Company Incorporation Singapore: Selecting Right Business Structure
The ease of doing business, compliance responsibilities, scalability, tax rates, liabilities, ease in transfer of share, investors’ queries & expectations affects the choice of the business structure for a company incorporation Singapore. It is a tough call to take as choosing the right business structure to suit the present and future need of the company is a challenging task for even the experienced business owners. It can impact a business’ viability, growth, and future expansion.
Choosing the Best Business Structure
The individual entrepreneurs can choose Sole proprietorship, Private Limited Company or one of the forms of Partnerships to start their Singapore companies. First, they need to go through the advantages, disadvantages and nature and scope of each of these business structures before judging their usefulness for the business purposes. There are trusted corporate services providers in Singapore who assist their clients in dealing with the dilemma.
The information presented here will assist you in figuring out the most suitable business structure for your business. It is also useful to the owners of the existing businesses who are thinking of converting to a more dynamic legal form.
Your choice has the full potential of affecting the fate your business. It can impact your taxes, personal liability, brand image, credit, and the opportunity to exploit your business idea to its fullest. It can ruin your breakthrough plan, sustainability of the business, and can lead to the premature death of your business.
Business Structures for Individual Entrepreneurs
A local or foreign individual above the age of 18 years can opt to form a Singapore company. The process for company incorporation in Singapore is fast and hassle-free. You should prefer a particular business structure for the setting up of your Singapore company based on the magnitude of the business idea (whether it is a product or platform), the scope of the business plan, and the scale of your intended business activities. You also need to determine your liability, tax obligations, cost and appreciate your business assets before taking the final decision on the structure to incorporate.
Limited Liability Company (LLC)
Limited Liability Company in Singapore is a legal construct that limits the liability of the shareholders of the company to their capital invested in its shares. The private limited company, public limited company, public limited company by guarantee and subsidiary company are the examples of the LLC in Singapore.
ACRA (Accounting and Corporate Regulatory Authority) acts as the Company Registrar for Singapore. You need to apply to the ACRA to register your new business under the Singapore Companies Act, Chapter 50.
1) Private Limited Company (Pte Ltd)
A private limited company is the most favored business structure for Singapore business formation. It is a type of LLC. Its shareholders (owners) can be from 1-50. At least one of the director needs to be ordinarily resident of Singapore. Singapore corporate income tax
- An individual above the age of 18 can opt for company formation Singapore.
- A private limited company has a separate legal identity from its owners.
- A private limited company is a legal person and has the rights of a natural person.
- It can buy property in its own name.
- It can sue or be sued in its own name, which keeps the shareholders out of the courts of law.
- The private limited company has perpetual existence. It is not tied to any particular member or shareholder.
- The shareholders are not responsible for the loss or debt incurred by a Pte Ltd.
- Singapore allows 100% foreign ownership.
- Transfer of ownership is easy.
- The name company must include the terms ‘Pte Ltd’ or Private Limited.
In general, a private limited company has more credibility than a sole proprietorship or a partnership in the eyes of investors, banks, financial institutions, suppliers, & customers. The perception matters when a Pte Ltd company goes to the market for securing loans for its expansion.
A Singapore private limited company is considered as a local company and tax resident. It gets access to all tax benefits and incentives schemes for the local entities which go a long way in reducing its operating costs and tax payable. The headline corporate tax rate is 17%. However, the tax paid by the local companies is much less.
Read More: Private Limited Company Singapore: A Comprehensive Registration Guide
2) Public Limited Company
A public limited company is a type of LLC which is listed on the stock exchanges. The general public can buy its shares or debentures. The number of its shareholders is more than 50.
3) Public Company limited by Guarantee
A Public company limited by guarantee is a form of LLC. Most often, these are started to promote the non-profit causes. The non-profit organizations, trade associations, clubs, charitable & religious bodies, and professional societies are its best examples.
In the eyes of Singapore Company Law, a sole proprietorship is not a separate legal entity from its owner or proprietor. It is not an incorporated company and it is regarded as a business firm. Because of this,
- The owner has to deal with unlimited liability for the debts and losses incurred during the course of its business activities.
- A sole proprietorship cannot buy properties or real estate in its own name.
- They need to be in the name of its proprietor who is required to pay property tax on it from their own pockets.
- Its income is considered as that of its owner who has to pay personal income tax (0%-22%) on it. It is costly when compared to the corporate income tax (0%-17%).
- The proprietor also finds it taxing to raise funds for the expansion of the business activities.
Singapore Company Law allows two or more entities (individuals and corporate) to come together and register a partnership. The business structure allows the business owners with the complimenting skill sets to come together & conduct their business activities to earn a profit. It can have 2 to 20 members (partners). The members of the partnership need to pay personal income tax on the income received from its business activities. There are 3 types of partnership.
1) General Partnership
A general partnership closely resembles to the sole proprietorship business. These firms share the same handicap when it comes to the personal risk & liability of their owners towards the debt or losses arising out of business activities. This type of partnership holds, all the partners liable for its losses or debts irrespective of their involvement.
2) Limited Partnership
A limited partnership differentiates its members as General Partners and Limited Partners. There is no limit on the number of partners it can have, but it needs at least one general partners and a limited partner. The liability of the limited partners is only up to the amount specified in the partnership agreement. However, the liability of the general partners is unlimited.
3) Limited Liability Partnership (LLP)
An LLP is the most favored form of partnership by the business owners. It combines the features of a partnership and a company. A group of two or more qualified individuals having complementing skills prefers to form this type of partnership. This partnership form determines the liability of its owners based on their actions or inactions.
- The LLP has separate legal existence from its owners.
- Its owners need to pay personal income tax (0%-22%) on the income received from it.
- They chose this form because like a private limited company it limits their liability to some extent.
- Its debts or the losses are attributed to the partners because of their carelessness, actions or inactions leading to the losses to the partnership.
- The uninvolved partners are spared from the responsibility.
- An LLP is best suitable for professionals like charted accountant, lawyer, architect, etc.
Business Structures for Foreign Incorporation
Singapore, in addition to the individual entrepreneurs, also attracts foreign businesses. Especially, the SMEs, wanting to expand their horizons opt for company incorporation Singapore. They need to know the differences in the legal business structures before choosing one.
- Subsidiary Company
A subsidiary company is a form of limited liability company. It is preferred by the foreign corporations to setup their company in Singapore. It has a separate identity from its parent foreign corporate. One of its USPs is that the Singapore authorities allow 100% foreign shareholding. In most cases, the foreign corporate acts as the major shareholder.
A subsidiary company is considered as the local company. It has access to the tax benefits, exemptions, and rebates awarded by the local authorities. It is responsible for its own debts and losses arising out of its business activities. The parent company’s liability remains limited to the capital it has invested in the shares.
- Branch Office
Registering a branch office in Singapore is yet another option that the foreign corporations can choose. A branch office is not considered as the local company. It is treated as the extension of the foreign parent company. It means its management has to follow the Memorandum and Articles of Association (MAA) of the parent company to deal with issues like shareholding, business activities, and structure.
As a branch office is not a separate legal entity from its parent company, the liability of its debts and losses arising out of its business activities lies with the parent company.
- Representative Office
The foreign corporate likes to survey & research the new markets before committing their resources to establish their presence in it. In Singapore, they need to register a representative office to carry out such activities.
A representative office has no legal status. It is taken as just a temporary administrative arrangement of its parent company. According to the Singapore Companies Act, it cannot indulge in any business activities.
Steps in Singapore Business Incorporation
Registering a Singapore Company: The process to register a Singapore company is straightforward and comprises only 2 procedures; a) Registering the company name with ACRA and b) Applying to register the company. A provider of company secretary service specialising in incorporation services can speed up the process, and you can own a company within no time unless the application gets referred to the higher authorities for this or that reason.
Key Pre-Incorporation Requirements for Pte Ltd
However, you need to complete the following pre-incorporation requirements before applying to ACRA to setup your company in Singapore.
- At least one shareholder
- Minimum initial paid-up capital of S$1 (S$50k for EntrePass holders)
- At least one local resident director
- At least one company secretary
- Registered local office address
Singapore Tax Regime
Singapore offers one of the most affordable tax structure to individuals and corporate. The corporate tax rate is between 0%-17%, and the personal tax rate is between 0%-22%. The tax rates are considered as one of the lowest in the world and attract business owners from all over the globe.
The absence of capital gain tax in Singapore attracts global investors in their droves. It means the dividends distributed by the Singapore companies to their investors are tax-free. In addition, Singapore companies have access to many tax incentives, rebates, exemption schemes, etc. It is one of the reasons foreigners opt to incorporate their Singapore companies.
Singapore has opted for the trade-based economy. Its geographical location is rightly conducive for it to act as an entrepot between the East and West. For the business owners opting for a company incorporation Singapore, the country offers stringent Intellectual Property laws, state-of-the-art infrastructure, advanced transport network, quality health care, pro-business environment, excellent education system, multilingual & talented work force. It is a society free of corruption led by the stable and open government committed to providing quality life to its citizens.