Did you know that out of 190 countries, Singapore has been ranked by World Bank in the top 3 countries to conduct business locally? Regardless of business structure, setting up a business in Singapore is simple, efficient and fast. The corporate compliance rules are straightforward and easy to follow.
Singapore’s corporate tax policies are also pro-market and the tax benefits extend to companies owned by foreigners. There are open ownership rules and minimal control on currency movement. Foreigners are able to own 100% of the stocks of a company incorporated in Singapore without the need to have local shareholders or partners.
Overall, Singapore is the preferred location for business owners and/ or entrepreneurs who want to launch their business. However, you would need to think about the business structure before incorporating a company. There are many factors to take into consideration before choosing the right business structure for your company.
They are the number of shareholders, compliance responsibilities, the ease of doing business and in transfer of shares, scalability, tax rates, liabilities, investors’ queries and expectations etc. It is a challenging task, even for experienced business owners as the business structure can impact a company’s viability, growth and future direction.
Below are the 5 different business structures available in Singapore to an entrepreneur:
1. Private Company Limited By Shares
Usually referred to as a “private limited company”, it has between 1 to 50 shareholders, who can be private individuals or corporations. As of February 2021, approximately 70% of companies in Singapore operate as private limited companies.
This business structure is popular due to the following reasons:
- It separates legal entity with limited liability from its shareholders and directors
- Singapore has a single-tier tax system and once income has been taxed at the corporate level, the rest are distributed as dividends to shareholders tax-free
- Additional capital can be raised by issuing additional shares to current shareholders or by bringing in new shareholders without changing the business structure
- Ownership can be transferred easily through the sale of shares, meaning if a shareholder resigns or dies, the business can continue seamlessly without any negative impact from the loss of shareholder(s)
- The amount of time and effort taken to set up a private limited company tells potential investors, shareholders, employees, suppliers and customers that you are serious about running and scaling the business
2. Public Company Limited By Shares
This structure has more than 50 shareholders, making it the appropriate structure for large, well-established businesses who want to raise capital by offering shares of the company to the public. It must have the word “Limited” as part of its name. The company needs to register a prospectus with the Monetary Authority of Singapore and with the Accounting and Corporate Regulatory Authority (ACRA).
The registration fee is SGD300 with an additional SGD15 for company name approval. Company accounts must be audited annually and filed with ACRA. An annual tax return must also be filed with both ACRA and The Inland Revenue Authority of Singapore (IRAS) within one month of the company’s annual general meeting (AGM).
3. Limited Partnership (LP)
This structure must have at least one general partner and one limited partner. There is no limit on the number of partners but the liability of general partners is unlimited. Should a claim arise, their personal assets can be attached. The general partner can be an individual or company. The general partner(s) actively participate in the day to day management of company operations.
The limited partner(s)’ liability is limited to their amount of contribution to the partnership and they are more like sleeping partners, leaving the active management to the general partner(s). A limited partner can be an individual, company or foreign registered company. LP is registered with ACRA under the Limited Partnership Act.
4. Limited Liability Partnership (LLP)
This business structure creates a separate legal entity and it requires fewer compliance activities than a private limited company. Each partner is taxed with personal tax off their individual income. There is no need to file annual returns. If one of the partners is a company, it will be subject to corporate tax but the LLP is not eligible for corporate tax exemptions.
Mostly designed for professionals (lawyers and architects etc) to build a joint practice, it is very important to state the specific management responsibilities and profit structure in the partnership agreement. Both individuals and companies can become partners but there must be at least two partners at all times. This is an alternative to sole proprietorship.
5. Sole Proprietorship
This is a business owned by one person and the owner is called a sole proprietor. He/ She will have total control and say in the business, including the management and day to day running of the business. It is the easiest to set up and least costly of all the business structures. It is also easier to manage and all the profits go directly to the owner.
There are less compliance requirements and there is no need to perform annual reporting. The only disadvantage is that in a sole proprietorship, the business and its owner are considered a single legal entity. This means that the business owner is personally liable for all the business liabilities and any legal action taken against it. Personal assets will be put at risk if the business owner is being sued personally.
In summary, these are the most common business structures in Singapore. It will be advisable to think about your business objectives, direction and future expansion plans before deciding on a business structure. Hope this information has been helpful and all the best in your business venture!