Choosing your corporate structure will jumpstart your company as you incorporate in Singapore. What you pick ultimately determines not only the limitations of your new business, but also its risk factors, as well as the overall company organization.
This is where you get to select the types of shares you’ll be handling, the corresponding share transfer rules, plus the company’s administrative liabilities, tax rates, scalability, and, of course, the accompanying compliance responsibilities.
Choosing the Right Corporate Structure for Your Singapore Company
Here are some of the primary elements you should take into account while choosing your company’s business structure in Singapore:
- Company Size: While individual entrepreneurs can settle for a sole proprietorship, businesses with multiple stakeholders are typically advised to consider incorporating a Limited Liability Company, complete with public or private shares.
- Type of Business: Considering the limits of your operations will be substantially determined by your company structure, you might want to take into account the type of business you’re planning to run.
If you’re trying to register a professional agency, for instance, you could proceed with a Partnership structure. And when it comes to general businesses, you can go for any of the Limited Liability structures or a Sole Proprietorship.
- Business Risks: The different types of business structures in Singapore manage their liabilities differently. So, you should pick an ideal corporate structure based on the standard business risks you’ll be facing.
Solo entrepreneurs seeking to set up a low-risk business could comfortably proceed with a Sole Proprietorship or a General Partnership. High-risk business entities, on the other hand, would be better off with a Limited Liability Company. This allows you to separate the company’s losses and debts from your personal liabilities as a separate legal entity.
- Compliance Responsibilities: Singapore authorities treat the various corporate structures very differently. Each company type has its own set of registration requirements and compliance responsibilities.
If you’re thinking of incorporating an LLC, for example, you’ll be required to record and submit your shareholders’ meeting minutes, as well as file your overall company returns every year. Sole Proprietorships, however, can get away with filing just their personal income taxes.
- Citizenship Status: Although Singapore is renowned for supporting foreign companies, it doesn’t give non-citizens the same incorporation privileges as domestic entrepreneurs. The Accounting and Corporate Regulatory Authority (ACRA), which oversees every business entity in the country, prioritizes citizens over foreign entrepreneurs.
Citizens are allowed to freely set up plain Sole Proprietorships, Limited Liability Companies, and Partnerships, while foreign businesses are required to go beyond that and choose between a Subsidiary Company, a Representative Office, and a Branch Office.
- Business Plan: It’s always a good idea to consider your short-term and long-term business plans as you incorporate a company in Singapore. Your business plan may help narrow down the types of business structures suitable for your organization.
If you’re planning to expand and bring in investors in the future, you should go for a corporate structure that accommodates additional stakeholders (such as LLC). Not only will the company become a separate legal entity, it removes the personal liability of the owners when it comes to financial liability.
Types of Business Structures in Singapore
There are three principal types of registered businesses in Singapore:
- Sole Proprietorships
- Limited Liability Company (LLC)
Under these general categories are sub-categories of business structures that differ in business operations. Public Limited Companies and Private Limited Companies, for instance, are both variations of Limited Liability Companies. Then when it comes to Partnerships, you get to choose between General Partnerships, Limited Partnerships, and Limited Liability Partnerships.
Singapore Business Structure #1: Sole Proprietorship
As the name suggests, sole proprietorship entails doing things alone. You can think of it as the corporate structure for entrepreneurs who prefer to handle their business operations as individuals, instead of companies. You and the business are essentially regarded as one and the same entity.
This makes sole proprietorships the simplest and most straightforward types of companies in Singapore. There are no complications like shares, shareholders, and compliance reports. Even the corporate income itself doesn’t attract regular business taxes. Instead, the Inland Revenue Authority of Singapore expects you to file the business returns along with your personal income tax.
However, this corporate structure comes with a price, and a huge one for that matter. Business owners are expected to take on the legal responsibilities of the company, including the losses and debts incurred from your business operations. If the business faces legal action but fails to pay its bills, the court will seize your personal assets to offset the costs.
If you assume filing the business taxes along with your personal income is actually a plus, you might want to revisit the IRAS income tax rate schedule. You’ll notice that while the tax rate for personal income is usually between 0% and 22%, corporate income tax in Singapore doesn’t stretch beyond 17%.
All things considered, therefore, sole proprietorships are only ideal for individuals dealing with low-risk businesses. This is certainly not a corporate structure for growing small to medium-sized businesses
Advantages/Pros and Disadvantages/Cons Of Sole Proprietorships In Singapore
- Incredibly easy to register and manage.
- Business tax is usually a part of your personal income tax.
- You’ll be entitled to all the business profits.
- It doesn’t take much to implement administrative changes.
- You get to avoid most of the cumbersome corporate compliance requirements.
- You can easily convert the business into a partnership by introducing an additional administrator.
- The process of transferring business liabilities and assets is conveniently easy and straightforward.
- Comes with unlimited business and personal liabilities.
- All the management responsibilities rest with one individual.
- The business cannot accommodate investors in the form of equity holders.
- The business misses out on corporate tax benefits.
- Litigants are allowed to seize your personal assets if the business fails to meet the costs accordingly.
- You won’t be able to purchase real estate or properties using the business name.
- The business ultimately dies with its owner.
Variations of Sole Proprietorships In Singapore
So far, there are no business structure variations when it comes to sole proprietorships.
The Requirements For Registering a Sole Proprietorship in Singapore
To register a sole proprietorship in Singapore, you must:
- Be at least 18 years old.
- Be either an EntrePass holder, a Permanent Resident (PR), or a legal citizen in Singapore.
- Proceed as an individual entity.
- Have a Medisave account ready, complete with sufficient funds.
- Provide a valid Singapore business address.
- Appoint at least one manager aged 21 or older.
Singapore Business Structure #2: Limited Liability Company (LLC)
LLCs are among the most popular forms for business structures in Singapore as limited liability companies are open to multiple shareholders, who consistently remain protected from the company’s liabilities. In essence, the business entity exists and runs as a separate identity from its equity holders. This grants personal immunity from the company’s losses and debts.
However, registering and managing such types of companies in Singapore is not as easy as maintaining a sole proprietorship. You have to file corporate income taxes, make administrative decisions as a group, maintain compliance with a diverse range of authorities, plus much more.
Advantages/Pros and Disadvantages/Cons Of Limited Liability Companies In Singapore
- The companies and their accompanying liabilities operate as a separate entity from the shareholders.
- The companies are entitled to corporate tax benefits.
- You can proceed to raise capital through shareholders and investors.
- Allows you to transfer equity by buying and selling company shares
- Company succession is perpetual.
- Comes with numerous compliance requirements.
- The decision-making process can be long and tedious, owing to the multiple parties involved in the company’s administration.
- The registration process is comparatively costly.
Variations of Limited Liability Companies In Singapore
- Private Limited Company (Pte Ltd): The Private Limited Company is arguably the most preferred corporate structure in Singapore. You can think of a Private Limited Company as an LLC that manages its shares and operations privately, without involving public trading systems.
Please note, however, that the number of shareholders in a Private Limited Company cannot surpass 50. Plus, at least one of the directors should be a Singapore resident. The company must also have a physical address in Singapore, a corporate secretary, and a corporate bank account separate from its shareholders.
- Public Limited Company: The opposite of a Private Limited Company, Public Limited Company in Singapore is more or less a publicly-traded corporation. That means you can freely buy or sell its shares through the stock exchange.
And to facilitate all that, Public Limited Companies get to accommodate more than 50 shareholders. Some companies in Singapore, as a matter of fact, have thousands of stakeholders.
- Public Company Limited by Guarantee: This category is mostly open to non-profit organizations, charities, clubs, trade associations, interest bodies, and religious bodies. These are companies or organizations that do not generate revenue, and may also be called non-profit organizations.
Unlike Private Limited and Public Limited corporations, these business types do not come with share capital. Instead, the liability of its members is limited to the corresponding guarantee amount.
The Requirements For Registering a Limited Liability Company in Singapore
To register a Limited Liability Company in Singapore, you should have:
- Initial paid-up capital.
- At least one company secretary.
- A registered local office address.
- At least one shareholder.
- An approved company name.
- The personal details of all the shareholders and directors.
- A company constitution.
Singapore Business Structure #3: Partnerships
Partnerships in Singapore operate like Sole Proprietorships, but with multiple individual members. Basically, two or more people come together, combine their skill sets, and form a profitable business. Each individual subsequently becomes a partner, who then earns income directly from the company’s profits.
It’s worth noting, however, unlike LLCs, partnerships do not come with numerous compliance obligations- including business returns filing and audit reports. Another thing you won’t need is a constitution. While it’s always a good idea to sign a legal partnership agreement with all the members, business registration doesn’t require any written documentation.
However, partnerships are greatly disadvantaged when it comes to business liabilities. Just like Sole Proprietorships, these types of companies in Singapore won’t shield you from their accompanying liabilities.
The fact is, all the partners face some form of personal liability arising from their business operations. And any unpaid partnership debt is eventually recovered from the members’ personal assets. Partners are protected from malicious intent, misconduct, and gross negligence of one or more members, however, depending on the situation.
Advantages/Pros and Disadvantages/Cons of Partnerships in Singapore
- The registration process is pretty simple, straightforward, and cheap.
- Flexible enough to accommodate multiple partners in one business.
- Doesn’t come with complex corporate compliance obligations and statutory controls.
- Partners can freely make administrative decisions without external interference.
- Allows you to designate partnership roles.
- You don’t need to file your annual business returns.
- Partners are not immune from their company’s liabilities. You’ll be personally liable for the business losses and debts.
- Limited partners don’t get the same administrative privileges as general partners.
- The partnerships do not offer share-trading capabilities.
- The personal income tax rate is usually higher than the standard corporate tax rate.
Variations of Partnerships in Singapore
- General Partnerships: These are your standard everyday partnerships in Singapore. In essence, General Partnerships accommodate up to 20 partners, with every member bearing the same level of responsibilities, influence, privileges, and liabilities.
That means that while every partner can participate directly in the management of the business, no one is immune from the partnership’s losses or debts.
- Limited Partnerships: Unlike General Partnerships, Limited Partnerships do not limit the number of members. You can have even hundreds of partners joining the bandwagon. They don’t get the same level of privileges and liabilities, as there are two different types of member designations- general partners and limited partners.
The general partners are the big bosses. They are the ones who directly manage the business, but it comes at a cost. General partners often face financial and legal responsibilities, and share the liabilities in the business.
Limited partners, on the other hand, manage to avoid some of the liability, but not to a large extent. Their level of liability depends on the amounts they contribute to the partnership. And for that, the limited partners are usually left out of the company’s management operations.
- Limited Liability Partnerships (LLP): Understandably, this is the most preferred form of partnership in Singapore. And the principal reason is, they’re a blend between Partnerships and Limited Liability Companies.
The end result is fundamentally a corporate structure with two or partners, who are individually shielded from the liabilities arising from other members. In short, therefore, you won’t be liable for the debts and losses emerging from your co-partners’ actions. It’s every man for himself.
The Requirements For Registering a Partnership in Singapore
For ACRA to register your partnership in Singapore, you need:
- At least two partners.
- A declaration of compliance.
- A Medisave account.
- At least one manager who’s a Singapore resident.
- A registered local business address.
- The personal details of all the partners and managers.
- An approved name of the partnership company.
Final Verdict: Which Is The Best Singapore Business Structure For You?
With the corporate structure basics finally debunked, you can now compare the features to determine the best types of companies in Singapore. And while you’re at it, you should be able to identify the most suitable corporate structure for your business.
Fortunately, though, you don’t have to sweat the details. WealthBridge’s team of professionals has got you covered. Apart from incorporating the company for you, we’ll help you build it from the ground up.
We’ve got all the essential corporate services you might need for all types of companies in Singapore — from tax filing and accounting to payroll management and company incorporation services!
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