How to Choose the Right Business Structure in Singapore?

There is no second though about Singapore being one of the best countries in Asia to grow a business. The country which offers one of the lowest corporate tax rates in the region of 17% has multiple benefits. Right from business-friendly government policies and a regulatory environment to a highly skilled local workforce this country offers everything to kickstart your business and amplify it. Which is why choosing the right business structure impacts tax obligations, business reputation, administrative workload, personal liability, borrowing capacity, and potential expansion. Here are the main types of business entities that can be incorporated in Singapore.?

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Sole Proprietorship

A Sole Proprietorship is the simplest form of business structure in Singapore, run by an individual. It does not constitute a separate legal entity, meaning the owner and the business are the same. In a sole proprietorship, the liability of the owner is unlimited as the owner personally owns the assets and liabilities of the business, which is a significant risk factor. Profits are treated as income of the individual who owes the entity; thus, it is subjected to a tax rate as that of personal income.

Registration of Singapore sole proprietorship must be renewed annually, and it is exempted from annual audits and filing financial statements with the Accounting and Corporate Regulatory Authority (ACRA).

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General Partnership

A General Partnership involves two or more individuals doing business together to earn profit, with a maximum number of partners allowed is 20. Like a sole proprietorship, it is not a separate legal entity from the partners. Partners have unlimited liability. Partners are personally liable for debts and losses incurred by the partnership.

Partners cannot own property in the firm’s name. The profits are taxed at the partner’s income tax rate based on the share of income from the partnership.

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Limited Partnership

A Limited Partnership (LP) consists of at least one general partner and one limited partner, with no maximum limit on the number of partners. The general partner has unlimited liability, while the limited partner’s liability is restricted to their investment in the business. An LP is not a separate legal entity from its owner and cannot own property in the firm’s name.

The share of income from the partnership is taxed at the partner’s tax rate if they are individual and corporate income tax rates if they are corporations. If there is no limited partner, the LP registration will be subject to suspension.

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Limited Liability Partnership

A Limited Liability Partnership (LLP) combines the benefits of a partnership and a private limited company. It is a separate legal entity, meaning it can own property and be sued in its name. A partner’s liabilities are generally limited to their investment, except for debts and losses resulting from their actions, but they are not liable for debts and losses of LLP incurred by the other partners.

Profits are taxed at the partner’s personal or corporate tax rate based on their share of income from the partnership. The LLP is a ‘body corporate’ regulated under the Singapore LLP Act 2005.

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Private Limited Company

A Private Limited Company (LLC) is a common business structure in Singapore, identified by names ending with "Private Limited" or "Pte Ltd." ?It is a separate legal entity, distinct from its shareholders, who can be individuals or corporations, with a maximum of 50 Members. Shareholders are not personally liable for the company's debts beyond the amount of their shares.

Private limited companies benefit from various tax incentives and advantages provided by the Singapore Government to encourage business growth & investments. The company’s existence is independent of its shareholders, making it easier for long-term planning.

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Public Company Limited by Shares

A Public Company Limited by Shares, typically ending with "Limited" or "Ltd," can have more than 50 members and can obtain capital by offering shares or debentures to the public. It is suitable for larger businesses that need to raise capital from the public and is usually listed on the stock exchange. The liability of the shareholders is also limited to the capital they have invested initially.

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Public Company Limited by Guarantee

A Public Company Limited by Guarantee is usually established for non-profit purposes, such as charities or public interest activities. The company does not have share capital, and the members act as guarantors, with their liability limited to the amount spent on contributing to the company assets.

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Each business structure in Singapore has specific requirements and implications for management, liability, and taxation. When it comes to choosing the ideal business structure for incorporation in Singapore, it is crucial to consider specific circumstances and future goals. Generally, most business owners opt for a private limited company business structure, due to its flexibility and the fact that it can enjoy the multiple tax incentives offered in Singapore. Reach out to our team of professionals who will assist you with the business structure best suitable for your business needs.