Who is Responsible for the Debts of a Singapore Company
There is no doubt that starting a new business by opting for Singapore company incorporation is risky. It involves committing your resources like capital, time, market research, product development, marketing, etc. You may do all your best for it, but there is no assurance that it will be enough to get returns on your investment. And you may end up with debt.
Minimise the Personal Risk
However, if you only focus on the risk, it may stop you from implementing your creative idea to help people solve their problems. And you will also not be better off. Instead of completely dropping the idea of Singapore company registration in 2021, you should consider minimising the personal risk involved. Yes, there are ways of doing so.
Choose Singapore Company Registration in 2021 to Minimise Risk
One of the best ways of mitigating risk is choosing the right business structure. In Singapore, you can register a Private Limited Company (Pte Ltd), sole proprietorship, or Limited Liability Partnership (LLP) to conduct your business activities. As per the experts, the choice of a business structure depends on your business needs and the nature of its activities.
As per their advice, if the business activities involve minimal risk, you should register a sole proprietorship. And if the risk is considerable, incorporating a Pte Ltd could be the best option for you. Why?
Singapore Private Limited Company is Responsible for its Debates & Losses
Pte Ltd is a legal entity and has a separate identity from its shareholders (owners). It limits the liability of its owners to the amount they have invested in its shares. It is responsible for paying its debts and losses incurred during the course of its business activities.
In the worst-case scenario, companies assets are sold to pay for their liabilities. The owner’s personal assets remain unaffected.
Responsibility of Debt in Sole Proprietorship and LLP
Sole proprietorship depends on its owner for identity. Its owner’s liability is unlimited. It means if something goes wrong, the owner’s personal assets are used to pay for the debts and losses of the sole proprietorship.
Limited Liability Partnership
In the case of an LLP, the partners whose actions or inactions lead to the loss to the LLP are held liable. It puts their personal assets at risk. These may be used to pay the LLP’s debt or losses.
To summerise, Pte Ltd is liable for its debts and losses. In the case of a sole proprietorship, its proprietor is responsible for its debts. In the case of an LLP, the partners causing the loss to the LLP is held liable. Pte Ltd enables its owners to limit their personal risk. It is the reason why business owners prefer Singapore company incorporation.