Choosing the Best Business Structure - Singapore
The individual entrepreneurs can choose Sole proprietorship, Private Limited Company or one of the forms of Partnerships to start their business in Singapore.
A local or foreign individual above the age of 18 years can opt to form a Singapore company. The process for company incorporation in Singapore is fast and hassle-free. You should prefer a particular business structure for the setting up of your Singapore company based on the magnitude of the business idea (whether it is a product or platform), the scope of the business plan, and the scale of your intended business activities. You also need to determine your liability, tax obligations, cost and appreciate your business assets before taking the final decision on the structure to incorporate.
1) Private Limited Company (Pte Ltd)
A private limited company is the most favored business structure for Singapore business formation. Its shareholders (owners) can be from 1-50. At least one of the director needs to be resident of Singapore.
- A private limited company has a separate legal identity from its owners.
- It can buy property in its own name.
- It can sue or be sued in its own name, which keeps the shareholders out of the courts of law.
- The private limited company has perpetual existence. It is not tied to any particular member or shareholder.
- The shareholders are not responsible for the loss or debt incurred by a Pte Ltd.
- Singapore allows 100% foreign ownership.
- Transfer of ownership is easy.
In general, a private limited company has more credibility than a sole proprietorship or a partnership in the eyes of investors, banks, financial institutions, suppliers, & customers. The perception matters when a Pte Ltd company goes to the market for securing loans.
2) Public Limited Company
A public limited company listed on the stock exchanges. The general public can buy its shares or debentures. The number of its shareholders is more than 50.
3) Public Company Limited by Guarantee
Most often, these are started to promote the non-profit causes. The non-profit organizations, trade associations, clubs, charitable & religious bodies, and professional societies are its best examples.
In the eyes of Singapore Company Law, a sole proprietorship is not a separate legal entity from its owner or proprietor. It is not an incorporated company and it is regarded as a business firm. Because of this,
- The owner has to deal with unlimited liability for the debts and losses incurred during the course of its business activities.
- A sole proprietorship cannot buy properties or real estate in its own name.
- They need to be in the name of its proprietor who is required to pay property tax on it from their own pockets.
- Its income is considered as that of its owner who has to pay personal income tax.
Singapore Company Law allows two or more entities (individuals and corporate) to come together and register a partnership. The business structure allows the business owners with the complimenting skill sets to come together & conduct their business activities to earn a profit. It can have 2 to 20 members (partners). The members of the partnership need to pay personal income tax on the income received from its business activities. There are 3 types of partnership.
A general partnership closely resembles to the sole proprietorship business. These firms share the same handicap when it comes to the personal risk & liability of their owners towards the debt or losses arising out of business activities. This type of partnership holds, all the partners liable for its losses or debts irrespective of their involvement.
A limited partnership differentiates its members as General Partners and Limited Partners. There is no limit on the number of partners it can have, but it needs at least one general partners and a limited partner. The liability of the limited partners is only up to the amount specified in the partnership agreement. However, the liability of the general partners is unlimited.
Limited Liability Partnership (LLP)
An LLP is the most favored form of partnership by the business owners. It combines the features of a partnership and a company. A group of two or more qualified individuals having complementing skills prefers to form this type of partnership. This partnership form determines the liability of its owners based on their actions or inactions.
- The LLP has separate legal existence from its owners.
- Its owners need to pay personal income tax on the income received from it.
- They chose this form because like a private limited company it limits their liability to some extent.
- Its debts or the losses are attributed to the partners because of their carelessness, actions or inactions leading to the losses to the partnership.
- The uninvolved partners are spared from the responsibility.
- An LLP is best suitable for professionals like chartered accountant, lawyer, architect, etc.
Singapore Tax Regime Advantages
The lack of capital gain tax in Singapore attracts global investors in their droves. It means the dividends distributed by the Singapore companies to their investors are tax-free. In addition, the Singapore companies have access to many tax incentives, rebates, exemption schemes, etc. It is one of the reasons established foreign businesses opt to set up their Singapore companies.
For the business owners opting for a company incorporation Singapore, the country offers stringent Intellectual Property laws, state-of-the-art infrastructure, advanced transport network.