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Singapore Business Entities And How To Choose The Best Business Entity That Suits Your Plan

In 2018, the World Bank surveyed the 190 economies against each other. The survey was named Doing Business 2018 and the goal is to compare economies in terms of the basic requirements to set up and structure a company.

The factors on which the survey is based are access to electricity, registering property, company structure options, paying taxes, trading across borders, and resolving insolvency. In this survey, Singapore was ranked number 2.

Singapore Business Entities

Singapore is successful in the business market and is recognized as one of the best places to start a business. The main reason for Singapore being ideal for business set up is its straightforward, comprehensive system of company structure and governance.

Singapore’s business strategies and policies are easy for entrepreneurs and foreign investors to grasp and understand. However, every business entity has some pros and cons that are not immediately evident.

This article will help you to compare and analyze the types and structures of business entities working in Singapore. It is the ultimate guide for any entrepreneur or foreign investor who wants to set up a business in Singapore.

Sole Proprietorship

A sole proprietorship is also known as the sole trader or a proprietorship. For laymen, it is known to be a one-man show. It is a type of business entity that is owned and run by an individual. In this business form, there is no legal distinction between the individual and the business.

The sole proprietorship is completely owned and operated by a sole proprietor and is ideal for small businesses. The sole proprietor has unlimited liability and can be sued with his or her name. In the marketplace, a sole proprietorship is not considered as a separate legal entity.

Another distinct feature of a sole proprietor is that the profit of a sole proprietorship is taxed based on the personal income tax rate. A sole proprietorship is not benefited from an effective corporate tax rate of 0 to 17%.

The sole proprietorship is also not included in the list of the companies that benefit from the multitude of tax incentives. The Inland Revenue Authority of Singapore (IRAS) excludes sole proprietorship from the definition of companies.

A sole proprietor must be at least 18 years of age and must be the resident in Singapore. The proprietor must not be labeled as an un-discharged bankrupt. The company can also appoint a natural person who can fulfill all of these requirements and can perform the duties as a manager.

It is not possible for the investors who reside overseas to apply for a sole proprietorship because the role needs a resident of Singapore.

Partnership

The partnership is another option for small businesses that have more than one owner. This business form largely resembles sole proprietorship based on its structure, liability, and taxes. The distinctive feature of the partnership is that it can be comprised of two or more partners.

It may have a maximum cap of twenty individual partners. Once a partnership exceeds the cap, it is required to incorporate as a company under the Companies Act.

In a partnership, there is no restriction for the appointed manager being the resident of Singapore, not be an un-discharged bankrupt or be more than 18 years of age. This business entity has the advantage that it allows foreign individuals and companies to be the partner.

The tax policy of partnership is the same as the sole proprietorship. If the partner is an individual then the personal income tax rates will be applied. However, if the partner is a company then the corporate tax would be applied.

The drawback of partnership is that it is not considered as a separate legal entity. All the partners are responsible for the partnership’s debts or losses.

Limited Partnership

It is an option for the company that has limited liability. A limited partnership does not involve severe risks. It allows the business entity a degree of limited liability. There are at least two partners in a limited partnership but the company cannot have a maximum cap on the number of partners.

Out of these partners, at least one will be the general partner. The general partner will have unlimited liability and he will be personally responsible for all the debts and losses. The other partners in a partnership are the limited partners. They are not personally liable for the debts and obligations. They will be only responsible for the agreed liability.

The general and individual partners should be at least 18 years old or a corporate entity. If the general partner is not the resident of Singapore then the company has to appoint a manager who is a resident.

A limited partnership company cannot be qualified for any tax incentive that is provided to other companies. The profits earned through the partnership will be subjected to each partner’s tax rate. It the partner is a company then corporate tax rates would be applied to profits.

Limited Liability Partnership

Although the name Limited Liability Partnership is quite similar to the partnership and limited partnership, Limited Liability Partnership (LLP) has many distinctive features. It is more similar to the private limited company. The similarity between both entities is that the partners of an LLP are taxed at their income tax. Every partner in LLP has limited liability.

The main difference between LLP and other forms of partnership is the legal state of these business entities. An LLP is considered as a separate legal entity from its partners. It can also own property in the Limited Liability Partnership name, other forms of partnership cannot get benefit from this feature.

The partners of a Limited Liability Partnership are personally liable for the debts and losses of their own wrong decisions and actions. Other partnership members are not responsible for paying their debts or loss.

An LLP is responsible for submitting an annual declaration of solvency to the state to show if it can satisfy its debts or not. This requirement of presenting an annual declaration is only for a Limited Liability Partnership.

What is the best business entity for you?

If we think about the definition of a “Company”, we come across two main categories of company structure: a “Private Company” and a “Public Company”.

A Private Company is owned by several shareholders and the public members are not able to apply for its shares. However, Public Companies are open and available to everyone.

The Public Companies are either listed on the stock exchange or are unlisted altogether. On the stock exchange list, its shares are easily purchased in the marketplace. The buyer can be any individual who has sufficient capital to do so.

If the company is not listed in the stock market then its business interests are in the public interest. Another difference between these company structures is that they are not restricted to the transfer of shares in the public company.

The following table will help you to compare the Private and Public companies in Singapore:

TYPES OF SINGAPORE COMPANIES
PRIVATE COMPANY PUBLIC COMPANY
Exempt Private Company Limited Private Company Public Company Limited By Shares Public Company Limited By Guarantee
It cannot have more than 20 individual shareholders It cannot have more than 50 corporate or individual shareholders The company can have more than 50 shareholders It is involved in non-profit making activities of national or public interest

Private Limited Company

A private limited company is an ideal limited company and it is the most common form of the company that is selected by the investors or entrepreneurs. A private limited company is eligible for bank loans and can apply for the tax incentives.

Another advantage of a private limited company is that it is considered as a separate legal entity and is separate from its directors and shareholders.

The members of a private company are also not personally responsible for the company’s debts or loss. This business entity is also eligible for the tax exemption schemes. The effective corporate tax rate of a private company is 0 to 17%.

Drawbacks of a Private Limited Company

Besides all the attractive tax incentives, there are several formalities and procedures for a private limited company. It is required to appoint a company secretary within six months of incorporation and an auditor for the company within three months of incorporation. There is also a requirement for a Private Limited Company to file the annual returns with the Accounting and Corporate Regulatory Authority.

Conclusion

Each business form has its unique features and comes with its benefits and drawbacks. If someone wants to run a small business at low profits and expect a little for the business expansion, a partnership is not the right choice for them even if it comes with several statutory obligations.

However, for small businesses a private limited company is the best option because it is easy to obtain loans from banks and other financial institutions if you own a private limited company. In addition to this, it has lower risks of liability for its members.

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