Singapore Business Entity Types
The type of business entity you choose to incorporate will have its influence on many factors post-incorporation. The way you pay your taxes, the way people perceive the image of your company, the size of your business turnover, the way you borrow money and your ability to undergo expansion or mergers, all this will depend on the type of company you setup.
The guide given below will make you aware of the various types of businesses, and how they differ from each other. Leaf through the options given below.
Options for Local Company Incorporation
1. Limited Liability Company
This type of company is limited by shares, which means the liabilities of its shareholders remain limited to the extent of amount of share capital invested. All the personal assets of the owner remains safeguarded from the liabilities. An LLC stands as a legal entity, and gets registered under the Singapore Companies Act. There are different types of LLC as given below:
i) Private Limited Company
This is a type of LLC, where the number of shareholders is limited to 50, and the shares are not available for holding to the public. It usually has the suffix ‘Pte Ltd’. The shareholders of a private limited company can be either a person or a corporate entity or both. This type of business structure is highly advanced, brings in the option of flexibility, and provides scalability features. This is the most preferred option for entrepreneurs who are looking for getting into some serious type of business in Singapore.
The existence of this type of entity does not depend on the continuation of the membership of its members. The ownership of the company can be transferred by simple transference of shares. In case, the company wants to expand, merge, or acquire a new business, then it has the option of raising capital easily. This is because the finance lending institutes prefer to lend money to private limited companies.
Lastly, it can be said that a private limited company is a very effective tax entity. The profits up to SGD 300,000 are charged below 9%, and capped at 17% for profits above SGD 300,000. In addition, Singapore has no capital gains tax, and the dividends get paid to the shareholder tax-free.
ii) Public Limited Company
A public limited is one that offers its shares to the public. This type of entity should have at least 50 shareholders, and they have the capacity to raise funds from the public. In addition, these types of companies get listed on stock exchanges.
iii) Public Company Limited by Guarantee
This type of company is mainly meant for non-profit purposes. Read more about incorporating a non-profit entity in our other article.
2. Sole Proprietorship
It is mandatory for every sole proprietorship or partnership to be registered under ACRA. If there are changes in the particulars of the management, i.e. its proprietor, manager or collaborates, then ACRA must be notified immediately. Sole proprietorships cannot be called as corporate entities, which is why the owner usually carries all the ownership of the debts and liabilities. If the owner is not able to pay the liabilities, then it will be paid from his personal assets.
3. Limited Liability Partnerships
This is a type of business entity, which gives the benefits of, both, partnerships and companies. LLPs should get registered with ACRA under the Limited Liability Partnerships Act 2005. It is mainly formed with the aim of carrying out a profession. The LLP is a legal entity, that is separate from that of its partners. An LLP must have a minimum of two partners.
An LLP can be sued and can sue under its own name. In addition, it can under its own name, acquire, own, hold and develop property and incur debts or liabilities. The partners will be held responsible for liabilities, only until the extent of their share of investment in the company. It is not suited for businesses that carry out trade.
Options for Foreign Company Registration
Foreigners can make their presence felt in Singapore by incorporating in one of the three ways given below-
1) Subsidiary Company
This is the most preferred type of business structure for foreigners. This type of entity falls under the category of a private limited company. A subsidiary company can have the parent foreign company as its 100% shareholder. It can even have a local company as its shareholder.
Incorporating a subsidiary company has its own set of advantages. The main one being that it is a separate entity from its parent foreign company. In addition, the parent company is only eligible for liabilities until the extent of the share capital invested. All other assets of the parent company remain safeguarded from the debts and liabilities of the subsidiary company.
2) Branch Office
This is the second option for foreigners who wish to incorporate in Singapore. This type of business structure is apt for mostly SMEs. A branch office becomes a proper legal entity after registration. It is an extension of its parent foreign company. This entity differs from a subsidiary company, in terms of the responsibility of the debts and liabilities.
In a branch office’s case, the parent foreign company is responsible for all the debts and liabilities incurred by the branch office in Singapore. The name convention states that the branch office should have a name corresponding to the name of its parent foreign company. A branch office will be considered as non-resident company for tax purposes.
3) Representative Office
This remains as the last option for foreigners who wish to setup a company in Singapore, for testing the business potential. An RO is setup only for the purpose of market research and feasibility studies. It should not indulge in any profit-making activities.
An RO does not have a legal identity. This means that if the parent company gets dissolved, the representative office in Singapore automatically gets de-registered. In order to be eligible to set up a representative office in Singapore, the foreign parent company must be an established company for more than 3 years, and should be having an annual turnover of more than S$250,000.
Which Business Entity is Ideal to Run?
This remains an eternal tricky question. However, the answer is simple. It all depends on your plans and the type of commodity or service you want to trade or do business. Given below are some are general guidelines, you need to follow before zeroing-in on any one.
- If you are a Singapore local and want to run a small trade, where you are ready to take the responsibility of the liabilities that will incur, then a sole-proprietorship is ideal for you.
- If you want to sell services by way of the profession you are in, and if you have a partner ready to jump in with you, then nothing can suit you better than an LLP.
- In all other cases, incorporating a private limited company in Singapore would be the best choice. However, its operations, tax implications and other compliance needs are complex. In spite of which this remains the best structure by far for the long run.
- If you are a foreign company owner and want to make your presence felt in Singapore, then perhaps a subsidiary company is the best.
- If you just want to test the waters before getting your feet wet in Singapore, then a representative office is apt for you.