Among the pivotal decisions in establishing an abroad business in Singapore, the choice of the business structure holds paramount importance. It significantly impacts tax liabilities, public perception, paperwork volume, personal liability exposure, borrowing capacity, and the potential for business growth.
This guide offers a comprehensive understanding of the diverse business entity options available in Singapore and elaborates on their distinctions. Each entity operates under specific regulatory frameworks and tax structures, aligning with its organizational format and ownership arrangement.
Limited Liability Company
The Limited Liability Company (LLC) represents a distinct corporate entity formed through registration with the Accounting and Corporate Regulatory Authority (ACRA) in Singapore under the Companies Act. It operates as a separate legal persona, ensuring a clear legal demarcation between the proprietors and the entity. The LLC possesses the ability to engage in contractual agreements, own assets, and litigate under its unique identity. The company’s liability is confined to its share capital, and each member’s liability is restricted to the contributed share capital, be it an individual or a corporate entity. The personal assets of the shareholders remain safeguarded from the company’s obligations.
Private Limited Company
The most common and most preferred type of entity among entrepreneurs in Singapore is the Private Limited Company. The shares of a Private Limited Company are not made available to the general public, all of its shares are held privately. The number of shareholders in a Private Limited Company must not be more than 50. In Singapore, the names of this type of entity have the suffix ‘Private Limited’ or ‘Pte Ltd’.
Exempt Private Limited Company
An Exempt Private Limited Company (EPC) refers to a Private Limited Company in Singapore that is granted exemption from the mandatory annual audit. To qualify as an EPC, a Private Limited Company must adhere to the subsequent conditions:
1. The company should not exceed 20 shareholders.
2. No corporation should possess a beneficial interest in the company’s shares, implying that corporate shareholders are not allowed.
3. The annual revenue should not surpass S$5 million.
Instead of the requirement to prepare and submit an audited statement annually to the Accounting and Corporate Regulatory Authority (ACRA), EPCs are only obliged to furnish a declaration, signed by the directors and company secretary, affirming the company’s solvency. However, EPCs must still maintain comprehensive financial records in accordance with Singapore’s Financial Reporting Standards (FRS) in case of a request from ACRA.
A modification to the Companies Act has extended the exemption to more companies beyond the EPC category. These companies are classified as ‘small’ companies. Effective from July 1, 2015, a company, even if it does not strictly meet EPC criteria, will be excused from the annual audit requirement if it fulfills at least two of the subsequent new criteria for the immediate past two consecutive financial years:
1. The annual revenue is less than S$10 million.
2. Total assets do not exceed S$10 million.
3. The company has less than 50 employees.
Furthermore, parent companies or subsidiaries categorized as small companies and part of a small group will also qualify for the audit exemption. A small group is one that meets at least two of the three specified quantitative criteria on a consolidated basis for the immediate past two consecutive financial years.
Advantages of Private Limited Company
The Private Limited Company is widely favored as it effectively limits shareholders’ liability and allows for significant control over ownership. Some key benefits include:
1. Transferable Ownership: The ownership is easily transferable, either wholly or partially, by simply transferring the shares.
2. Asset and License Flexibility: Assets, licenses, and permits can be conveniently transferred in the event of a change in ownership.
3. Tax Benefits: Despite a higher compliance cost compared to sole proprietorship, the tax liability is significantly reduced due to Singapore’s competitive corporate tax rates. Companies with taxable profits are subject to a progressive tax rate, starting at 4.25% on the first S$10,000 and reaching 17% for profits exceeding S$200,000.
4. Capital Raising: Raising capital is relatively straightforward by issuing shares to new or existing shareholders, enabling business growth and expansion. It also enhances access to financial assistance from banks and other financial institutions.
5. Business Continuity: The death or insolvency of shareholders does not disrupt the company’s existence; it retains legal perpetuity until officially deregistered.
By understanding and capitalizing on the advantages of a Private Limited Company, you can make an informed decision when considering business entity options in Singapore. Feel free to reach out to us to book a meeting with our consultants and explore the best fit for your business structure needs.
Public Company
Public Company Limited by Shares
A Limited Liability Company (LLC) with over 50 shareholders qualifies as a public limited company. This entity is permitted to offer shares to the general public, denoted by the suffix ‘Limited’ or ‘Ltd’ in its name. Public Limited Companies can be listed on the stock exchange, necessitating the submission of a prospectus to the Monetary Authority of Singapore (MAS) for public capital raising.
The advantages of a Public Limited Company align with those of a private limited company, notably in terms of shareholder liability limitation, competitive corporate tax rates, and an esteemed corporate image. They benefit from enhanced access to capital by issuing shares, debentures, and bonds to the public, promoting greater liquidity for shareholders in the capital market. However, they are bound by stringent regulations and face heightened public scrutiny in financial matters. Compliance costs are notably high, and the board and management are held accountable to shareholders.
Public Company Limited by Guarantee
A Public Company Limited by Guarantee is an entity established with a focus on public welfare and non-profit objectives. Entities like societies and organizations dedicated to promoting arts or charity typically fall into this category. Members’ liability is constrained to the specific contributions they commit to the company’s assets in the event of liquidation, a commitment outlined in the Memorandum of Association. This commitment is generally of a nominal nature. Notably, the names of such entities do not include the term ‘Limited’.
Crucially, this entity type does not involve shares. Members are only required to fulfill their financial commitments if the company faces liquidation, while they are not obliged to provide any capital as long as the company remains operational. This structure primarily finds application within non-trading and non-commercial spheres, such as trade associations, charitable bodies, professional societies, religious bodies, incorporated clubs, or other not-for-profit initiatives.
Sole Proprietorship
This structure represents the most fundamental and secondly most favored type of business entity. It is owned singularly either by an individual or a corporate entity, hence its name, Sole Proprietorship. The registration with ACRA needs renewal within 60 days before the expiry date. Notably, there exists no legal barrier separating the business from its owner. Despite its registration with ACRA, it does not constitute a distinct legal entity, exposing the owner to unlimited risk. The owner assumes personal liability for the company’s debts, and Sole Proprietorship is excused from annual filing.
Given its inability to limit the owner’s liability, this structure is suitable primarily for ventures with lower risk profiles. Corporations, due to the inherent unlimited liability risk, generally steer clear of this structure. Typically, individuals engaged in small-scale enterprises, freelance work, or other low-key businesses find this structure appealing due to its minimal compliance demands and associated costs. Profits are considered the owner’s personal income and are subject to personal tax rates.
However, significant drawbacks emerge if the business owner accumulates substantial debts or other liabilities. Personal assets of the owner become subject to attachment in litigations or for debt recovery. Raising capital becomes a challenge, often relying solely on the owner, with lending institutions commonly requesting personal assets as collateral. Its lack of a prestigious perception and restricted access to capital impede growth and expansion.
The business cannot be divided for partial sale, requiring separate asset sales, and licenses held by the owner may not be transferable. Sole Proprietorship lacks a distinct legal identity, ceasing to exist upon the owner’s demise, hence lacking perpetual continuity.
For those earnest about fostering their brand and business, Sole Proprietorship stands as a less-than-ideal choice.
Partnership
General Partnership (GP)
Two or more individuals or corporations collaborate to establish Partnerships, limited to a maximum of 20 partners. If the partner count exceeds 20, it necessitates registration as a company. Both individuals and corporate entities can initiate a partnership, requiring registration with ACRA, with a renewal period of up to 60 days before expiry.
A partnership does not hold a distinct legal entity status. It possesses the capacity to litigate and be litigated against using the firm’s name, but it lacks the ability to own property in its name. Partners face unrestricted liability, exposing their personal assets to the business’s debts and obligations. Each partner bears accountability for the other partners’ liabilities. Profit sharing occurs among partners, treated as personal income for tax assessment and taxed at personal rates, or for corporate partners, at corporate tax rates.
The partnership structure offers the advantage of pooling resources, encompassing capital, skills, and assets, among owners and partners. The ongoing compliance demands are relatively relaxed, resulting in lower administrative costs. However, the risks involved parallel those of a sole proprietorship, making it an unsuitable choice for high-risk businesses and those with ambitious growth plans. Corporations typically opt for this structure for brief-term projects, aligning with individuals in choosing this business arrangement. If you seek further insights or wish to initiate a partnership, do not hesitate to reach out to us to schedule a meeting with our consultants.
Limited Partnership (LP)
This structure resembles a general partnership but comprises both general and limited partners, with a minimum requirement of one of each. The number of partners is unrestricted. A limited partner’s liability is constrained to the extent of their contributions and does not extend to personal liability. In contrast, general partners bear personal liability for the business’s debts and obligations. Limited partners are not permitted to assume active management roles within the business.
Limited Liability Partnerships (LLP)
The Limited Liability Partnership (LLP) represents a relatively recent entity type that cleverly blends the attributes of both partnerships and conventional companies. In this arrangement, two or more partners, be they individuals, corporations, or even another LLP, collaborate under mutually agreed-upon terms and conditions to conduct business. The extent of each partner’s liability is confined to their respective contributions. While a minimum of two partners is mandated, there is no cap on the maximum number of partners.
Similar to a traditional company, an LLP possesses its own distinct legal identity. It possesses the capacity to initiate legal action and be sued under its own name, and is entitled to own property. Although the partners are shielded from personal liability for the debts and losses of the LLP, they assume personal liability for debts and losses arising from their individual actions. Unlike in a General Partnership (GP) or a Limited Partnership (LP), the partners in an LLP are not personally responsible for the debts accrued by their fellow partners. The distribution of profits follows personal tax rates for individual partners and corporate tax rates for corporate partners.
The LLP thrives on its unique amalgamation of partnership flexibility and the advantages associated with a corporate body, particularly the limitation of liability. Moreover, it enjoys perpetual existence, unaffected by alterations in partnership dynamics arising from events like death, bankruptcy, or resignation. Setting up an LLP is a straightforward process with a lower registration cost compared to that of a traditional company. Furthermore, the compliance requisites are minimal, resulting in a reduced compliance cost. Unlike a General Partnership (GP), there is no annual renewal obligation for the LLP’s registration.
This structure is especially well-suited for professional practices encompassing fields such as medicine, law, engineering, architecture, and more. If you’re interested in exploring the potential of an LLP for your business needs, we encourage you to contact us and arrange a consultation. Our experts are available to assist you in navigating the intricacies of LLP establishment and utilizing its benefits to the fullest extent. Let’s take a step towards optimizing your business structure and achieving your professional aspirations. Reach out to us now to book a meeting with our experienced consultants.
Ideal Structure for Foreign Individuals
The law does not prohibit non-residents from possessing any of these structures. Singapore allows complete foreign ownership, but careful consideration of the entity’s suitability is necessary before selection.
For non-resident foreigners, having a locally based manager is a prerequisite for all types of entities to fulfill regulatory duties and obligations. The foreign individual must contract a professional service provider or a filing agent to facilitate the registration of the business entity.
In the case of sole-proprietorships and partnerships, which carry unrestricted liability for their owners or partners, being physically absent in Singapore to oversee business operations can pose challenges in effective management and monitoring. This situation could potentially result in the entity failing to meet specific obligations, potentially leading to indebtedness, thus risking personal assets. Non-resident foreigners seeking to establish a business and actively manage its operations in Singapore need to seek approval from the Ministry of Manpower (MOM) before proceeding with registration.
Conversely, if a non-resident is present in Singapore, such as on a Dependent Pass (DP), initiating operations is possible by registering a partnership or sole proprietorship. However, obtaining a Letter of Consent to engage in employment within your own company is necessary. This requires presenting the ACRA profile of your sole proprietorship or partnership and authorizing yourself to assume a hiring role on behalf of your business.
For pragmatic reasons, the most secure choice is to incorporate a Private Limited Company. This structure offers liability limitations, and additionally, it allows for the application of an Employment Pass or Entre Pass, enabling your presence in Singapore to actively manage the business.
How Iris International can assist you?
In choosing the right business structure for incorporating in Singapore, understanding the impact on taxes, perception, paperwork, and liability is crucial. At Iris International, we guide you through this decision-making process. Our services encompass company registration in Singapore and administrative solutions, including EOR, accounting, bookkeeping, and office rental. Tailored to your needs, we ensure a smooth establishment of your business, providing the foundation for a successful venture in Singapore.
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