Types of Business Structure To Know Before Starting a Business in SingaporeDownload Now: FREE GST 2023 GuidebookDownload Now: FREE Employment Pass ChecklistDownload Now: Free Incorporation Checklist
Ever thought of starting a business in Singapore? Congratulations, you will love the many benefits and opportunities that come with it! However, knowing which business structure will suit your needs is essential before you embark on this exciting entrepreneurship journey.
To begin with, selecting your business structure is one of the most crucial decisions you must make when incorporating a company in Singapore. What you pick at this point will significantly determine your business's risk factors, limitations, and taxation, thus influencing its profitability. As such, you ought to make an informed decision about your business structure to ensure your business is booming.
Before you decide onyour business structure, you must first identify the distinct types of business structures available to you. The guide below gives a detailed overview of the significant business structures in Singapore and how they differ in terms of tax implications, liability, and their relationship with other partners.
Types of Business Structures in Singapore
The main types of business structures in Singapore fall under these categories:
· Limited Liability Company
The other structures you will encounter are variations based on the main types. For instance, general and limited liability partnerships are just variations of partnerships, and the same goes for private and public limited companies, falling under limited liability companies.
Therefore, it is vital first to understand the major types of business structures so you can be an informed and knowledgeable business owner.Keep reading below for a detailed analysis of each business structure.
What Is a Limited Liability Company?
A Limited Liability Company (LLC) is the most commonly used type of business structure in Singapore. As the name suggests, this corporate entity is exempt from debts and liabilities of its own, which, when attributed to its owners, will be limited to a certain amount.
There are several variations of LLCs in Singapore that you can choose from. They include:
- Private Limited Company (or Pte Ltd)
This type of LLC manages its operations and shares privately without incorporating public trading systems.
- Public Limited Company
This is the opposite of a private limited company. Here, you can easily purchase or sell shares via the stock exchange.
- Public Company Limited by Guarantee
This type of LLC iscommon to non-profit organizations like trade associations and religious bodies. The structure does not incorporate share capital. Instead, the members' liability is limited to the respective guaranteed amount.
The advantage of an LLC business structure is that you will not pay taxes on capital gains or dividends. Additionally, you can quickly raise your capital from different shareholders.
The downside of this structure is that registering and managing this type of business structure is not easy compared to other business structures, like a sole proprietorship. Youmust make administrative decisions together as a group, file corporate taxes, comply with various authorities, etc.
What is Sole Proprietorship?
A sole proprietorship is the simplest business structure in Singapore. As the name suggests, this is the only business structure with just one proprietor, for instance, entrepreneurs who want to handle their operations individually without involving shareholders.
This business structure does not incorporate complex aspects like compliance reports, and the corporate income will not be subject to regular business taxes. Instead, you must file your business returns alongside personal income tax, as stated by the Inland Revenue Authority of Singapore, IRAS.
Some of the benefits of a sole proprietorship are:
- As you have complete control over your business, you can make decision according to your needs.
- You can quickly start and manage this type of business since its registration is straightforward.
- You get to enjoy all the profits.
- To convert this business into a partnership, you only need to introduce an additional administrator.
- You can quickly transfer assets and business ownership to your family members and heirs.
The downsides of a sole proprietorship include the following:
- You will be held personally liable for any debt or liability incurred by the business.
- As the owner, you must take care of all management responsibilities.
- You will not be able to receive corporate tax benefits.
- You cannot buy real estate using the business name.
- The business dies when the owner dies.
What Is Partnership?
A partnership is another standard business structure in Singapore. This type of business structure operates similarly to a sole proprietorship. The only difference is the incorporation of multiple members; two or more individuals come together, share their skills, start a profitable business, and share the profits.
However, it is crucial to note that this business structure differs from LLCs in the following ways:
- Partnerships do not need a constitution. While it is a great idea to have a partnership agreement, its registration will not require any written document.
- This business structure does not include numerous compliance obligations like filing returns and financial reports.
As with anything, there are also some disadvantages of a partnership.
- Similar to sole proprietorships, the partners will be personally liable for the liabilities and debts accrued by the partnership.
- As a result of each partner caring for their own needs, it is possible that partners may have conflicting interests, thus impeding smooth operations.
- The business structure only allows a little room to expand because it has less flexibility to raise capital by trading shares.
Which Business Structure Should I Choose?
When starting a business in Singapore, questions like what business structure to choose often come into play. However, it would be best to consider numerous factors to determine which is right for your business. Some of these factors include:
- The size of the company : For instance, if you want to start a business alone, then a sole proprietorship is the best choice for you. However, a partnership can be your best choice if you want to start a business with friends or family.
- Business risks : A sole proprietorship is your best bet if you aim for a low-risk business. On the other hand, if you want to partake in the lucrative and high-risk business, then a limited liability company is what you need.
- Compliance obligations : The government treats different business structures differently. For instance, corporations are required to have annual meetings and file reports to the relevant authorities. However, sole proprietorship does not require this compliance.
- Type of business : Limits to your operations will highly depend on your business. For instance, a sole proprietorship is your best option if you want to operate a general business. However, a partnership is your best bet if you want to operate a complex business like a professional agency.
In short, the business structure you select will highly depend on your individual goals and objectives.
There are various business structures you can choose from when starting a business in Singapore. Each of these business structures has its unique traits and characteristics. Additionally, they also have certain limitations and requirements.
The best business structure depends on your personal preference, skill set, and the kind of business you want to run.
Contact us today if you want to start a business in Singapore so that we can assist you in all your company administrative tasks.