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How to Choose the Right Business Entity for Company Formation in Singapore

Last modified: April 17, 2023
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How to Choose the Right Business Entity for Company Formation in Singapore

For a newbie owner, choosing the best business entity for company formation is a must. Doing so can help fulfil your business needs over a long period. Failing with it can harm your business’ image, credibility, and effort to grow it. Here are the essential tips on how to choose the correct business entity or legal structure.


Individual Owners: How to Choose the Right Business Entity

As an individual business owner. You can choose one of the following business structures to form your company:

  • Private Limited Company
  • Public Limited Company by Shares
  • Public Company Limited by Guarantee
  • Limited Liability Partnership
  • Sole proprietorship

If you cannot choose a business entity for company formation, you can hire one of the reliable providers of services for company formation Singapore.


How Business Structures Impact Your Singapore Company Formation

These professionals can run you through the advantages and disadvantages of each business structure. They will also expound on their use and scope. And how they can impact your execution of business ideas and plans, taxation, liability, and fundraising. Here is a brief info on how to choose the right business entity.

You should try to judge the scope of your business idea and plan. You should also try to imagine your activity’s scale, risks, and tax liability. These will help you determine your liability and the costs involved.

In Singapore, a private limited company is more tax efficient than a sole proprietorship or a partnership business.

Private Limited Company by Shares

To register a private limited company, you need to apply Accounting and Corporate Regulatory Authority (ACRA). It is the Company Registrar for Singapore.

Singaporeans and foreigners over 18 can opt for company formation Singapore. A Private Limited company (Pte Ltd) is formed as per the Singapore Companies Act, Chapter 50.

A Pte Ltd, a Limited Liability Company (LLC), is a favoured business entity for company formation. It limits your liability to the capital you have invested in its shares.

A Pte Ltd can have 1-50 shareholders or owners. You must hire at least one director who is an ordinarily resident of Singapore.

A Singapore private limited company:

  • Has a distinctly separate identity from its shareholders
  • Is a legal person
  • Can buy assets and property for its use
  • Can sue or be sued
  • Has perpetual existence which is dependent on any of its shareholders
  • Is responsible for its loss or debt
  • Pays corporate tax (0%-17%)
  • Can be owned completely by foreigners
  • Has terms like ‘Pte Ltd’ or Private Limited in its name
  • Transfer of ownership is easy
  • Is more credible than a sole proprietorship or a partnership
  • Has more chance of securing loans for its expansion
  • Is a tax resident of Singapore


Public Limited Company by Shares

Public limited companies are businesses that are listed on the stock exchanges. These LLCs have more than 50 shareholders. General investors can buy shares or debentures of these companies.


Public Company Limited by Guarantee

Public companies limited by guarantee are often formed to promote a non-profit cause. These are a type of LLCs. They can be a club, charitable organisation, religious body, trade association, and professional society.


Limited Liability Partnership (LLP)

Partnerships are of 3 types: General partnership, Limited Partnership, and Limited Liability Partnership. The limited liability partnership is the most used form.

It is dynamic as it offers the best of a partnership and a company. Two or more qualified professionals with complementary skills form a partnership.

In the case of an LLP, the liability of its members is based on their actions or inactions.

  • LLP has a distinctly separate identity from its owners
  • LLP limits its member’s liability to some extent
  • Owners pay personal income tax on the income obtained from LLP
  • Members responsible for LLP’s debts or losses are responsible for paying them
  • Generally, charted accountants, lawyers, and architects form LLP


Sole Proprietorship

A sole proprietorship has no distinctly separate identity from its proprietor. It is a basic business firm and not an incorporated company.

The proprietor has unlimited liability and is liable for paying its debts and losses incurred. It is why you should use it for relatively risk-free business activities.

  • A sole proprietorship cannot buy the property or real estate in its name
  • The assets are in your name, and you have to pay property tax
  • Proprietorship’s income is your income. You have to pay income tax (0%-22%) on it. These rates are higher than the corporate income tax rates
  • Raising funds for the proprietorship’s expansion is not easy. It depends on your credibility in the market
  • A proprietorship gets dissolved after the proprietor’s death


Business Entity for Company Formation for Foreign Companies

Subsidiary Company

A subsidiary company is an LLC favoured by foreign corporations for Singapore company formation. It has a distinct, separate identity from its parent company. The parent can own 100% of its shareholding.

A subsidiary company is considered a local tax resident company. It is liable for its debts and losses. The parent’s liability is limited to the share capital it has invested in the subsidiary’s shares.


Branch Office

A foreign corporate, as a parent, can also set up a branch office in Singapore. The new company does not have a separate, distinct identity from its parent.

Rather, a branch office is treated as the extension of its parent and not as a local company.

Management running the branch office has to work as per the Memorandum and Articles of Association (M&AA) of the parent company. This document guides them in decision-making about shareholding, business’ structure and activities.

The parent company is responsible for paying the debts and losses of its branch office.

Let us summarise info about how to choose the right business entity. Singapore subsidiary company is the right business entity for company formation for foreign corporates. It limits their liability and is a tax-efficient entity.

As an individual owner, you should set up a private limited company. It is a dynamic, scalable, and tax-efficient business entity for company formation. It is easy to transfer and effectively limits your liability.

Call us at +65-6536 0036 or email us at info@sbsgroup.com.sg to learn about our affordable promotional Singapore company formation package.

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