Setting Up Sole Proprietorship in Singapore
A sole proprietorship is the simplest type of business entity in Singapore. , However, it also carries the highest amount of risk, as the owner and the business are viewed as the same from a legal perspective.
Hence, the owner alone owns all the assets and liabilities of the business, receiving no protection due to the unlimited liability clause. This means that the owner will have to forfeit personal assets to creditors if the company owes money.
For instance, if the business is being sued or is not able to pay its bills, the owner is personally responsible for the business’s liabilities. Many entrepreneurs are not sufficiently aware of this substantial financial risk, and we consider this a serious drawback and hence do not recommend sole proprietorship to aspiring entrepreneurs.
Setting Up Partnership in Singapore
A partnership allows more potential for expansion compared to a sole proprietorship by allowing two or more people to establish and co-own a business. However, it still carries risk as a partnership’s legal existence is tied closely to its partners.
A partnership will end with the death, insolvency, incapacity or the retirement of a partner. Furthermore, an unsatisfied or discontented partner can choose to dissolve the company at any time. A partnership makes sense only in a limited number of situations, and you may contact us to discuss if a partnership is a suitable business entity for your plans.
We generally do not recommend this type of business structure to enterprising business owners.
Different Types of Partnership Entity
1. General Partnerships
A general partnership is similar to a sole proprietorship, where partners are personally liable for the debts and liabilities of the business. Additionally, each partner will be held responsible for the actions of another partner as well.
2. Limited Partnerships
A limited partnership introduces the concept of a “limited partner” in addition to a general partner. The liabilities of limited partners are restricted to their investments in the company, such as capital or property. However, these partners will not be able to participate in the management aspect of the business.
3. Limited Liability Partnerships (LLP)
The LLP is the most advanced partnership structure in Singapore. It combines the features of partnerships and companies, giving owners the flexibility of operating as a partnership while enjoying the benefits of private limited companies. An LLP must have at least two partners at all times, and LLPs are not suited for businesses that carry a trade.
An LLP targets a profession (e.g., accountants, law firms, architects), allowing two or more professionals to build a joint practice in a standard field. The owners must create a detailed agreement about how profits and management responsibilities will be divided, which usually requires the services of a lawyer. Partners in an LLP are typically responsible for cultivating their clients based on their area of focus.
Setting Up Limited Liability Company in Singapore
A Limited Liability Company (LLC) is a type of company that is limited by shares, therefore its liabilities are limited to the amount of share capital it has. LLCs are business entities registered under the Singapore Companies Act and are a separate legal entity from its members. In an LLC, the owner's liabilities are limited to assets within the company, and their personal assets are shielded from business liabilities.
Different Types of Limited Liability Company
1. Private Limited Companies
A private limited company is an LLC where the shares are owned by less than 50 individuals and are not available to the general public. Most private incorporations in Singapore are registered as private limited companies, and end their names with “Private Limited” or “Pte Ltd.” Shareholders of a private limited company can either be individuals or corporate entities, or a mix of both.
A private limited company is the most advanced, versatile, and scalable type of business incorporation in Singapore. It is also the most preferred type of business entity for committed entrepreneurs in Singapore compared to sole proprietorships or partnerships.
2. Public Limited Companies
A public limited company is a type of LLC that can offer its shares to members of the public. At least 50 shareholders are required, and public limited companies are subject to much stricter rules and regulations because of their ability to raise funds from the public. These types of companies are typically listed on a stock exchange.
3. Public Companies Limited By Guarantee
A public company limited by guarantee is one in which its members contribute or undertake to provide a fixed sum to the liabilities of the company by way of assurance. It is commonly formed for carrying out non-profit making activities. Find out more at Elements of a public company limited by guarantee
Why Entrepreneurs Prefer Private Limited Company?
- Separate Legal Entity: The company’s legal identity is distinct from its shareholders and directors. It can accrue assets, go into debt, enter contracts, and sue or be sued in its name.
- Limited Liability: The liability of members to company debt is limited to the amount that was agreed on to contribute.
- Perpetual Succession: The company’s existence does not rely on continued membership. Transferring of shares or changes in shareholders allow the company to continue even in the event of death, resignation, or insolvency.
- Ease in raising capital: Capital can be built for various purposes by bringing in new shareholders or issuing more shares to current shareholders. Investors are also more likely to choose a company where personal and business assets are separated. Additionally, most banks prefer to lend money to limited companies.
- Credible Image: As an incorporated business entity, Private Limited companies have a better image than sole proprietorships or partnership firms, attracting investors due to its high potential for expansion and scalability. Potential clients, suppliers, bankers, and other professionals will also view the business entity as being more trustworthy.
- Ease in transferring Ownership: Ownership can be assigned either wholly or partially without disrupting operations or requiring complex legal documentation. Assignment of Ownership is conducted through selling or issuing shares to additional investors.
- Tax Benefits and Incentives: Singapore private limited companies have very competitive corporate tax rates, such as taxes for profits up to SGD 300,000 being below 9% and earnings above SGD 300,000, capped at a maximum of 17%. Furthermore, Singapore follows a single-tier tax policy which distributes dividends to shareholders tax-free after initial taxation.
Foreign Company Registration Options
Foreign companies who wish to set up in Singapore have three choices: setting up a branch office, a subsidiary company, or a representative office in Singapore.
- Branch Office. A branch office is an extension of the parent company locally and is not a separately incorporated entity. Liabilities of branch offices will be extended to parent companies as well.
- Subsidiary Company. A subsidiary company is a private limited company incorporated locally with the parent company as its principal shareholder. In Singapore, most small to medium-sized foreign businesses pick this as their choice of registration.
- Representative Office. A representative office is a temporary arrangement for conducting marketing research activities. A representative office does not have any legal status and cannot be engaged in any profit yielding operations.
Detailed Comparison Between Each Business Entity Type
|Sole Proprietorship||Partnership||Limited Liability Partnership||Limited Partnership||Company|
|Legal Status||Not a legal entity||Not a legal entity||A legal person (can enter into contracts, hold property, sue and be sued and exist irrespective of change of partners)||Not a legal entity||A legal person (can enter into contracts, hold property, sue and be sued and exist irrespective of change of shareholders)|
|Number of shareholders / owners||1||Minimum: 2|
Maximum: 20 (with exception of professional firms)
|Minimum: 1 director who must be resident in Singapore and 1 shareholder (who may be the same person)|
|Liability of owner / shareholder or member||Unlimited||Unlimited||Not personally liable for the conduct of other partners or transactions or liabilities of the LLP unless it’s for his own wrongful acts of negligence.||General partner has unlimited liability and can take part in the management of an LP. Limited partner is limited to the amount agreed to be contributed as capital to the Company.||Limited – a shareholder is not liable for the debts of the company. Limited to the amount agreed to be contributed as capital to the Company.|
|Internal structure||Complete flexibility||Complete flexibility||Complete flexibility||Complete flexibility||A separation between owner and management|
|Audited accounts||No||No||No||No||Yes (except exempt private company with turnover less than $5-million or dormant company as defined in the Companies Act)|
|Filing of financial statements with ACRA||No||No||No||No||Yes (with exception to solvent exempt-private companies)|
|Filing of annual return||No||No||No||No||Yes|
|Annual declaration of solvency||No||No||Yes||No||NA|
|Compliance with the||No||No||No||No||Yes|
|Financial Reporting Standards|
|Appointment of a manager who is ordinarily a resident in Singapore||Yes||Yes||Yes||No. Unless all partners are not ordinarily resident in Singapore.||NA|
|Appointment of a company secretary who is ordinarily a resident in Singapore||NA||NA||NA||NA||Yes|
|Income tax||Where the sole proprietor is individual, his income from the sole proprietorship will be taxed based on personal income tax rate||Where a partner is an individual, his share of income from general partnership will be taxed on personal income||Where a partner is an individual, his share of income from LLP will be taxed on personal income tax rate||Where a partner is an individual, his share of income from LLP will be taxed on personal income tax rate||Subject to a flat rate of 17%|
|Termination of business||Simple – file a Notice of Termination / Cessation of Business with ACRA||Simple – file a Notice of Termination / Cessation of Business with ACRA||Complex – must undergo legal procedures of winding up; cost on professional charges will have to be incurred; strike off application is available if the conditions stipulated by ACRA can be met||Simple – file Notice of Cessation of Business with ACRA||Complex – must undergo legal procedures of winding up; cost on professional charges will have to be incurred; strike off application is available if the conditions stipulated by ACRA can be met|
Which Business Entity Type To Choose?
A person’s goals, situation, and plans will greatly affect the type of business entities that can be used. As a general rule, the following table will be helpful for narrowing down the choices for enterprising business owners in Singapore:
- No separate legal personality
- Own by one person
- Unlimited liability on owner
- No perpetual succession
- Small Business
- No separate legal personality
- Own by two or more persons
- Liabilities on owners may be unlimited
- No perpetual succession
- Normally use by professional practices
- Separate Legal personality
- Limited liability on shareholders
- Perpetual succession
- Normally used by businesses