Overview of Common Singapore Business Structures

 

There is a diverse mix of business structures in Singapore that cater to various needs of the business community. Many of us are familiar with sole proprietorships, partnerships, and public companies, but private limited companies and foreign companies (subsidiaries, branches, and representative offices) are among other popular entities available in Singapore.

This guide serves to compare the basic differences among entities in Singapore to facilitate your decision – Questions like eligibility, key benefits of chosen entity, tax considerations, ease of raising capital, liability of entity, and transfer of ownership are evaluated for your easy reference.

Private limited company (a type of limited liability company, or LLC) is the most popular business entity in Singapore and thus we start off this guide with an introduction on Singapore private limited companies, commonly known as “Pte Ltd”.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a company limited by shares, i.e. whose liabilities are limited to the amount of share capital. The liabilities of the owners are limited to the assets in the company and their personal assets are protected from business liabilities.  

A LLC is a business entity registered under the Singapore Companies Act and is a separate legal entity from its members. In Singapore, a LLC can be a:

  • Private Limited Company – It is by far the most scalable, advanced, and flexible type of incorporated business in Singapore. 
  • Public Limited Company - A Public Limited Company is a Limited Liability Company that can offer its shares to the general public. They are subject to more stringent rules and regulations due to the fact that they have the power to raise funds from the public. 
  • Public Company Limited by Guarantee – This type of business entity is meant for non-profit purposes, like non-trading charitable, religious, scientific, or artistic activities.


ABOUT PRIVATE LIMITED COMPANY

Who Can Set Up: Serious entrepreneurs

Benefits

  1. It has its own legal identity, separate from its shareholders and directors
  2. It commands a better image than a sole proprietorship or a partnership firm, and investors will be more willing to become part of the company as it demonstrates a vision to grow and expand.
  3. The company’s existence does not depend on the continued membership of any of its members. Ease of transfer of shares or changes in shareholders ensures that the company continues to exist even in the event of death, resignation, or insolvency of shareholders or directors.

Tax considerations

It is a very efficient tax entity. The effective corporate tax rate for Singapore companies for profits up to SGD 300,000 is below 9% and capped at 17% for profits above SGD 300,000.

There is no capital gains tax. Once the income has been taxed at the corporate level, dividends can be distributed to shareholders tax free.

Ease of Raising Capital

Capital can be raised for expansion or other purposes by adding new shareholders or issuing more shares to existing shareholders.

Investors are more likely to purchase shares in a company where there usually is a separation between personal and business assets. Also, most banks prefer to lend money to limited companies.

Liability: The liability of the members to contribute to the debts of the company is limited to the amount that they each agreed to contribute as capital to the company.

Transfer of Ownership: 

Ownership of a company may be transferred, either wholly or partially, without disrupting operations or the need for complex legal documentation. This can be done through the selling of all or part of its total shares, or through the issue of new shares to additional investors.

Shareholding: Private. Individual or corporate shareholder. No more than 50 shareholders

ABOUT PUBLIC LIMITED COMPANY

Who Can Set Up: Large businesses

Benefits: Shareholders can have a stake in the operations of the business

Tax Considerations: Profits are taxed at corporate tax rates

Ease of Raising Capital: It can sell shares on the stock market to quickly raise capital

Liability: Since it is a legal entity, it can sue or be sued in its own name and can own or hold any property

Transfer of Ownership: Ownership can be transferred by buying back shares from shareholders and then selling the shares to the prospective buyers of the company.

Shareholding: Public. Usually listed. At least 50 shareholders

ABOUT PUBLIC COMPANY LIMITED BY GUARANTEE

A couple of facts about the Public Company Limited by Guarantee:

  • It requires at least 2 directors (1 must be a Singapore resident), 2 members, and a qualified Company Secretary
  • A Memorandum and Articles of Association that sets out the objectives and by-laws of the organization must be drafted.
  • Accounts must be audited annually.
  • Annual General Meetings must be held.
  • Annual Returns must be filed with ACRA.

Who Can Set Up: Individuals who are in a non-profit business.

Benefits: It has the distinct advantages of incorporating a separate legal entity with limited liability for its members. It also produces benefits for others, generally those outside the membership of the organization.

Tax Considerations: Eligible for full tax exemption only after receiving the charity status.

Ease of Raising Capital: Since it is a charitable/non-profit business, contributors are more likely to come on board to make donations.

Liability: The liability of its members is restricted.

Transfer of Ownership: The entity can be transferred without the need for complex documentation.

Foreign Companies

Each year a good number of foreign companies are setup in Singapore, which would take the format of either a branch office, a subsidiary, or a representative office. The key differences among the three are: 

  • Subsidiary Company – This is a Singapore-incorporated private limited company whose shareholders are the parent company. Singapore allows 100% foreign ownership, which means the subsidiary could be 100% held by its foreign parent.
  • Branch Office – Unlike a subsidiary company, a branch office in Singapore is registered as an extension of its parent company and not as a separately incorporated entity. The name of the Singapore branch office must be the same as that of the head office and must be approved first before branch office registration. The Singapore Companies Act requires that a branch office appoint 2 agents who are ordinarily residents in Singapore to accept services of process and notices.
  • Representative Office - Foreign companies that only have an interest in conducting market research activities or feasibility studies in Singapore can setup a representative office in Singapore. It is a temporary arrangement and is therefore ineligible to conduct any profit-yielding business activity.


ABOUT SUBSIDIARY COMPANY

Who Can Set Up: Small to medium-sized foreign businesses

Benefits

A subsidiary is considered to be a separate identity and is treated as a local Singapore company. The foremost benefit of this is the limitation of liability of the foreign company in Singapore.

Tax Considerations: Profits are taxed at corporate tax rates

Ease of Raising Capital: Fund raising option is open, but often relies on the backing of parent company overseas

Liability: The liabilities and debts of the subsidiary company are not extended to the parent (foreign) company.

Transfer of Ownership: Not applicable

ABOUT BRANCH OFFICE

Unlike a subsidiary company, a branch office in Singapore is registered as an extension of its parent company and not as a separately incorporated entity. The name of the Singapore branch office must be the same as that of the head office and must be approved first before branch office registration. The Singapore Companies Act requires that a branch office appoint 2 agents who are ordinarily residents in Singapore to accept services of process and notices.

Who Can Set Up: Large businesses

Benefits: Not Applicable

Tax Considerations

A branch office is generally considered a non-resident entity and therefore not eligible for the tax exemptions or incentives available to local companies in Singapore.

Ease of Raising Capital

The branch office wields a lesser commitment and is deemed to lack any long term vision, thus securing investment and incentives will be relatively difficult.

Liability: The liabilities of a branch office extend to its parent company.

Transfer of Ownership: Not applicable

ABOUT REPRESENTATIVE OFFICE

The representative office must be staffed by a representative from the foreign company’s head office and employ no more than five local support staff. The International Enterprise Singapore is the registration authority for representative offices for most of the industries like commerce, manufacturing, and business services. The Monetary Authority of Singapore is responsible for the registration of other industries like banking, finance, and insurance.

Who Can Set Up: Foreign companies who want to engage in market research and feasibility study activities.

Benefits: Maximum 3-year operation to study the Singapore business environment before committing investments.

Tax Considerations: Not applicable

Ease of Raising Capital: Not applicable

Liability: The foreign company bears implicit liability for the activities of the representative office in Singapore.

Transfer of Ownership: Not Applicable

SOLE PROPRIETORSHIP

Sole proprietorship is the simplest but riskiest type of business structure in Singapore. A number of disadvantages make it ideal only to very small businesses that want full control, including no separate legal entity, unlimited liability, lack of corporate tax benefits, limited capital and lack of perpetual succession. Registration of Singapore sole proprietorship needs to be renewed annually.

Who Can Set Up: Any Singapore registered company or a natural person of at least 18 years of age

Benefits: Easy to setup. 100% ownership by owner. Least compliance requirements

Tax Considerations: Proprietor responsible for paying all applicable taxes. Profits taxed at individual tax levels.

Ease of Raising Capital: Limited

Liability: Unlimited – i.e. No protection of personal assets from business risks and liabilities

Transfer of Ownership: Transferrable by sale of business assets

Partnership

A partnership is a step-up from a sole proprietorship in that it allows two or more people to establish and jointly own a business. There is no perpetual succession, meaning in the event of insolvency, death, retirement, or incapacity of a general partner, the partnership comes to an end.

Three types of prevailing partnerships in Singapore are:

  • General Partnership – Similar to sole partnership that has unlimited liabilities. Each partner can be held responsible for the actions of another partner. 
  • Limited Partnership – The limited partnership is a mix between a general partnership and a limited liability partnership. It consists of a general partner with unlimited liability and limited partners who have limited liability.
  • Limited Liability Partner (LLP) – Combines the features of a limited company and a partnership. A LLP is designed for professions where two or more professionals desire to build a joint practice in a common field. There must always be at least two partners at all times. Detailed agreements must exist regarding the sharing of management responsibilities and profits.


ABOUT GENERAL PARTNERSHIP

Who Can Set Up: Individuals.

Benefits: It faces fewer statutory controls than companies. Simple and cheap to set up.

Tax: No returns are required to be submitted by the partnership, except for income tax.

Ease of Raising Capital: Varies depending on the willingness of potential investors.

Liability: Partners are personally liable for the debts and liabilities of the business.

Transfer of Ownership: Not easy to transfer the partnership.

ABOUT LIMITED PARTNERSHIP

Note a limited partnership is not a separate legal entity and therefore is not allowed to own properties in the firm’s name.

Who Can Set Up: Individuals. General partner has unlimited liability. Limited partner has limited liability

Benefits: It faces fewer statutory controls than companies. It is also simple and cheap to set up.

Tax: Profits taxed at partners' personal income tax rates (for individual)/ corporate tax rate (for corporation)

Ease of Raising Capital: A little easier than the general partnership.

Liability: The liabilities of limited partners are limited to their investment in the partnership (capital or property).

Transfer of Ownership: Not easy to transfer the partnership

ABOUT LIMITED LIABILITY PARTNER (LLP)

A Limited Liability Partner is required to keep its books up-to-date so as to substantiate all the transactions and financial position of the LLP since failure to do so may lead to prosecution and penalties. A LLP in Singapore is not recommended for businesses that carry a trade.

Who Can Set Up: Professionals like accountants, architects, and lawyers.

Benefits: Registering a LLP gives owners the flexibility of operating as a partnership (limited liability) while enjoying many of the benefits that come with a corporate body like a private limited company.

Tax: Profits taxed at partners’ personal income tax rates (for individual)/ corporate tax rate (for corporation)

Ease of Raising Capital: Compared to the other partnerships, it is a bit easier to raise capital due to the structural mix of the LLP, which gives investors more confidence.

Liability

(1) A LLP is rendered a separate legal identity in Singapore. Hence, a LLP can own property, sue, or be sued.

(2) A partner of the LLP cannot be held personally liable for the wrongful commission or omission of any other partners.

(3) If a partner becomes liable to any person or company through his acts of commission or omission during the LLPs course of business, the LLP is liable to the same extent as the partner. Therefore claims can be made against an LLP to the full extent of its assets.

(4) A partner during the course of the business is personally responsible for liabilities that arise due to his act of commission, omission, or negligence. Claims for liabilities can be made against him and his personal assets. Other innocent partners and their personal assets, however, will remain insulated from such liabilities and their liabilities will be limited only to the capital contributed by them to the LLP.

(5) The mutual rights and duties of the Singapore LLP and its partners are governed by the limited liability partnership agreement. In the absence of agreement as to any matter, the First Schedule of the Limited Liability Partnership Act 2005 shall apply.

Transfer of Ownership: Transferable, perpetual succession

Piloto Asia can help you form your company quickly and hassle-free.

If you require professional advice regarding business structures or setup in Singapore, you may get in touch our friendly consultants at Piloto Asia, who would patiently guide you through the pros and cons of each structure and advise you the solution best for your business.