If you’ve decided to start a business in Singapore, then it’s important to choose the right business structure that aligns with your goals and objectives. This will be one of the first decisions you’ll have to make, but it can be difficult, especially with so many options available. Fortunately, this article will help you better understand the different types of business structures in Singapore so that you can make a more informed decision that’ll bring you closer to success.
Types of Business Structures in Singapore
Sole Proprietorship
A sole proprietorship is a type of business in Singapore that is owned and controlled solely by one individual or entity, such as a company or limited liability partnership. Among all the company structures in Singapore, a sole proprietorship is the simplest type of business structure.
Advantages of a Sole Proprietorship
Here are some other advantages that you can expect:
- Business tax is combined with your personal income tax.
- Sole ownership of all profits
- Simplified administrative tasks
- Reduced corporate compliance requirements
- Possibility of easily converting the company into a partnership by introducing an additional administrator.
- Easier handling of business liabilities and assets
Disadvantages of a Sole Proprietorship
Here are some disadvantages to keep in mind when starting a sole proprietorship:
- All the management responsibilities rest with one individual.
- The business cannot accommodate investors in the form of equity holders.
- The business misses out on corporate tax benefits.
- Litigants are allowed to seize your personal assets if the business fails to meet the costs accordingly.
- You won’t be able to purchase real estate or properties using the business name.
- The business ultimately dies with its owner.
it also comes with serious legal implications that need to be considered:
- The sole proprietorship is not a separate legal entity from its owner
- The owner of the sole proprietorship has unlimited liability and is personally liable for all debts and losses
- The sole proprietorship can sue or be sued in the owner’s name
Requirements to Start a Sole Proprietorship
The following qualifications must all be met before starting a sole proprietorship business:
- The applicant must be at least 18 years old
- The applicant must be a Singapore citizen, a Singapore permanent resident, or an eligible FIN holder
Partnership
A partnership is a type of company in Singapore that is owned by at least two partners. A partner can either be an individual or an entity, such as a company or a limited liability partnership. A general partnership can have at most 20 partners, but this does not apply to professional partnerships—those that are created for any profession and may only be exercised by individuals with certain qualifications. Here are some examples:
- Engineers that are registered under the Professional Engineers Act
- Lawyers that are registered under the Legal Profession Act
- Architects that are registered under the Architects Act
Advantages of a Partnership
There are some benefits to starting a partnership in Singapore. Here are some examples:
- Simple, straightforward, and cheap registration process
- Flexibility to accommodate multiple partners in one company
- Reduced corporate compliance obligations and statutory requirements
- Partners can make administrative decisions without external interference
- No need to file annual business returns
Disadvantages of a Partnership
Professional partnerships can have more than 20 partners, but keep in mind the following legal implications:
- The partnership is not a separate legal entity from its owner
- The partners are personally liable for all debts and losses of the partnership
- The partnership can sue or be sued in the partners’ names
There are also additional disadvantages to remember:
- Inability to trade shares
- Personal income tax rate is higher than standard corporate tax rate
Requirements to Start a Partnership
Here are the applicant requirements to start a partnership:
- The applicant must be at least 18 years old
- The applicant must be a Singapore citizen, a Singapore permanent resident, or an eligible FIN holder
Limited Partnership
A limited partnership is a partnership between a minimum of two partners—at least one general partner and one limited partner. Here’s the difference between the two:
- General Partner: The general partner is responsible for the actions of the limited partner, as well as any liabilities that may result from debts and obligations of the limited partnership company.
- Limited Partner: The limited partner is free of any liabilities for debts and obligations regarding the limited partnership outside his agreed contributions, so long as the limited partner doesn’t take part in the management of the company.
It’s worth noting that all partners have to be at least 18 years old, regardless of whether they are general or limited partners. Also, all limited partnerships are required to indicate if they fall under Regulation 12, which applies to limited partnerships that primarily establish a fund or investment with a licensed fund manager managing it. The licensed fund manager may be a general partner or an appointed manager who is licensed under the Securities and Futures Act or falls under the exemption of Section 99 of the act.
Advantages of a Limited Partnership
A limited partnership shares many of the same benefits as partnerships:
- A much simpler and affordable registration process
- Flexibility to accommodate multiple partners
- Flexibility of choosing to assume the role of a general or limited partner
- Reduced corporate compliance obligations and statutory requirements
- Partners can make administrative decisions with minimal interference
- No requirement to file annual business returns
Disadvantages of a Limited Partnership
Here are a few other disadvantages that you should know about limited partnerships:
- Similarly to sole proprietorships and partnerships, a limited partnership does not have a separate legal entity from the partners
- The limited partnership cannot sue, be sued, or own property under its own name
- If there is no limited partner registered with the Accounting and Corporate Regulatory Authority (ACRA), the registration of the limited partnership will be suspended and the general partner will be registered under the Business Names Registration Act. This will all be revoked once a limited partner is registered.
Limited Liability Partnership
Compared to a limited partnership, the limited liability company structure allows its owners to have the flexibility of working as a partnership while still having a separate legal identity like a private limited company.
Advantages of a Limited Liability Partnership
Here are some benefits to starting a limited liability partnership:
- Eligibility for corporate tax benefits
- You can raise capital through shareholders and investors
- You can transfer equity by buying and selling company shares
Here are some additional legal implications that may come with limited liability partnerships:
- A limited liability partnership has a legal personality that is separate from its partners
- The partners of a limited liability partnership will not be liable for any business debts incurred by the company and will only be liable for any losses that may have resulted from their own wrongful acts or omissions.
- A limited liability partnership has perpetual succession and will not be affected by any changes in its partners.
- A limited liability partnership can sue or be sued in its name
- A limited liability partnership can acquire property under its name
- A limited liability partnership can have a common seal in its name
- A limited liability partnership can do other acts in its name that bodies corporate are legally allowed to do
Disadvantages of a Limited Liability Partnership
Here are the disadvantages of starting a limited liability partnership:
- Comes with numerous compliance requirements
- Decision-making process may be longer due to multiple parties involved in the company’s administration
- Registration process may be long and costly
Requirements to Start a Limited Liability Partnership
Here are some requirements for starting a limited liability partnership:
- A limited liability partnership is required to have at least two partners, with each partner being either an individual, a local company, a foreign company, or another limited liability partnership.
- A limited liability partnership must have at least one manager who is at least 18 years old, a local resident in Singapore, and a natural person of full capacity. The manager is involved in the management of the limited liability partnership.
Can Foreigners Start a Business in Singapore?
Yes, foreigners and individuals living outside of Singapore can start a business in Singapore, but there will be additional requirements depending on the business structure that will be chosen.
Sole Proprietorship or Partnership
Foreigners who live overseas and want to register a sole proprietorship or partnership must appoint at least one Singaporean resident as an authorized representative. An authorized representative must meet the following qualifications:
- The representative must be a natural person
- The representative must be at least 18 years old
- The representative must be of full legal capacity
- The representative must be locally resident in Singapore
The appointment of the authorized representative may be done through BizFile. Aside from this, the foreigner must also do the following:
- Engage a registered filing agent (e.g., law firm, accounting firm, or corporate secretarial form) to submit an application to BizFile+ on behalf of the foreigner
- If the foreigner wishes to be in Singapore for the management of the company’s operations, then he or she must seek approval from the Ministry of Manpower (MOM) after registering the company
- For partnerships, if any of the proposed partners don’t have a Singpass account, the applicants must engage the services of a registered filing agent (e.g., law firm, accounting firm, corporate secretarial firm) to submit the application on their behalf. This is because only individuals with a Singpass account can submit an application on BizFile+.
Limited Partnership
Here are some additional requirements that foreigners will need to meet in order to start a limited partnership in Singapore:
- It’s required to appoint a local manager to discharge all obligations of the limited partnership. The local manager must be at least 18 years of age and not be an undischarged bankrupt unless permitted by the High Court or the Official Assignee. The local manager would be subjected to all the same responsibilities, liabilities, and penalties as the general partner.
- For foreigners who wish to be in Singapore for the management of the limited partnership’s operations, they must seek approval from MOM after registering the limited partnership.
- The foreigners must also have a registered filing agent (e.g., law firm, accounting firm, or corporate secretarial firm) to submit the online application on their behalf, as only individuals with Singpass accounts can register a limited partnership online through BizFile+.
Limited Liability Partnership
Here are some additional requirements that foreigners must meet to start a limited liability partnership in Singapore:
- A locally resident manager (e.g., a Singapore citizen, permanent resident, or pass holder) must be appointed.
- Foreigners who want to be in Singapore for the management of the limited liability partnership must seek approval from MOM after registering the company
- The foreigner must have a registered filing agent (e.g., law firm, accounting firm, or corporate secretarial firm) to submit an online application on their behalf.
Choosing the Right Corporate Structure for Your Singapore Company
Here are some of the primary elements you should take into account while choosing your company’s business structure in Singapore:
- Company Size: While individual entrepreneurs can settle for a sole proprietorship, businesses with multiple stakeholders are typically advised to consider incorporating a limited liability company, complete with public or private shares.
- Type of Business: Considering the limits of your operations will be substantially determined by your company structure, you might want to take into account the type of business you’re planning to run.
- Business Risks: Risks and liabilities are inevitable parts of any business, but it’s important to consider how you want to handle them. Some company structures view both the company and the owner or partners as single legal entities that share all liabilities, while others afford owners and partners separation from their company.
- Compliance Responsibilities: Each company type has its own set of registration requirements and compliance responsibilities.
- Citizenship Status: As mentioned above, foreigners looking to register a company in Singapore will have to fulfill additional requirements that Singapore citizens, permanent residents, and pass holders aren’t subjected to.
- Business Plan: It’s always a good idea to consider your short-term and long-term business plans as you incorporate a company in Singapore. Your business plan may help narrow down the types of business structures suitable for your organization.
Furthermore, ACRA recommends that you ask yourself the following questions as well:
- How much capital are you prepared to invest?
- How many owners will there be in the business?
- What liabilities and responsibilities are you prepared to assume?
- What risks are you prepared to take?
- What are the advantages and disadvantages of the different business entities?
- Is the business entity easy to close?
The Takeaway
Singapore provides aspiring entrepreneurs with different business structure options to accommodate their business needs and goals, and the best one is the structure that suits your vision. Each company structure has its advantages and disadvantages, so it’s best to weigh them against each other and deliberate carefully.