored and its relevance to the law mergers needs will be compared.

2.  Business Liability

Since LLPs and LLCs in Singapore are setup as limited liability legal entities,
their business obligations remain within the entity itself and thus shield
their members (partners and shareholders respectively) via the provision of
limited liability. Essentially it means that any exposure is limited to the
amount a shareholder or partner has invested in the entity and their personal
assets are protected.

On this count, both measures of LLPs and LLCs can
be equally effective.

3.  Perpetuity and Succession

LLPs and LLCs both have a continued existence
irrespective of the status of its partners or directors and shareholders.
Members’ resignation or death does not normally affect the continued existence
of the LLP or LLC.

On this count, both measures of LLPs and LLCs can
be equally effective.

4.  Ease of Expansion

Central to the growth and expansion of any business
is capital. Generally, LLPs face more difficulty in raising funds, which is
often limited to its partners’ contributions.

As a private limited company setup, the firm can take advantage of the ability
to raise capital by means of adding equity partners, venture funds, business
financing through banks, etc. Equity partners are more likely to invest in a
company where there is a formal separation between personal and business
assets. In general, banks prefer to lend money to companies than LLPs as the
perceived risks are lower, hence also giving more favourable interests rates.

5.  Taxation

LLPs in Singapore are taxed at the personal income
level of the owners. For LLPs, profits are distributed among partners as per
the partnership agreement and treated as part of each partners’ personal income
and are taxed at personal income tax rates. As the projected incomes of the
equity partners are substantial, with the lowest equity partner at 19.5%, it is
worthwhile to compare the taxes to be paid under the two different entity
structure, and use the tax incidence to serve as a key discriminant in deciding
which structure to adopt.

Private Limited companies in Singapore are taxed at the corporate tax rate and get to enjoy various tax exemptions
available for companies. The effective corporate tax rate for LLCs for profits
up to SGD 300,000 is below 9% and capped at 17% for profits above SGD 300,000.
Furthermore, for the first three years of company incorporation, there is zero
tax on the first S$100,000 of profits each year. Singapore follows a single-tier
tax policy which means once the income has been taxed at the corporate level,
dividends can be distributed to the equity partners tax free.

In our case, the projected incomes for 2018 are
taxed as such:

Taxable
Income

Approx.
tax as LLP (S$)

Approx.
tax as LLC (S$)

450,050

73,161

N.A

450,050

73,161

N.A

266,696

33,955.72

N.A

250,028

30,705.46

N.A

250,028

30,705.46

N.A

Total

241,688.64

199,491.74

Note: The above calculations have incorporated the 20% rebate for YA 2018 and
yields a tax saving of $241,688.64 – $199,491.74 = $42,196.90. The above
calculation also takes into account that this merger is new and enjoys the
first 3 years of tax exemptions.

6.  Transfer of Ownership

LLPs, cannot be sold as whole. Instead, the seller
has to individually transfer each of the partnership’s assets, licenses and
permits. This is very unwieldy for law firms. Due to it’s inferior structure,
law firms that uses the LLP structure may be unwilling to promote juniors to
equity partners along the way when the partnership grows.

On the other hand, full or partial ownership of a company can be easily
transferred without disrupting operations through the sale of shares. This will
facilitate ease of exit and entry of new directors.

7.  Ongoing Maintenance

The registration for a LLP is less complex than a LLC. The
registration fee is S$165 payable to Accounting and Corporate Regulatory
Authority (ACRA). For annual compliance requirements, LLPs must submit annual
declarations of solvency or insolvency to ACRA. There are no further documents
to be filed.

LLC registration is a little more complex than the above two
entities and the ACRA registration fee is S$315. Also, annual filing requirements
are more substantial such as the need to file annual accounts, tax return, the holding
of Annual General Meeting, printing of notices and circulars etc.

8.  Public Perception

The public perception of the merged law firm among
employees, bankers and clients can significantly affect the viability and
ability to charge higher fees. A private limited company structure communicates
seriousness, credibility, permanence, confidence and stature.

9.  Dissolution

Terminating a LLP is easier than terminating an LLC.
You can either choose to strike off or wind up your operations. Although
striking off is more straightforward, there exists certain statutory
requirements that need to be fulfilled before the merged entity can follow the
strike-off route. The termination process, in either case, can take anywhere
between 3-12 months, depending on the complexities involved.

10.             
Conclusion: Which Option to Choose?

Of all the three entities, setting up a private
limited Singapore company is the best choice for our needs. The personal assets
of all directors are protected from business liabilities, the company/firm
enjoys special tax incentives from the government, and a structure that allows the
firm ease of future expansion. It is obvious that an LLC suits our purposes
right from the onset better than an LLP, and for future expansion, the LLC
structure is more ideal. The substantial tax advantage for the first year in
business is already at $42,196.90, and future expansion on the back of an LLC
vehicle is certainly more take effective than that of the LLP.

When the economy gets better, and the merger begins
to bear fruit arising from better perception, natural size advantage and other
synergies, the tax advantage of an LLC over that of an LLP can certainly
increase.