When it comes to incorporating your business in Singapore, the choice of business structure holds significant weight. It can impact various aspects, including:
- Tax obligations
- Business reputation
- Administrative requirements
- Personal liability
- Borrowing capacity
- Growth potential
Therefore, selecting the right legal entity is a crucial decision with far-reaching implications. In this guide, we will provide you with a detailed overview of the various types of entities available and highlight their key features and differences.
Let us dive in and explore the options available to you in Singapore’s dynamic business landscape.
Company
A company is in essence a business type that is a legal entity distinct and separate from its shareholders and directors.
You will find several kinds of companies in Singapore, such as:
- Private Limited Company (PLC)
- Exempt Private Company
- Public Company Limited by Shares
- Public Company Limited by Guarantee
These few forms share the same legal status, registration requirements, and statutory obligations. Here are some of them:
- Must appoint a company secretary within 6 months of company incorporation
- Must appoint a company auditor within 3 months of company incorporation, unless legally exempt
- Must file annual returns and comply with statutory requirements for annual general meetings (AGMs), etc
- Must have at least 1 shareholder
- Must have at least 1 ordinarily resident director
- At least 1 local registered business address
Private Limited Company
Arguably the most favoured choice of the available options, a private limited company is a limited liability company (LLC) where shares are held by a maximum of 50 members. The shareholders can be either individuals or corporations/entities.
Private limited companies form the majority of privately registered businesses in Singapore. It can be identified by company names ending with “Private Limited” or “Pte Ltd”.
Related Read: From Idea to Incorporation: Forming a Singapore Private Limited Company
What Are the Benefits of a Private Limited Company?
A private limited company offers numerous advantages that make it a popular choice for entrepreneurs and business owners. By adopting this corporate structure, you can unlock opportunities that foster growth, ensure protection, and provide a solid foundation for long-term success.
Let us delve into the key benefits of a private limited company:
Separate Legal Entity
A private limited company is a separate legal entity, distinct from its shareholders. This allows for contracts, agreements, and obligations to be entered into in the company’s name.
It offers flexibility in terms of owning assets, entering partnerships, legal affairs, and engaging in business activities, giving you greater control and autonomy.
Limited Liability
One of the most significant advantages is the concept of limited liability. As a shareholder of a private limited company, your personal assets are separate from the company’s liabilities.
This means that your personal wealth is shielded, and you are not personally liable for the debts and obligations of the company. It offers peace of mind and safeguards your personal finances.
Tax Incentives and Benefits
Private limited companies can benefit from tax advantages and incentives provided by the Singapore government to encourage business growth and investment.
These can include lower tax rates, tax deductions for certain expenses, and eligibility for government grants or incentives that support specific industries or activities.
PLCs’ profits are taxed at the prevailing corporate tax rate of 17%, which is highly attractive to potential business owners.
Related Read: 6 Ways to Lower Your Corporate Taxes in Singapore Legally
Perpetual Succession and Continuity
Unlike sole proprietorships or partnerships that cease to exist upon the death or exit of the owner(s), private limited companies offer continuity.
The company’s existence is not dependent on the individual shareholders, making it easier to plan for the long term. It allows for seamless succession planning, ensuring the business can continue to operate and thrive even with changes in ownership or management.
Exempt Private Company
An exempt private company is also similar to a private limited company, except that it can only have a maximum of 20 shareholders. These shareholders cannot be corporations.
Public Company Limited by Shares
A public company limited by shares differs from a PLC. Instead of “Private Limited”, company names usually end with “Limited” or “Ltd”. It can have over 50 members and can obtain capital by offering shares to the general public.
Before doing so, it has to register an initial public offering (IPO) prospectus with the Monetary Authority of Singapore (MAS).
The shareholders’ liability is also limited to the capital that they have invested initially.
Public Company Limited by Guarantee
A public company limited by guarantee is unlike the other options as it is usually a non-profit organisation. Such companies usually perform public or national interest activities, such as charities.
This company type has no share capital since it is non-profit, and the members’ liability is limited to the amount spent on contributing to the company assets. This amount is usually specified in the constitution.
Related Read: Setting Up a Limited Company by Guarantee? Read This Guide
Partnership
A partnership generally refers to a group of 2 or more individuals doing business together intending to profit. Note that a partnership that has over 20 partners must incorporate the business as a company under the Singapore Companies Act.
Partnerships are usually categorised into these 3 types:
- General Partnership
- Limited Partnership
- Limited Liability Partnership
We take a look at each type:
General Partnership
A general partnership is not a separate legal entity from the partners. The partners have unlimited liability and hence have no protection from the partnership’s debts and losses incurred by other partners.
It cannot own property in its own name and cannot sue or be sued in its name. The profits are taxed at the partners’ personal income tax rates and the partnership only continues as long as there is a partnership agreement.
Limited Partnership
A limited partnership is a partnership of at least two people where there is minimally one general partner and one limited partner. There is no limit to how many there can be, and both can either be individuals, companies, or LLPs.
While it is also not a separate legal entity from its owners, similar to a regular partnership, the general partner has unlimited liability and the limited partner has limited liability.
Hence, the general partner is personally liable for the limited partnership’s debts and losses. During registration, if all general partners are ordinarily resident outside of Singapore, they must choose a locally resident manager in Singapore.
With regards to taxation, the profits are taxed at personal income tax rates if they are individuals, and corporate income tax rates if they are corporations.
Note that if there is no limited partner, the LP registration is suspended and the general partners will be considered registered under the Business Registration Act. It will only be restored upon the appointment of a new limited partner.
Limited Liability Partnership
Unlike the first 2 forms, a limited liability partnership is a separate legal entity from its partners, both of whom can either be individuals, companies, or LLPs.
The partners have limited liability and the LLP can sue or be sued in its name, and can own property in its name as well.
The partners are only personally liable for debts and losses arising from their own erroneous actions. They are not personally liable for debts and losses caused by other partners.
There are no requirements for statutory obligations such as holding general meetings, on directors, the company secretary, share allotments etc.
During registration, they must ensure that there is at least one ordinarily resident manager in Singapore who is at least 18 years old. The partnership’s profits are taxed at personal income tax rates if they are individuals, and corporate income tax rates if they are corporations.
An LLP enjoys perpetual succession until it is wound up or struck off the register.
Sole Proprietorship
As its name suggests, a sole proprietorship refers to a business owned by a single individual. Therefore, it is not a separate legal entity. Hence, it can sue and be sued in the individual’s name, as well as the business’s name. It can also own property in the owner’s name.
The owner also has unlimited liability, making the owner personally liable for the business’s debts and losses, which is a significant risk factor and deterrent.
Sole proprietorships are also usually taxed at the owner’s personal income tax rates, which is typically higher than taxing it at the corporate tax rate.
There is also limited continuity as it only exists if the owner is alive and wants to continue the business.
Related Read: Company Registration in Singapore: Ultimate Guide for Foreigners
What Are the Foreign Company Registration Options?
Foreign companies looking to incorporate a business in Singapore must choose one of these 3 registration options:
- Subsidiary Company
- Branch Office
- Representative Office
We look at these options in greater detail below:
Subsidiary Company
A Singapore subsidiary company refers to a type of business entity that is registered and operates in Singapore but is owned by another company, typically called the parent company.
The subsidiary company has its own legal identity, separate from its parent company, and is considered a separate legal entity under Singapore’s laws.
Related Read: Set Up for Success: Singapore Subsidiary Company Registration Guide
Branch Office
A Singapore branch office refers to a business entity that is an extension of a foreign company operating in Singapore. Unlike a subsidiary company, a branch office does not have its own legal identity and is considered an integral part of the parent company.
Representative Office
A Singapore branch office refers to a business entity that is an extension of a foreign company operating in Singapore. Unlike a subsidiary company, a branch office does not have its own legal identity and is considered an integral part of the parent company.
Related Read: Starting a Business in Singapore: Foreign Company Registration Guide
Incorporate Your Preferred Business Entity With InCorp
When it comes to choosing the ideal business structure for your incorporation in Singapore, it is crucial to consider your specific circumstances and future goals. Making an informed decision requires careful assessment and evaluation.
At InCorp, our seasoned experts have the professional ability to help you make that choice and provide you with help throughout the entire incorporation and post-incorporation process.
Liaise with us to find out more about how we can support your business!
FAQs
- You can engage an incorporation expert such as InCorp to help you make a well-informed decision on the best business entity and to assist in the incorporation process.
- Some requirements include:
- At least 1 locally resident director
- At least 1 company secretary
- At least 1 shareholder
- S$1 in paid-up capital
- Local registered business address
- You can run an ACRA registry search to check.
Incorporate Business Entity in Singapore Now
About the Author
