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February 8, 2023 12:56 PM
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Business Structures

One of the most significant elements to consider when selecting to incorporate an entity in Singapore is the sort of business structure (i.e. legal entity) you choose for your company.

Your decision can have an impact on the amount of taxes you pay, the image and reputation of your business among clients and suppliers, the quantity of paperwork your firm is required to undertake, the personal liability you face, your ability to borrow money, and your capacity to develop your business.

This guide provides an overview of the numerous forms of business entities in Singapore and the distinctions between them and ways to register company in singapore. Each of these is subject to different regulatory and tax systems due to their structure and ownership.

Below are the most common types of business entities in Singapore:

Private Limited Company

A private limited company is an LLC whose shares are owned by fewer than 50 people and are not available to the general public. Private limited corporations are Singapore’s most common type of privately incorporated business. In Singapore, a private limited company’s name commonly ends with Private Limited or Pte Ltd.

Our company, Hawksford Singapore Pte Ltd, is an example of a private limited corporation. A private limited company’s shareholders might be individuals, corporate entities, or both.

A private limited company is Singapore’s most advanced, flexible, and scalable corporate structure. It is also the most popular Singapore company entity for serious businesses (as opposed to a sole proprietorship or limited liability partnership).

Public Limited Company

A public limited company is a limited liability corporation that can sell shares to the general public. A public limited corporation must have at least 50 shareholders and is subject to much stricter rules and regulations since it can raise capital from the general public.

A stock exchange usually lists a public limited corporation. However, because public limited companies are intended for large firms, they are not covered in this article.

Public Company Limited by Guarantee

A public company limited by guarantee is a sort of non-profit commercial entity.

Foreign Company Registration Options

Foreign corporations intending to establish a presence in Singapore might do so by establishing a branch office, subsidiary, or representative office.

  • Subsidiary Company: A subsidiary company is a Singapore-based private limited firm with the parent company as a shareholder. A subsidiary company is the most popular option for registration in Singapore for small to medium-sized overseas firms.
  • Branch Office: A branch office is not formed independently but rather is registered in Singapore as an addition to the parent company. A branch office’s parent firm is also subject to its obligations.
  • Representative Office: A temporary arrangement for carrying out marketing research activities, a representative office is registered in Singapore. A representative office needs to have legal standing and be permitted to carry out any activities that generate income.

Sole Proprietorship

The single proprietorship in Singapore is the simplest but riskiest business structure. Because a sole proprietorship is not a distinct incorporated entity, the owner and the business are the same in legal terms. Therefore, the owner individually owns the company’s assets and obligations.

Personal assets are not protected from corporate risks and obligations. As a sole owner, you have unlimited liability, which means that if your business is unable to fulfil all of its liabilities, the creditors to whom your business owes money can seize your personal assets. Unfortunately, many business owners must be aware of this massive financial risk.

If the company is sued or unable to pay its bills, the owner is personally liable for the company’s responsibilities. We consider this a significant disadvantage and so do not suggest sole proprietorship to aspiring entrepreneurs.

Partnership

By allowing two or more persons to start and co-own a business, the partnership type of business structure aims to alleviate the limited-expansion constraint a sole proprietorship encounters. 

A partnership company has no separate legal existence from its partners. It comes to an end when a partner dies, becomes bankrupt, becomes incapacitated, or retires. 

Furthermore, any dissatisfied or discontented partner may provide notice of the dissolution of the partnership at any moment. A partnership business form may make sense in a very restricted number of circumstances. We do not advise business owners to use this form of business structure.

Singaporean partnerships can be classified into three types:

  • General partnership

A general partnership is created by a minimum of two people and a maximum of twenty people. Partners pay personal income tax based on their portion of the partnership’s income.

A general partnership is not an appealing company structure in Singapore for the following reasons:

  • Partners, like sole proprietors, are personally liable for the business’s debts and liabilities.
  • Each spouse can be held liable for the activities of the other.
  • Limited Partnership

In Singapore, a limited partnership can be used instead of a general partnership. In addition to a general partner, it introduces the concept of a limited partner. Restricted partners’ liabilities are limited to their investment in the partnership (capital or property). Limited partners, however, cannot participate in business management. In a nutshell, even a limited partnership in Singapore is not an appealing vehicle for establishing a business.

  • Limited Liability Partnership

LLP is the most contemporary and advanced business incorporation form among the three types of partnership company companies. It combines the characteristics of partnerships and corporations. The Limited Liability Partnership Act was passed in Singapore in 2005, introducing LLPs. By registering an LLP, proprietors gain the freedom of working as a partnership while reaping many of the benefits of a corporate body such as a private limited company. However, it is crucial to note that an LLP must always have at least two partners.

A limited liability partnership (LLP) is intended primarily for carrying on a profession (e.g., accountants, law firms, architects, etc.) where two or more professionals wish to establish a joint practice in a shared field and is not appropriate for businesses that carry on a trade. 

The owners must reach precise agreements outlining how profits and managerial responsibilities will be distributed. It can get highly intricate and, in most cases, requires the assistance of a lawyer to draught the agreement. In addition, a limited liability partnership’s partners are typically responsible for creating their own clients depending on the partner’s unique area of speciality.

Which business entity type to choose?

Your specific position and ambitions will determine the best business structure to incorporate in Singapore. However, you can use the following guidelines as a general rule while making your decision:

  • If you are a local and want to register a small business in which you will be the sole owner and the nature of your products/services do not include liability issues, you may find it easier to register your business as a sole proprietorship. However, you must keep in mind that if your company incurs any liabilities, the claimants may pursue your personal assets.
  • If your business sells your services through your profession (e.g., accountant, lawyer, architect, etc.) and you have one or more additional partners in a comparable field who want to develop a joint practice, forming an LLP may be a good option for you.
  • In all other instances, forming a private limited company in Singapore is the best option. Although the compliance requirements are significantly more difficult, it is by far the finest long-term structure.

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