When you’re planning to set up a business establishment in Singapore, it is imperative that you make an informed decision about the business entity you’re planning to incorporate. On your choice of business, entity depends a wide range of outcomes that range from the amount you pay in taxes to the paperwork you’re required to complete to the personal liability you have to the capacity to expand your business or borrow money.
To make an informed decision about something so crucial that determines the future of your business and defines its success, you must be well acquainted with the different types of business entities that exist in Singapore. So, in this article, we guide you through the type of business entities that you can set up in Singapore, based on whether you’re an original resident or a foreign inhabitant:
Business Structure Models Suitable for Original Singapore Residents include:
- Sole Proprietorship:
Also referred to as the sole trader, this business structure is best suited for small businesses where it is usually a one-man show, where the owner is personally responsible for the assets as well as the liabilities of the company. So, if you’re wondering whether a sole proprietorship falls into the category of a separate legal entity, the answer is no. For you to be eligible to be a sole proprietor in Singapore, you must be 18 years of age or above, a resident of Singapore originally, and should not be an undischarged bankrupt.
This option is practically viable for locals based in Singapore and is not practically feasible for foreign establishments.
If you’re planning to register your company as a sole proprietorship, you should also take into consideration that your profits would be taxed out of your personal income tax rate, and you would fail to benefit from tax incentives of any kind that are available to companies or the effective corporate tax rate between 0 and 17 percent. The Inland Revenue Authority of Singapore (IRAS) does not recognize sole proprietorship in its definition of a company, per se.
A sole proprietorship type of business structure might be simple, but it also spells risks and constraints of expansion. Within a partnership, two or more individuals come together to establish and run a business and this sort of a business model is ideal for small businesses incorporated by original residents. The maximum number of individual partners a business can have under this model is 20, on crossing this limit, the Inland Revenue Authority of Singapore (IRAS) mandates it to be registered as a company, under the Companies’ Act.
Under this structure, foreign companies can be registered as partners, but the taxes imposed on the business would depend on the partner involved. To make things clearer, if the partner is registered as a company, the corporate tax rate would apply or else individual tax rates. A partnership makes it mandatory for a business model to appoint a manager 18 years of age or above, besides being an original resident of Singapore.
As this does not have a distinct legal presence either, liabilities and assets fall under the personal responsibility of partners and a partnership can be dissolved with the utmost ease. If you want to proceed with a partnership anyway, here are the 3 types of partnerships you might want to have a look at:
- General Partnership: Within this business model, you can have a minimum of 2 partners to a maximum of 20, with all of them personally responsible for the profits and the taxes being imposed on their personal income rate.
- Limited Partnership: This structure allows you to involve a limited partner besides a general partner where the limited partner’s profits or liabilities depend entirely on their investment made. Limited partners, however, have no right to participate in the management of a company.
- Limited Liability Partnership: Introduced in 2005, this business structure merges features of a partnership with a company, and is considered practically viable for business owners. While under a limited liability partnership (LLP), your business corporation must have a minimum of two partners registered. The most attractive part about registering your organization as an LLP is while you enjoy the flexibility of a partnership, you also reap the benefits of a private limited company. Best suited for professionals practicing a profession like accountancy, law or architecture, or businesses selling their services, it is not the best option for trade. The provisions of assets and liabilities are usually legally agreed upon, in agreements and contracts drawn up, based on mutual discussions.
Now if you want to register a company in Singapore, your best option should be opting for a private limited company. Before we tell you the intricacies involved, you might be interested to know Singapore has two main company structures: public and private. A public company, open to subscription, can be existent on the basis of shares openly available for purchase or exist solely on the basis of carrying out activities of public interest. A private company, entirely reliant on ownership of shares, can be of two types:
- Exempt Private Company: where you can have a maximum of 20 shareholders.
- Limited Private Company: where you can have a maximum of 50 corporate or individual shareholders.
Business Structure Model Suitable for Foreign Inhabitants:
- A Private Limited Company: The Best Option for Business Entrepreneurs:
Ideally suited for foreign investors and business enthusiasts, registering under a private limited company gives your company the much needed separate legal entity, distinct from the shareholders and the board of directors. You can reap the benefits of various tax exemption schemes, or qualify for tax incentives, besides being taxed at the corporate tax rate between 0 and 17 percent. Singapore ensures businesses thrive within its territory and to encourage the spirit of business entrepreneurs, provides two primary tax exemptions. If your corporation is newly established, you can claim a tax exemption of 75 percent on S$100,000 of its income for three years at a stretch. If that was not an attractive incentive, the IRAS allows you to claim another 50 percent exemption on the next S$100,000 for three years again.
Though a private limited company comes with statutory obligations that require you to appoint a corporate secretary within six months of incorporation and an auditor within 90 days of incorporation, it is the best suited alternative for business enthusiasts in Singapore, as it makes borrowing loans, handling losses and confronting risks an easier business, in comparison to a sole proprietorship or partnership that presents higher risk factors and lesser incentives. We at Biz Atom evaluate the needs of your potential corporation, help you choose the best business structure suitable for your needs, and set it up with our team of adept professionals, that ensure the best of profits in the long run.