Business Entities Available in Singapore

Deciding on the ideal business vehicle

One of the key decisions you need to make when starting up a business is to consider the type of business vehicle to conduct your new business.

Your decision will influence the ease of business formation and exit, business ownership transfer, how much taxes you need to pay, the extent of personal liability you are potentially exposed to, the set of rules applicable to your business, the amount of administration and paperwork you need to perform, the general public perception of your business and the ability to obtain loans and borrowings.

We will discuss and compare the benefits and shortcomings of the 3 most common forms of business structures used to conduct business in Singapore, namely a Company, a Partnership and a Sole Proprietorship.

	COMPANY	PARTNERSHIP	SOLE PROPRIETORSHIP
Most common form of each business entity (our discussion will be based on this form of business formation)	Private Limited Company	Limited Liability Partnership (LLP)	Sole Proprietorship
General Information	One of the most popular business vehicles to conduct businesses.	A hybrid of model incorporating the benefits of both a company and a typical partnership.	The most basic form of business vehicle to conduct business.
Suitability of Business Entity	Suitable for carrying almost all trades, vocations and professions.	Suitable for carrying a profession like law firms, accountancy firms, architect firms	Suitable for small scale business models with comparatively low risk and returns.
Ease of Business Formation	Relatively easy to incorporate a Singapore registered company.	Relatively easy to form a LLP. However, business owners may have to engage a lawyer to draft a partnership agreement to clearly state the profit sharing scheme as well as the roles and responsibilities of each owner in the managing of the LLP.	Easiest form of business formation.
Business Formation Requirements	Requires minimum of one local director and one shareholder (can be the same person).Requires the appointment of a local company secretary.Can have a maximum of up to 50 shareholders (maximum of 20 shareholders for an exempt private company)	Requires at least 2 partners to form a LLP. Requires at least one local manager.	Can be formed with only one individual.
Legal Identity of Business Entity	A company has its own legal identity separated from its members.Has the ability to conduct all business activities including entering into contracts and hold assets and liabilities, sue and be sued in its own name.	A LLP has its own legal identity separated from its partners. Has the ability to conduct all business activities including entering into contracts and hold assets and liabilities, sue and be sued in its own name.One partner can commit the partnership to a business contract without the consent of the other partner.	Does not have a separate legal identity from its business owner.The business owner is fully responsible for the business and legal activities of the business entity.
Liability Exposure of the Business Owner	The liabilities of the company are limited to the assets of the company.The personal assets of the members of the company are protected and limited to the share capital put into the company.	The liabilities of the LLP are limited to the assets of the company.The personal assets of the limited partners are protected and limited to the invested amount put into the LLP.However, each individual partner is liable for debts and losses incurred as a consequence of his own omission or negligence.	The business owner has unlimited liability and is not protected against his own personal assets. This means that business creditors can claim against your personal assets for debts incurred in your business activities.
Business Succession & Transfer of Business	Addition and removal of members does not affect the continuity of the company. Business ownership can be transferred by way of stock sale and purchase. Assets and other proprietary information are maintained within the company.	Addition and removal of partners does not affect the continuity of the LLP. Business transfer is cumbersome as assets and related licenses and permits held have to be transferred/re-applied to or by the new owner separately.	The sole proprietorship will cease when the owner exits the business. Business transfer is cumbersome as assets and related licenses and permits held have to be transferred/re-applied to or by the new owner separately.
Taxation	The company can enjoy tax benefits available only to corporate entities.In general, business profits taxed at the corporate level is lower than if they were taxed at the personal level. Dividends declared are not subjected to any further tax as Singapore has a single tier tax system.	Profits allocated to limited partners are taxed as personal income of each limited partner. There is no corporate taxation on profits from LLP.	Profits are taxed as personal income for the business owner. There is no corporate taxation on profits from sole proprietorship.
Tax Filing Form	ECI & Form C	Form P	Form B or B1
Regulatory Commitments	For Exempt Private Limited Companies (Companies with annual turnover of less than S$5M and has no corporate shareholder) There is no requirement for audit if the company is exempt. Requires submission of an annual declaration of solvency to ACRA. For private limited companies not exempted, Annual audit of accounts is compulsory For all private limited companies, Requires filing of corporate tax returns to IRAS Annual General Meeting is to be held every year.	Annual declaration stating whether the LLP is able or unable to pay off its debts to be made by the local manager to ACRA. The precedent partner is required to file the annual income tax return on behalf of the partnership.	Requires only annual renewal of business under sole proprietorship made to ACRA.
General Perception of Business by the Public	Conveys more trust and credibility.	As this business form is common in specific fields of profession, conveyance of trust and credibility within these professions is easy.	Comparatively, conveys the least trust and credibility.
Capital Funding Opportunities	Avenues for capital funding include equity funding from new member, business loans and venture capital funding.In general, obtaining a financing scheme from banks is relatively easier compared to other forms of businesses.	Capital funding is generally limited to new injection from partners.Financing from banks can only be obtained via pledging of the personal assets of the partners.	Financing from banks can only be obtained via pledging of the personal assets of the business owner.
Business Exit	Business exit is cumbersome and time consuming. The owner can choose to either strike off or wind up the business. Several regulatory requirements must be met during the closing down process and the duration can take up to 12 months.	Business exit is cumbersome and time consuming. The owner can choose to either strike off or wind up the business. Several regulatory requirements must be met during the closing down process and the duration can take up to 12 months.	A sole-proprietor can close down his business simply by filing a notice of termination or a notice of cessation of the business.

Exempt Private Limited Companies

An exempt private limited company is a good choice for new startups who wish to carry out their business under a company structure. You can take advantage of the lower compliance costs associated with running a company and at the same time enjoy the numerous corporate tax benefits available. A large proportion of private limited companies in Singapore are exempt private limited companies.

Under this business structure, subject to certain conditions, there is

• No requirement for the company’s books to be audited
• No requirement to file a set of audited annual accounts with ACRA. The only filing requirement mandated is a declaration of solvency which is to be filed by the company directors to ACRA.

In order for the company to enjoy the above mentioned benefits, the company should

• Have less than 20 individual shareholders,
• Have no corporate shareholders,
• Have an annual turnover of less than S$5 million and,
• Have a positive net asset position on its books as at the end of the financial year. If the company is unable to repay its debts and obligations as the amount fall due, a set of unaudited annual accounts have to be submitted to ACRA in place of the declaration of solvency.

Other business entities available in Singapore not covered in this section include:

Other Business Entities	Brief Description
Public Limited Company	Listed companies with a large number of shareholders. These companies are subjected to more compliance and governance requirements.
Public Company Limited By Guarantee	A business structure to conduct non-profit making activities which has certain basis of national or public interest (example: charity organisation, promotion of arts etc)
General Partnership	A business formed by 2 to 20 partners
Limited Partnership	A partnership with at least one general partner and at least one limited partner

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DISCLAMER : Whilst every effort has been made to ensure that the information provided is correct and up-to-date, no warranty is given that it is free from error or omission. It should also be noted that the information given is of a general nature and may not be applicable in a specific situation. Accordingly, we disclaim liability for any act done or omission made on the information provided and any consequences for any such act or omission. For specific legal advice, you should seek professional legal assistance.