Common Types of Business Structures in Singapore: Which is Better?
What are the differences between the common business structures in Singapore and what would be the ideal structure for you?
Before discussing the pros and cons of the structures, let’s recap our understanding of each entity!
What is a Sole Proprietorship?
A Sole Proprietor is a business being operated by one person. It:
- not a separate legal entity from the business owner
- cannot own assets nor properties
- cannot enter into agreements nor contracts
- ceases operations upon the natural operator’s demise
- can sue or be sued only in the owner’s name i.e. a lawsuit against the Sole Proprietor is one against the owner
The business owner has unlimited liability (i.e. the business owner is personally liable for all the debts and losses of the sole proprietorship). A Company, on the other hand is a legal person/ entity incorporated by law. It:
- is a body corporate capable of exercising the functions of an incorporated company
- can own assets, properties in its name
- can enter into agreements or contracts
- can sue and be sued in its own name
- it has perpetual succession
- members of the Company enjoy limited liability i.e.
What is a Public Company Limited by Guarantee?
Non-profit organisations in Singapore can operate as a Public Company Limited by Guarantee (CLG). The option of becoming a CLG is available to companies that carry out non-profit work. They are usually bodies carrying out charity activities.
Those activities will generally need to have a national or public interest. While there’s no strict list of the type of organisations that may benefit from registering as a CLG, examples include religious bodies, universities, and trade associations. The National University of Singapore and The Temasek Foundation are both examples of CLGs.
In short, they are mostly used by non-profit organisations requiring corporate status. Here are some more characteristics of a CLG:
- It does not have shareholders, instead it has guarantors
- Any profits that are made are reinvested in the company
- Members do not receive any payment outside of their salary
- Liability of members in the event of liquidation is limited to the amount of money they undertake to contribute - this is usually a nominal amount and can be as little as $1
What is a Limited Liability Partnership?
A Limited Liability Partnership (LLP) is a business being operated by at least two people or 'partners'. A partner is any natural person, company or another LLP, who is in an LLP agreement and is admitted as a partner. An LLP:
- will require the sale of each of the assets, licenses, and permits individually for the transfer of ownership
- can own property as an entity
- protects the liabilities of individual partners - this means that any losses incurred by the wrongful actions of one partner will be liable to that individual only
What is a Private Limited Company?
A Private Limited (Pte Ltd) company or a limited liability company (LLC). Some characteristics of a company:
- it can sue and be sued in its own name
- company’s directors and shareholders are not liable for its debt (i.e. their personal assets are safe)
- a minimum of 1 and a maximum of 50 shareholders
- can own assets, properties in its name
- is eligible for tax exemptions and incentives
There are also statutory requirements as a company. You will need the following if you’re a Private Limited company:
- Company secretary
- Local director who is at least 18 years old
- At least one shareholder
- Paid-up capital of at least $1 (although, we advise that you have at least a few thousand dollars)
- A registered address in Singapore
What are your considerations?
For easy comparison, we have presented their differences in a table:
There is not a one-size fits all approach to deciding the appropriate structure for your venture. We hope the above offers food for thoughts.
To find out which company structure suits you the best, reach out to our friendly team at Sprout Asia for a complementary consultation. We can provide insight on what's the best business model for you business and answer any questions you may have on the company set up process.