When incorporating an entity in Singapore, one of the most critical decisions you’ll make is choosing the right business structure. This choice can impact various aspects of your business, including taxation, perception among clients and suppliers, paperwork requirements, personal liability, borrowing ability, and growth potential.
Here are the main business entity types in Singapore:
- Private Limited Company: A private limited company is a limited liability company (LLC) where shares are held by fewer than 50 individuals and are not available to the general public. Most businesses in Singapore are registered as private limited companies. This structure offers several advantages, including a separate legal entity, limited liability for shareholders, perpetual succession, ease of raising capital, a credible image, and ease of ownership transfer.
- Public Limited Company: A public limited company can offer shares to the general public. It must have at least 50 shareholders and is subject to more stringent regulations. Public limited companies are typically listed on stock exchanges and are meant for larger businesses.
- Public Company Limited by Guarantee: This type of entity is intended for non-profit purposes.
- Foreign Company Registration Options: Foreign companies can establish a presence in Singapore through a branch office, subsidiary, or representative office. A subsidiary company, where the parent company is the shareholder, is the most preferred option for small to medium-sized foreign businesses.
- Sole Proprietorship: This is the simplest form of business, but it carries unlimited personal liability. The business and the owner are considered the same legal entity, which means personal assets are at risk in case of business debts.
- Partnership: Partnerships allow two or more people to co-own a business, but the partners are personally liable for the business’s debts.
Partnerships in Singapore can be of three types:
General partnership
A general partnership is formed by a minimum of two persons and a maximum of 20 persons. Partners pay taxes as personal income tax, based on their share of income from the partnership. A general partnership is not an attractive way to structure a business in Singapore for several reasons: Partners are personally liable for the debts and liabilities of the business, similar to a sole proprietorship. Each partner can be held responsible for the actions of another partner.
Limited Partnership
A limited partnership is an alternative to the general partnership type of business form in Singapore. It introduces the concept of a limited partner in addition to a general partner. The liabilities of limited partners are limited to their investment in the partnership (capital or property). However, limited partners are unable to participate in the management of the business. Even a limited partnership in Singapore is not a very attractive vehicle for setting up a business for most people.
Limited Liability Partnership
Among the three types of partnership business entities, LLP is the most recent and advanced business incorporation structure. It combines the features of partnerships and companies. LLP was introduced in Singapore in 2005 through the Limited Liability Partnership Act. Registering an LLP gives owners the flexibility of operating as a partnership while enjoying many benefits that come with a corporate body like a private limited company. However, an LLP must have at least two partners at all times.
LLP
LLP is primarily meant for carrying a profession (e.g., accountants, law firms, architects, etc.) where two or more professionals would like to build a joint practice in a common field and is not suited for businesses that carry a trade. The owners must enter into detailed agreements about how the profits and management responsibilities are divided. It can get very complicated and generally requires the services of a lawyer to draw up the agreement. Partners in a limited liability partnership are usually responsible for cultivating their own clients based on the partner’s specific area of focus.
Deciding on the right business structure to incorporate in Singapore will depend on your particular situation and plans. As a general rule, you can use the following guidelines when making your decision:
If you are a local person and would like to register a small business where you will be the only owner and the nature of your products/service does not carry liability issues, it might be easier for you to register your business as a sole proprietorship. However, you must carefully consider that in case of any business liabilities, the claimants can go after your personal assets. If your business involves selling your services by way of the profession you hold (e.g., accountant, lawyer, architect, etc.) and you have one or more additional partners in a similar profession and would like to build a joint practice, setting up an LLP might be a suitable business structure for you. In all other cases, incorporating a private limited company in Singapore would be the best choice. Although compliance requirements are slightly more complex, it is by far the best structure in the long run.
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