Selecting the Right types of Business Structure
Before you start a business in Singapore, Choosing the right business structure is important. There are several factors to be considered when choosing the right business entity to meet your needs.
Factors you want to consider are
How much capital are you prepared to invest?
How many partners will there be in the business?
What liabilities and responsibilities are you prepared to handle?
What is your risks appetite?
What are the advantages and disadvantages of the different business vehicles?
Is the business entity easy to close?
Are there any tax benefits?
What are your future growths Plan? Going Public? Going International?
To get the most out of your small business, choose the right structure. Selecting the right type of company for your new business helps maximize your chances success.
Types and Features of Business Structures
Singapore Private Limited Company
- Independent legal and tax structures separate from their owners
- Help separate your personal assets from your business debts
- Taxed on corporate profits and all dividends are tax free
- Shareholders’ personal assets are protected since they are not personally liable for debts and losses of company
- Ownership is transferable and additional shareholders can be appointed thus enabling additional capital injection for expansion purposes
- Projects a professional commitment and vision hence maximizes the potential of loans from banks and other financial institutions and also establishes a credible image among the business community
- Company is perpetual and business operations are undisturbed by changes in shareholders or the holding pattern.
- Earning are charged at corporate Tax rate, which is highly competitive and effective tax rate can be as low as 8.5% or even 0% for newly setup companies with chargeable income of up to S$300,000 in its first three years
Limited Liability Partnership (LLP)
- Help separate your personal assets from your business debts
- Taxed similarly to a sole proprietorship (if one owner) or a partnership (if multiple owners)
- Not required to hold annual meetings or record minutes
- Separate legal entity, hence partners are not personally liable for losses or debts, or wrongful acts of other partners. However a partner is personally liable for claims against his personal wrongful acts or omissions
- Compliance requirements are simpler as compared to private limited company
- Constraints in transfer of ownership
- Still does not command a distinguished image as a private limited company
- Profits taxed at partners’ personal income tax rates if individual
- Don’t enjoy tax exemption as opposed to a Singapore Private Limited company
Partnerships
- Partners remain personally liable for lawsuits filed against the business
- Owners report their share of profit and loss in the company on their personal tax returns
- The active partner still has unlimited liability
- It does not have a separate legal identity
- The firm cannot own property and cannot be sued
- Profits taxed at partners’ personal income tax rates
- Don’t enjoy tax exemption as opposed to a Singapore Private Limited company
- Easy to close
- Limited compliance issue
Sole Proprietorships / Sole Trader
- Sole Proprietorships / Sole Trader
- Owner remains personally liable for lawsuits filed against the business
- Owner reports business profit and loss on their personal tax return
- Quick, easy and least expensive to set up
- Easy to administer and manage because of undivided authority and control
- Less administrative duties, on going compliance requirements
- Must renew registration annually
- Easy to close
- Limited compliance issue
