You can incorporate your business in Singapore in a variety of ways. You should first determine your business needs, available investment options, future business plans, and the type of liabilities and risks you are ready to face.
The type of business entity you decide to incorporate will affect how much taxes you will have to pay in the future. Some types of businesses structures do not command high value among clients and investors.
Some kinds of business entities involve a lot more paperwork and regulatory compliance. The owners in certain types of business entities are more responsible for their business liabilities.
The type of business entity you establish affects the types of loans and the amounts of money you can borrow. You have higher or lower possibilities to expand your business based on the way you have incorporated your business. Check all these issues when planning to register your business entity in Singapore.
The following is a brief overview of the way business entities can be incorporated in Singapore. Each type of entity is subject to a different tax regime and regulatory compliance based on the way the organization is structured.
PRIVATE LIMITED COMPANY
A private limited company’s shares are not available to the general public. Not more than 50 people can hold the shares in such a company.
This is the preferred way private businesses are registered in Singapore. This type of company is easily identifiable. You will find the term Private Limited or Pte. Ltd. at the end of the company name.
The shares of such a company can be held by corporate entities, individuals, or both. This type of company is scalable. It is a flexible and advanced way to form a business entity in Singapore.
It is because of these advantages that most entrepreneurs in Singapore prefer this route to incorporate their business entity. The other options like limited liability partnership and sole proprietorship do not provide that much flexibility and scalability options.
Read company registration guide of Singapore to learn more about the way private limited companies are formed and incorporated. There are many reasons why entrepreneurs in Singapore prefer establishing their business as a private limited company.
- Limited Liability: The members are not liable fully for the company’s debts. Their obligation for debt liability is limited to the amount they have maintained as capital in the company
- Separate Legal Entity: Unlike a sole proprietorship entity where the owner and the company have same legal identity, there is separation of obligations when it comes to a private limited business entity. Its shareholders and directors have clearly defined and separate legal identities. The company and the shareholders are not considered the same. The company is sued and can sue under its name. Even when the shareholders and directors change, there are no changes in the company identity. It can hold property in its name. The obligations and liabilities are in the company name. It can enter into contracts with the employees, directors, members and third parties directly.
- Not Dependent on Members: There is no succession like structure in the company. The advantage of this type of entity is that it is not dependent on the continued membership of its members. They can come and go, change membership type and be removed without causing any change in the company identity. It allows easier transfer of shares. Company continues to operate even when shareholders and directors resign, declared insolvency, become incapable or die.
- Raise Funds Easily: Raising the funds for expansion and other purposes are easier with a private limited company. Investors are more attracted towards this type of company. It allows them to purchase shares when there is clear demarcation between the business and personal assets. Banks prefer lending money to this type of companies because they are dealing with the main company that holds all its assets.
- Better Market Reputation: An incorporated private limited entity commands higher respect in the market. It is not only the investors but even other business partners like employees and suppliers who trust this type of company more. It enjoys better standing compared to the partnership or sole proprietorship firms. Proper incorporation of the business entity shows its founders are committed to growing, developing and expanding its business operations. It is taken seriously by the bankers and investors. The suppliers and clients prefer such companies when signing deals, agreements and contracts.
- Able to Easily Transfer Ownership: The company ownership can be transferred partially or completely. Ownership transfer does not lead to any disruption in the business operations. There is no complex legal documentation involved in the ownership changing process. Partial or all shares can be sold. New shares can be issued to additional investors.
- Tax Incentives and Benefits: Companies earning a profit less than SGD 300,000 pay less than 9% corporate tax. The tax rate is fixed at 17% for companies earning profits higher than this amount. There is no need to pay any capital gains tax. Dividends are tax free after paying the corporate income tax.
PUBLIC LIMITED COMPANY
Minimum 50 shareholders are needed to incorporate such a company. Its shares can be held by the general public. It faces complex regulations and higher scrutiny because it is allowed to collect money from the public for shareholding.
The company can be listed on the stock exchange to raise money and allow trade in its shares. This type of business entity is generally suited for large businesses that can arrange and manage large amounts of public investments.
LIMITED BY GUARANTEE PUBLIC COMPANY
This type of company is incorporated mainly for non-profit operations. It generally has public or national interest like providing charity or promoting art. Its members have limited liability and the company has a separate legal identity.
SOLE PROPRIETORSHIP
It is the simplest way to incorporate a business entity in Singapore. The owner and the company hold the same identity. All assets and liabilities of the business are held by the owner.
The personal assets of the owners are exposed to the business liabilities and risks. You are fully liable for all your business obligations and liabilities. If you fail to honor your business liabilities, your lenders can go after your personal assets and belongings. It carries high financial risks to the owner.
PARTNERSHIP
It is a partnership business entity where two or more people are the business owners. Similar to sole proprietorship business, its partners are liable for all liabilities of the business. A partner can serve notice for exiting the partnership at any time.
GENERAL PARTNERSHIP
This type of partnership can be formed by minimum 2 and maximum 20 people. The income taxes are paid by the partners based on their shareholding of the company.
It is similar to sole proprietorship and partnership companies so partners are liable for all business liabilities and debts. Each partner can be held liable for any action taken by another partner of the company.
LIMITED PARTNERSHIP
This type of business structure is formed when partners do not want to establish a general partnership entity. The advantage of this option over the general partnership entity is that partners have limited liabilities toward the business.
The liabilities are limited to the capital, property and investment. At the same time, partners cannot take business management decisions.
LIMITED LIABILITY PARTNERSHIP
It is the most advanced and latest way to structure the business entity in Singapore. It includes the features of both companies and partnerships. The owners can operate the business as a partnership and still enjoy corporate business type benefits available to the private limited companies like structures.
This type of company must always have a minimum of two partners. It is suitable for professional firms operating in the field of law, account, architecture or others. The LLP entity works well mainly for professional practitioners and not for businesses with the trading activities.
COMPANY REGISTRATION OPTIONS FOR FOREIGN COMPANIES
- Branch Office: It is an extension of the main foreign company. Any liability for this company extends to the parent company.
- Subsidiary Company: It is the most preferred business registration option for the foreign companies wanting to incorporate their business in Singapore. It is registered as a private limited company in Singapore. The parent company is the shareholder of this company.
- Representative Office: This type of office is registered generally as a stopgap arrangement for research or marketing activities. It cannot participate in profit generating activities.
WHICH TYPE OF BUSINESS ENTITY IS BEST FOR YOU?
It depends on several factors. You have to first determine the way you want to run your business and what type of risks and liabilities you are ready to face.
If you are a local resident and want to run a small business, a sole proprietorship registration is generally sufficient for the purpose. Keep in mind that you are completely liable for your business debts and losses. Lenders can take over your personal assets if you fail to clear your debts on time.
If you are a professional like a lawyer, accountant or architect, an LLP is the most suitable business structure option. This firm can have only you, another partner, or more than one partner as the owners.
For all other business establishment and company formation requirements, preference should be given to a private limited company. It involves complex and higher compliance requirements but for larger business operations it is the best business structure.
