One of the most important decisions you have to make before starting up a business is to decide what type of business structure that you want your business to be registered under. The form of business structure will affect many aspects of your business, such as your personal liability, your ability in borrowing money, business succession and profit sharing issues, etc
Choosing The Right Business Structure
The most common types of business structures are as follows:-
Business Firms (Unincorporated) Options
Sole Proprietorship |
General Partnership |
Limited Partnership |
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| General Definition | A sole-proprietorship is a business owned by a single person who has the absolute power in the running of the business. |
A partnership is a business firm formed by between 2 to 20 partners. Once, you exceed 20 partners, then the firm must be incorporated. The roles and responsibilities of each partner is governed by the Partnership Agreement. |
A partnership consisting of 2 to 20 partners where at least 1 partner is a General Partner (GP) and 1 is a Limited Partner (LP). |
| Suitability |
Suitable for very small and low risk businesses to be run by an individual only. It’s a great choice for self-employed individuals or freelance activity |
Suitable for Professional firms like Consultancy, Accountants, lawyers etc. | Suitable for businesses where at least one partner is ready to bear unlimited risk. |
| Set-up Procedure |
It’s quick & easy to Set Up and easy to administer too. Cost of registration and business renewal is low too. Owner or Partners can be either local Singaporeans, Permanent Resident or even Foreigner. However, a foreigner must appoint a local manager. |
It’s quick & easy to Set Up and easy to administer too. Cost of registration and business renewal is low too. General or Limited Partners can be either local Singaporeans, Permanent Resident or even Foreigner. However, the firm must appoint a local manager, if all General Partners reside outside Singapore. |
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| Legal Entity |
The firm is NOT considered a separate legal entity. (i.e. The owner and the business are considered as a single legal entity) All the assets and liabilities of the company are owned by the business owner. |
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| Personal Liability |
Owner/ Partners has unlimited liability and they will be accountable for all debts and losses in the business. This means that if the business is unable to repay its debts or liabilities, the creditors can come after the owner’s own personal assets for settlement. |
General partner has unlimited liability, whereas limited partners have limited liability | |
| Tax Liability |
Taxed at owner’s or partners’ personal tax rate Personal Tax Relief claimable by owner or partners. |
Taxed at partners’ personal/corporate tax rate Personal Tax Relief claimable by individual partners. Corporate Tax Relief if the Corporate Partner is eligible |
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| Business Succession | As long as the owner is alive and wished to carry on the business. Once the owner passed away or he is unable to carry-on, the business will also be discontinued. | Unless there is a proper Partnership Agreement that has a specific succession clause, a partnership can be ended if any one of the partners leaves the business, retires, is declared an insolvent, and/or dies. | |
Incorporation Options
Limited Liability Partnership (LLP) |
Private Company limited by Shares |
Foreign Company or Singapore Branch |
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| General Definition | Limited Liability Partnership (LLP): This type of partnership allows a considerable amount of flexibility of functioning as a partnership but keeping the partners and the business as separate entities. To be set up, it requires at least 2 partners. There is no limit to the maximum number of partners. The partners are not personally liable for the debts and losses of the LLP brought about by other partners. |
This type of a company can have a maximum number of 50 shareholders and needs to be locally incorporated. Exempt Private Limited Company (EPC): This type of a company can have a maximum of 20 shareholders, none of whom are to be considered as corporate entities. |
Foreign Company / Singapore Branch: A company which has been incorporated outside of Singapore but wishes to open a branch within Singapore as an extension of the parent company (instead of a separate entity) can be registered as a Singapore Branch. |
| Suitability | The newest business incorporation structure in Singapore combining the features of partnerships and companies. The biggest difference with a company is that the partners are taxed at their individual personal tax rate and are not eligible to the tax exemptions available for a company | Most advanced and flexible business entity. Most popular option | Suitable for foreign companies who are trying out (or to do some initial Business Development/Marketing activities) the Singapore market before committing to set-up a full operational business in Singapore |
| Set-up Procedure | Easy to Setup and easier to administer as compared to a Company. Pays a one-time registration fee and manager required to lodge an annual declaration of solvency |
Costlier to set-up and more administrative tasks to run. Must appoint a company secretary within 6 months of incorporation Must appoint an auditor within 3 months of incorporation (unless exempted) Need to maintain financial books and file annual returns |
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| Legal Entity | Separate Legal Entity | Not a separate legal entity | |
| Personal Liability | Partners not personally liable for debts and losses of LLP incurred by other partners | Members has limited liability. (Losses capped at the capital invested) | |
| Tax Liability | Taxed at partners’ personal/corporate tax rate | Taxed at corporate tax rate. Start-up Tax Exemption & Partial Tax Exemption is available Dividend is tax exempt to shareholders. |
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| Business Succession | Perpetual succession unless being wind-up or strike-off. Winding-up can be by members, creditors or by court order. |
No perpetual succession | |
How Timcole can Help You
Looking to start a business in Singapore? Timcole can assist you in all business aspects!
Timcole is one of the leading company incorporation and accounting firm based in Singapore. Our wide range of professional services serve as a one-stop solution for your business, offering you the most affordable price for services conducted with the highest level of excellency.
Contact us to find out more on how we can help you with your company today.