Last week, we came up with a list of questions to help aspiring and soon-to-be entrepreneurs narrow down your business structure choices based on your needs and preferences. We had also listed down 3 types of business structures and their characteristics, click here to read Part 1. In this article, we will continue our journey to understand the remaining 2 types of business structures.
Business Structure Type #4 – Limited Partnership (LP)
A limited liability partnership with limited partners; minimum of 2 partners with at least 1 general partner and at least 1 limited partner. No limit on the number of partners. This is usually meant for owner(s) who wants to be a silent or sleeping partner, where their liability is limited.
- The partners can be individuals or companies; minimum of 2 partners, with at least 1 general partner and at least 1 limited partner, no maximum number of partners.
- The LP is not a separate legal entity; can sue or be sued in general partner’s name.
- A general partner has unlimited personal liability and can be appointed as the manager of the LP. The general partner is responsible and liable for all actions, debts and obligations of the LP.
- A limited partner is not liable for any debts and obligations beyond his agreed investment in the LP. If a limited partner takes part in the management of the LP, he will have unlimited liability as if he were a general partner.
- For tax purposes, each partner will be taxed on his or its share of the income from the LP. Where the partner is an individual, his income from the LP will be taxed at personal income tax rate. Where the partner is a company, its income from the LP will be taxed at corporate tax rate.
Set-Up & Admin
- Quick and easy to set-up and administer.
- Renew registration annually.
- Need to keep accounting and other financial records for at least 5 years.
Business Structure Type #5 – Company
A business registered under the Companies Act, Chapter 50, which is a legal entity separate and distinct from its shareholders and directors. This is the most common and flexible option to set up a Singapore company. There are three different types of companies set up in Singapore:
- Exempt Private Company (EPC)
With 20 members or less and no corporation holds beneficial interest in the company’s shares; usually has “Pte Ltd” as part of its business name. EPC is currently the most common and preferred type of business entity in Singapore because of the reduced compliance requirements, more freedom in financial loan activities, and tax-exemptions granted in the start-up stage.
- Private Company
With 50 members or less; usually has “Pte Ltd” as part of its business name.
- Public Company
The company becomes public, i.e. listed on the stock market, and usually has “Ltd” as part of its business name. This is no limit on the number of shareholders, and it can offer shares, debentures etc to the public.
- The owners are called the shareholders; can be individuals or companies. There must be a minimum of one share owned by one shareholder and the value of the share can be just S$1.
- There must be at least one shareholder and one resident director; both can be the same person.
- A company is a legal entity; can sue or be sued in its own name.
- Shareholders are not personally liable for the debts and losses of company.
- Profits are taxed at corporate tax rates.
Set-Up & Admin
- More costly to set up and maintain. There are more formalities and procedures to comply with, e.g. appointment of company secretary and directors, hold annual general meetings etc.
- One time registration.
- Need to appoint an auditor; must file annual returns.
Which type of business entity to choose?
Deciding on the right business structure to incorporate in Singapore depends on your particular situation and plans. As a general rule, you can use the following guidelines when making your decision:
- It might be easier for you to register your business as a Sole Proprietorship if you are a local resident and would like to register a small business where you will be the only owner and the nature of your products/service does not carry liability issues. That being said, you must carefully consider the fact that in case of any business liabilities, the claimants can go after your personal assets.
- If your business involves selling your services by way of the profession you hold (e.g. accountant, lawyer, architect, etc.) and you have one or more additional partners in a similar profession and would like to build a joint practice, setting up a LLP might be a suitable business structure for you.
- In all other cases, incorporating a private limited company in Singapore would be the best choice. The obvious benefit is that it is limited by shares and is a separate legal entity from its shareholders so that they are not liable for its debts and losses beyond their amount of share capital. Although compliance requirements are a little more complex, it is by far the best structure in the long run.
Once you have decided on your business structure, the next step will be to register the business with the Singapore government at ACRA. For more information on registration of your business in Singapore – Local & Foreigners, head to EnterpriseOne.