Overview of Business Structures
Choosing the right business structure is essential to business success when it comes to incorporating a company. Your choice can affect your business’s image and reputation among clients and banks, administrative procedures, taxes, personal liabilities as well as the ability to expand your company operations.
To help you select the right business entity for your business success, we’ve provided you with an overview of the different type of business structures available to start your Singapore company incorporation process. Each entity is subject to different regulatory and tax rates that reflect their organisation and ownership.
Our professional staff is also available for consultation if you have questions about a suitable business entity for your company incorporation.
- Private Limited Company
- Sole Proprietorship
- General Partnership
- Limited Partnership
- Limited Liability Partnership
- Branch Office
- Representative Office
- Subsidiary Company
Private Limited Company
A Private Limited Company is the most flexible and advance business structure in Singapore. It is also the most preferred form of company incorporation in Singapore as it protects its owner’s personal assets from liabilities incurred by the company as well as enjoys tax incentives and exemptions.
Your company is locally incorporated with the name of the venture including the suffix “Private Limited” and the number of shareholders is capped at 50. 100% foreign ownership is allow in this set up, however, the company must have a Singapore citizen/resident or Employment Pass holder as a local director.
Private Limited Company, Exempt Private Limited Company, Public Limited Company by Shares, and Public Limited Company by Guarantee are all variations of this business structure.
Features At-a-Glance
- Personal assets protection for Shareholders
- Transferable ownership and appointment of additional shareholders to facilitate additional capital injection for business growth
- Strong establishment of business credibility, professional commitment and vision
- Enhanced professional business image maximises potential loans from banks and other financial institutions
- Perpetual existence with business operations unaffected by changes in the shareholders, or the holding pattern
- Enjoys a highly competitive and effective corporate tax rate
- Zero Tax on first SGD 100,000 taxable income annually for first three years for new Singapore company
- Maximum 8.5% tax rate on taxable income from subsequent SGD 100,001- SGD300,000 annually for first three years for new Singapore company
- Low flat tax rate of 17% on taxable income more than SGD 300,000
- Zero taxes on capital gains and dividends
- Regular reviews of procedures from Singapore Companies Act to enhance business growth and start-up companies
Sole Proprietorship
A Sole Proprietorship is a business set up owned by one person who exercises decisive authority and responsibility of all assets and liabilities belonging to the business. The Sole Proprietor is not a separate legal entity from the business and therefore has full liability of the losses and debts of the business. Sole Proprietorships do not enjoy tax incentives and exemptions given to Private Limited Companies.
All Singapore citizens, Permanent Residents, EP, EntrePass and Dependent pass holders can register as a Sole Proprietor. Foreign individuals and companies can register as long as a local resident manager is appointed.
Features At-a-Glance
- Business is not a separate legal entity from the owner
- Sole Proprietor is fully liable for all debts and losses incurred during course of business
- Profits of the sole proprietorship are treated as income of the individual who owns the entity and subject to the personal income tax rate
- Not perpetual nor transferable by part as business ceases with the death of owner
- Sole Proprietorship cannot register another business firm as it is not a legal entity
- All letterheads, invoices, bills or other documents used for the purposes of doing business have the Sole Proprietorship’s registration number listed
- Limited options for capital injection or expansion options as investors often hesitate to deal with non-incorporated entities
- All changes to the particulars of the business must be lodged with the Registrar within 14 days from the date of change
- Sole Proprietorship requires annual renewal of registration
Partnerships
A partnership eases the limitations of business expansion of a sole proprietorship by allowing two or more people to establish and co-own a business. With this business setup, you and your partner can acquire capital, talent and strategic assets based on mutual terms. Partnerships do not enjoy tax incentives and exemptions given to Private Limited Companies.
Under the Singapore Companies Act, the number of partners in a business is capped at 20, as all partnerships with partners above 20 are required to register as a company.
General Partnership
A General Partnership acts very much like Sole Proprietorship because all partners are personally liable for all debts and liabilities incurred during the course of business. It is advisable for partners to approach a lawyer and draw up a Partnership Agreement that helps define the role, responsibilities and profits due to each partner. Each partner can also be held responsible for the actions of another partner.
Consequently, this setup is not a popular option among foreign individuals and Singaporeans looking to incorporate a company.
Singapore citizens and permanent residents, Employment Pass holders may register a Limited Partnership firm. Foreign individuals may incorporate a Limited Partnership but must appoint a local manager to run the firm.
Features At-a-Glance
- Not a separate legal entity from the partners
- Quick and easy setup with ACRA
- Not required to audit their accounts or file annual returns with ACRA
- More resources and sources of funds for business expansion as loans may be easier to acquire based on the combined assets of all partners
- All partners are fully liable for the business
- A partner can be made accountable for the loss caused by another partner
- Profits taxed at partners’ personal income tax rates if individual, or at the corporate tax rate if partner is a corporation
- No tax incentives or exemptions
- Not perpetual as partnerships are automatically dissolved in the event of a partner’s death
- Decisions relating to the partnership must be agreed by all partners
Limited Partnership
A Limited Partnership requires a minimum of at least one active (general) partner and one dormant (limited) partner. The partners are responsible for all liability and the earnings are taxed according to the partners’ personal tax rate.
Singapore citizens and permanent residents, Employment Pass holders may register a Limited Partnership firm. Foreign individuals may incorporate a Limited Partnership but must appoint a local manager to run the firm. The partners can be individuals, Singapore-registered companies or foreign companies.
Features At-a-Glance
- Minimum of 2 partners with at least 1 general partner and 1 limited partner
- No limit on maximum number of partners
- General partner has unlimited personal liability and responsible for all actions, debts and obligations of the partnership
- Limited partner is not liable for any debts and obligation beyond his agreed investment
- Not a separate legal entity
- Profits taxed at partners’ personal income tax rates if individual, or at the corporate tax rate if partner is a corporation
Limited Liability Partnership
Introduced in 2005 by the Singapore government, the LLP business structure is highly suitable for chartered professionals who decided to work together. This model combines a partnership entity that protects co-partners from liabilities that may arise from willful misconduct or gross negligence of one partner or a group of partners.
While individual partners are liable for their own misconduct or gross negligence, the partner’s liability is not limited if such acts occur under the partner’s supervision or control. Furthermore, the partnership is not relieved from the liability of other partnership obligations.
There are safeguards within the Singapore Limited Liability Partnership Act to minimise abuse and provide protection to all partners such as its legal independence and right perpetual succession.
Features At-a-Glance
- Separate legal entity
- Partners own and run the business without the appointments of directors, shareholders or company secretary
- Partners are not personally liable for losses or debts, or wrongful acts of other partners. However, a partner is personally responsible for claims against his personal wrongful acts or omissions
- Profits taxed at partners’ personal income tax rates if individual, or at the corporate tax rate if partner is a corporation
- A minimum requirement of 2 partners. However, there is no limit to the maximum number of partners appointed
- All existing partners must agree unanimously to the appointment of a new partner
- All other matters must be decided by majority vote, with each partner having one vote
Branch Office
The Branch Office is an extension of the foreign company without a distinct legal identity.
According to the Singapore Companies Act, a foreign company registered outside of Singapore but have substantial operations within the country that generates income on a continual basis must register as a Branch Office in Singapore. Therefore, the Branch Office is an extension of the foreign company without a distinct legal identity.
Features At-a-Glance
- Acts as an extension of the foreign company
- Not a separate legal identity
- The foreign parent company is liable for the acts, losses and debts of its branch office
- Required to appoint two staff members to act as agents, both local and foreign, to support the business administration of a branch office
- Considered non-resident for tax purposes
Singapore Representative Office
For foreign companies, setting up a Singapore Representative Office is a good way to explore potential business opportunities before making a decision to set up a Branch Office in Singapore. Representative Offices are not allowed to engage in commercial revenue-generating activities.
Features At-a-Glance
- An extension of a foreign company
- Not a separate legal identity
- Cannot engage in commercial revenue-generating activities
- Curtailed from negotiating any trading instruments or leasing of warehouses
- Foreign parent company is liable for all acts, debts and liabilities of its Representative Office
- Allowed to appoint limited number of staff, both local and foreign, to support the limited activities of the Representative Office
Subsidiary Company
The subsidiary of a foreign company is considered a resident company, and therefore is entitled to tax exemptions and incentives as other locally incorporated companies in Singapore. The subsidiary company, with at least one individual shareholder holding a minimum of 10 percent shareholding, is given the same tax exemptions as a newly incorporated start-up company in Singapore.
It is entitled to the tax exemption of paying no tax on the first S$100,000 of chargeable income for its first three consecutive years. A further 50% tax exemption is given on its next S$200,000 of chargeable income.
Features At-a-Glance
- Incorporated as a limited liability company
- Has a distinct legal identity
- Foreign parent company’s liability is limited to the value of the shares it subscribes into the subsidiary
- Foreign parent company may own 100% of the subsidiary
Singapore Business Entities
We’ve prepared a downloadable comprehensive guide on the various Singapore Business Entities.
