One of the most important phases in the establishment of a business in Singapore is the choice of an appropriate business structure. This decision will, first and foremost, affect your tax bill. In addition, it will affect the amount of paperwork your business must produce, your personal responsibilities, and your ability to raise money. Liability, taxation, and record-keeping often have an impact on the kind of business entity you pick for your organisation. Let's examine the differences between the most common kind of business entities.
A sole proprietorship is the most basic yet riskiest type of business structure in Singapore. A sole proprietorship has a variety of disadvantages for small and medium-sized firms since it is not considered as a separate legal entity.
A sole proprietor can be made personally liable for any debts incurred by the business. It will be impossible for additional equity owners to join the structure as the firm grows and develops.
There are very few genuine investors that operate as sole proprietors and most tax breaks offered to corporations do not apply to sole proprietorships.
As the name suggests, a partnership cannot exist without its partners. When a partner passes away, retires, or declares bankruptcy, the partnership ends. In Singapore, there are three different kinds of partnership structures:
Limited Liability Partnership (LLP)
The LLP, which was initially established in 2005 and combines the advantages of corporations and partnerships. While offering many of the same advantages as a private limited company, an LLP gives owners the flexibility to operate as a partnership while having a separate legal identity like a private limited company. Additionally, an LLP must be registered with the state and maintain a minimum of two partners at all times.
Limited Partnership (LP)
Unlike an LLP, an LP is controlled by the Limited Partnerships Act and has just its partners as its legal identity. A LP lacks a distinct legal identity from its partners, making it impossible for it to sue, be sued, or own property in its own right. One or more general partners and one or more limited partners constitute a LP. General partners can take part in the management of the LP's assets and are personally liable for them. On the other hand, limited partners have no power to bind the LP and are exclusively accountable for the amount they contributed.
General Partnership (GP)
A general partnership is a business owned by more than 1 individual or company but no more than 20 owners. All partners are fully liable for every debt, act and obligation that arises in the course of business.
According to the Singapore Companies Act, a limited liability company can be incorporated as follows:
Private Limited Company
A private company limited by shares is referred to as a "Private Limited Company." A private limited company may have one to fifty shareholders, who may be either individuals or corporations. More than 300,000 of Singapore's 500,000+ businesses are private limited companies. Why are the majority of businesses set up as private limited corporations?
Private limited companies are separate from their owners and directors and have their own legal personalities. They are able to enter into contracts, acquire assets, incur debt, and bring and receive legal actions in their own names.
The effective corporate tax rate is below 9% for businesses with profits under SGD 300,000, while it is a flat 17 percent for those with profits beyond SGD 300,000. Furthermore, there is no capital gains tax and businesses do not pay dividend tax in Singapore because of its single-tier tax system.
By issuing extra shares to current shareholders or bringing in new investors, you may raise money without affecting the structure of your business.
By selling shares, one can easily transfer control of the firm. This means that none of the members' continuous membership is necessary for the firm to continue operating.
Public Company Limited by Shares
A public company limited by shares, with more than 50 shareholders, is the optimal structure for big, well-established companies wanting to raise money by selling shares to the general public.
Public companies are subject to strict rules and are required to register with the Singapore Monetary Authority. They cost a lot more to set up and maintain since they have several compliance and reporting requirements.
Public Limited Company By Guarantee
A public company limited by guarantee is exclusively used for non-profit organisations engaged in charitable or artistic endeavours that serve the public good or the country. As a result, this article does not discuss its legal structure.
A foreign company planning to setup an office or expand their business in Singapore has several options that they may consider for their company structure. These options are rather complex and specific. To make your expansion to Singapore easier, we advise you to get in touch with us here.
Wrapping it up
Before choosing a business structure, it's crucial to consider a wide range of factors because each one may have different qualities, advantages and disadvantages. Common factors to take into account include the number of business owners, investment capital, tax advantages, and obligations related to each kind of business structure.
Are you still unsure of the Singapore business structure that would work best for your company? Ask for sound guidance from a reputable company like Starboard. To find out more, get in touch with us!