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How to Determine the Ideal Business Structure for Company Incorporation

Last modified: June 26, 2023
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How to Determine the Ideal Business Structure for Company Incorporation

Before you successfully complete a company incorporation in Singapore, you must be ready with a path-breaking idea and a detailed business plan. How to choose right company incorporation or business structure is your next concern. If you are not careful, you will pay dearly in the long run for making a mistake with it.

Choosing the right business structure is crucial for streamlined business management, its credibility, etc. Before you do so, you must have clarity about your business needs and the risk involved in your business activities. Then, you must analyse these business structures one by one and choose right company incorporation.


How to Choose Right Company Incorporation or Business Structure

As an individual over the age of 18 years, anyone can opt for company incorporation in Singapore. You have the following legal or business structures to form your business:

  • Private Limited Company (Pte Ltd)
  • Sole Proprietorship
  • Limited Liability Partnership (LLP)

The decision to choose right company incorporation is complex because it can affect the following:

  • Liability
  • Compliance requirements
  • Taxation
  • Exposure
  • Credibility
  • Growth prospects


Let us Know More about Singaporean Business Structures

In addition to how to choose right company incorporation, you should also know who to apply for it. In Singapore, you must apply to Accounting and Corporate Regulatory Authority (ACRA) to set up your new business.

ACRA is the Company Registrar for Singapore and governs the process for registering a business as a private limited company, sole proprietorship or one of the partnerships.

Let us see what makes a Singapore private limited company.

Private Limited Company (Pte Ltd)

Business owners prefer to incorporate a private limited company in Singapore. It is a type of limited liability company. You can form it as a single shareholder or invite up to 50 individuals or companies as its shareholders.

It can have many local and foreign directors. However, At least one director needs to be local or ordinarily resident of Singapore. A private limited company (Pte Ltd)

  • A Pte Ltd is a legal person. Its legal identity does not depend on its owners or shareholders
  • Pte Ltd limits the liability of its shareholders to their investment in its shares
  • Singapore allows foreigners to own 100% of capital in their Pte Ltd
  • It is responsible for paying its losses or debts. Your or other shareholders’ assets are not used
  • Transfer of ownership is easy through the sale of shares
  • It is easy for a Pte Ltd to raise capital for its growth or expansion
  • It has the rights of a natural person
  • Pte Ltd can buy or sell assets in its name
  • You are free to move profits out of Singapore without any restrictions
  • It can sue others or be sued by others in its name. It keeps the shareholders’ involvement to the minimum
  • Pte Ltd exists perpetually. Its existence does not depend on any of its shareholders

Since Pte Ltd has a separate legal identity, suppliers, customers and creditors like banks consider it more credible than a sole proprietorship or a partnership.


Tax Benefits

There are benefits to registering your private limited company in Singapore. Installing its management in Singapore makes it a local tax-resident company.

Doing so enables it to claim almost all the tax benefits provided by the government. Tax benefits help save money and lower operating costs. If it has a maximum of 20 individual shareholders (no corporate), it can qualify for a tax benefit scheme for startups. Then, starting in 2020, it can claim for its first 3 years of assessment:

  • 75% tax exemption on its first $100,000 of normal chargeable income; and
  • 50% tax exemption on its next $100,000 of normal chargeable income

In addition, like other Singaporean companies, you can claim Partial tax exemption:

  • 75% exemption on your first $10,000 of normal chargeable income; and
  • 50% exemption on your next $190,000 of normal chargeable income

A Pte Ltd pays headline corporate tax at the flat rate of 17%. However, because of the tax benefits, the tax amount comes to about 8.5%-9%.

A Pte Ltd can save you a lot of money in taxes. And it is why you should understand your business’ tax liability before studying different company incorporation packages & fees. It helps you understand how to choose right company incorporation.


Sole Proprietorship

Singapore Company Law treats a sole proprietorship as a business firm, not an incorporated company. It has no separate legal existence and has to depend on its owner or proprietor for identity.

The proprietor’s liability is unlimited. Their assets are used to pay the debts and losses of the sole proprietorship. Experts advise registering a sole proprietorship to conduct business activities involving zero or almost negligible risks.

  • A sole proprietorship pays no tax
  • Its income is considered that of its proprietor, who pays personal income tax on it
  • The tax rates are from 0% – 22%, which are costlier than corporate tax rates
  • The sole proprietorship has no identity and cannot buy assets for its use in its name. These assets are in the proprietor’s name, who pays property tax on it
  • Raising funds for business expansion is hard for sole proprietorships
  • Its credibility depends on the personal charisma of its proprietor


Limited Liability Partnership (LLP)

An LLP combines the best characteristics of a partnership and a company. It enables two or more professionals to come together. Usually, these professionals have complementary skills. And coming together as a business unit allows them to provide complete solutions to their customers.

  • An LLP limits its members’ liability to some extent
  • Their liability based on their actions or inactions leading to LLP’s losses
  • The guilty members have to pay for their carelessness, actions or inactions by paying LLP’s debts or losses
  • The uninvolved partners go scott-free
  • Like a Pte Ltd, an LLP has a separate legal identity from its members or partners
  • It bears no tax on its income
  • Its income is considered as that of its members
  • They pay personal income tax (0%-22%) on it. It is costly
  • An LLP is the right business vehicle for CAs, lawyers, architects, Etc

Knowing how to choose right company incorporation will enable you to use the best business structure to fulfil your needs. It will also prove to be a long-term business solution for you.

If you have long-term plans, register a Singapore private limited company. It provides you with the ease of doing business, the chance to scale business activities, low tax rates, limited liability, easy transfer of ownership, Etc. Call us at +65-6536 0036 or email us at info@sbsgroup.com.sg to learn about our company incorporation packages and fees.

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