Navigating Business Structures in Singapore
Being a global business hub and major financial centre, setting up a business in Singapore is an excellent decision. However, before you do so, it is essential for you to choose a business structure that best fits your goals. Each has its own set of advantages and disadvantages; understanding the differences will help you make an informed decision. Let’s look at your options and dive into Singapore’s 5 main business structures.
1. Sole Proprietorship
The first and simplest business structure is a sole proprietorship, a low-risk business owned by a single individual.
Key features:
- Can be set up by a Singaporean citizen, Singapore permanent resident, employment pass holder, dependent pass holder or foreigner (However, if the owner is a foreigner, it is mandatory to appoint a local manager who is a Singapore resident.)
- Not a separate legal entity from business owner
- Unlimited liability for business owner
- Relatively simple and low-cost registration and compliance requirements
- Challenging to secure funding from investors and bank loans.
- Taxed as personal income
2. Partnership
A partnership is akin to a sole-proprietorship business but consisting of 2 to 20 partners.
Key features:
- Can be set up by at least 2 individuals who are Singaporean citizens, Singapore permanent residents, employment pass holders, dependent pass holders or foreigners (must appoint local manager)
- Not a separate legal entity from business owner
- Partners have joint and several and unlimited liability
- Relatively simple and low-cost registration and compliance requirements
- Challenging to secure funding from investors and bank loans.
- Taxed as personal income
3. Limited Partnership (LP)
A limited partnership is a business with at least 1 General Partner (GP) and 1 Limited Partner (LP), with unlimited number of partners.
Key features:
- Can be set up by any local or foreign individual or company.
- Mandatory to appoint a local manager if all GPs are based outside Singapore.
- Not a separate legal entity from business owner
- GPs have unlimited liability, LPs have limited liability
- Relatively simple and low-cost registration and compliance requirements
- Taxed as personal income except for corporate partners
4. Limited Liability Partnership (LLP)
A limited liability company is one where all partners have limited liability, with no limit on number of partners.
Key features:
- Can be set up by any local or foreign individual or company.
- Mandatory to appoint a local manager
- Operates as a separate legal entity from business owners
- Partners are not held personally liable for debts and losses incurred by the LLP
- Relatively simple registration and set-up in comparison to a company
- Taxed as personal income except for corporate partners
5. Local Company
Companies are the most common type of structure when doing business in Singapore. There are 3 main types of local companies:
Exempt Private Company – maximum of 20 shareholders in the business.
Private Company – not more than 50 shareholders in the business.
Public Company – more than 50 shareholders in the business, but not to be confused with a public listed company (where a company’s shares are listed on a stock exchange).
Key features:
- Can be set up by any local or foreign individual or company.
- Mandatory to have a local director, unless a foreigner applies for an EntrePass.
- Operates as a separate legal entity from shareholders.
- All shareholders have limited liability, up to the total amount they had invested into the company
- More complex and costly registration and compliance requirements
- Required to audit accounts and file annual returns with ACRA
- Easier to secure funding from investors and bank loans.
- More options for business and start-up grants available in Singapore.
- Taxed on corporate tax rates
- Enjoy (partial) tax exemption schemes for new companies that meet the requirements
When starting a business in Singapore, knowing the different structures available and deciding on one that best fits your needs is important. You may want to consider things like the scale of your business, liability protection needs, start-up capital, compliance and growth plans. Professional legal advice can help you review and select the best option for your business goals and circumstances, providing you with the guidance and support you need. For more detailed information, reach out for a discussion with our experienced legal experts today.
