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Types of Business Entities in Singapore

Singapore encourages foreigners as well as locals to incorporate any of the various types of business entities in Singapore. Without a doubt, a foreign-based company can set its roots in Singapore by incorporating a subsidiary company, whereas for a local entrepreneur the best bet is to incorporate a private limited company.

More and more investors are choosing Singapore as the destination for their investments. Individual entrepreneurs as well as corporate entities are choosing this nation to establish their base. By doing so, they hope to keep in touch with the Asian markets. There are more than 2.5 billion consumers in Asia and the potential for business growth is enormous.

The business structure that an entrepreneur uses to incorporate a company in Singapore must be carefully chosen. A mistake made at this stage may lead, in future, to costly changes and lengthy legal procedures.

Types Business Entities for a Local Entrepreneur

Sol-Proprietorship

A local entrepreneur can choose to incorporate a sol-proprietorship and start business activities. It takes only 15 minutes to register this type of company after the submission of application. In most of the cases the process works smoothly.

However, in some cases where different departments of the government need to review the application, the time required is more. For example, forming a sol-proprietorship to establish and run a private school in Singapore takes as much as 2 months. The application gets referred to the Minister of Education.

  1. The owner of the business is the whole and soul of the company.
  2. The owner’s decisions are final.
  3. There are no partners and shareholders to consult with and hence, owner is independent to take his decisions.
  4. A sol-proprietorship has no separate legal existence from its owner.
  5. Its losses are the liabilities of the owner. This fact puts owner’s assets at risk, if there are debts or losses to the sol-proprietorship.
  6. The owner has to pay taxes on income of the sol-proprietorship, as if it is his own personal income.
  7. Finding new capital for this type of business firm is not so easy.

Private Limited Company

A large number of companies formed in Singapore are of this type. This business structure avoids the risk of pledging personal assets of the shareholders of the company towards the losses or debts incurred during business activities of the company. The liabilities of the shareholders are limited to the amount invested by them to buy shares.

  1. It has separate legal identity. It has the rights of a natural person.
  2. It cannot have more than 50 shareholders.
  3. A corporate entity can acquire as much as 100% of its shares and be its sole owner.
  4. Its directors and shareholders are not responsible for its losses or debts. The company is responsible for its own losses, which are paid for by selling its assets.
  5. It can purchase real estate and property for its own use.
  6. For acquiring new capital for the expansion of the company, shares are sold to new or existing shareholders.
  7. A private limited company’s existence does not depend on the membership of any particular shareholder.
  8. Shareholders can transfer their ownership in the company by selling their shares.
  9. Its shares are not offered to the public.

Public Company Limited by Guarantee

This business form is more suitable to form companies that operate on no-profit principle.

Public Limited Company

A public limited company is a limited liability company. The investors come together to form this company when they intend to get involved in a business on large scale. Generally, these companies are listed on stock exchanges.

  1. It is possible for this company to offer shares to the public to raise capital.
  2. Its shareholders cannot be more than 50.
  3. It has to face strict laws and regulations.

What is a Partnership?

Partnership came into existence to allow two or more like-minded individuals to come together to do a business.

  1. It has no separate legal identity and its liabilities, i.e., debts and losses are the responsibilities of its partners.
  2. A partner can dissolve it by giving a legal notice.
  3. Its existence ends with the death, incapacity, insolvency or the retirement of a partner.
  4. In business, this type of business structure has very limited scope.
  5. There are 3 types of partnerships.

General Partnership

General partnership has its uses in certain types of scenario. This is not a very pro-business structure.

  1. It is not a separate legal entity. Its losses and debts are the responsibilities of all of its partners.
  2. Every partner is responsible for losses to partnership because of the negligence or mistakes made by other partner.
  3. This business structure is not very conducive for trading.

Limited Partnership

This business structure reduces the liabilities for some of the partners in the partnership. Limited partnership introduces two types of partners;

a) Limited Partner: The liabilities of a limited partner are limited to the capital invested in the business. Such a partner cannot take part in the management of the partnership’s business.

b) General Partner: The liabilities of a limited partnership mostly lie with its general partner. This individual is responsible for the management of the business activities of the partnership.

c) Scope of Limited Partnership: This form of business has very little scope and is not very attractive to the entrepreneurs.

Limited Liability Partnership (LLP)

This business structure dilutes the liabilities of the partners to some extent. It came into existence specifically to promote partnerships involving professionals having entrepreneurial spirits. It combines the benefits of private limited companies and partnerships.

Interactions between partners are at the level of partnership, but their dealings with the rest of the world are at the level of a private limited company.

  1. An LLP requires at least 2 partners to come into existence.
  2. In an LLP, the losses or the debts occurred due to the negligence or the mistakes of a partner are not the liabilities of other partner(s).
  3. Though an LLP is required to file annual financial statements, it is not taxed.
  4. The partners pay their taxes on the income generated for them through the partnership.
  5. The individual partners pay personal income tax according to their income.
  6. The corporate companies, if they are partners in an LLP, pay corporate tax that is applicable for their income.

Incorporation Options for Foreign Entrepreneurs

A foreign company intending to tap Singapore markets has the option of forming a subsidiary company, branch or representative office. The choice ultimately depends on the proposed company’s business activities in Singapore.

Subsidiary Company

A subsidiary company is basically, a private limited company formed in Singapore. Its parent foreign company can own 100% of its shares. It has separate legal identity from its parent company. It is a preferred choice of small to mid-sized foreign companies.

Branch Office

If a foreign company wants to extend its business activities in Singapore, it incorporates a company in the form of a branch office. The losses and debts incurred during the business of the branch office are the liabilities of its parent company. The control of this company lies with the parent company.

Representative Office

A foreign corporate entity forms this type of company for the purpose of scouting the Singapore markets. This company is prohibited from conducting any profit-making activities. Its main task is to do market surveys and studies, in order to understand the potential of local business scene. The market feasibility reports prepared by this company help the parent company in deciding about its full-fledged involvement in Singapore market.

Singapore Accounts specializes in company incorporation in Singapore. If you are planning to incorporate a business then, please feel free to contact us on +65-6536 0036 or send an email at info@accountingservice.com.sg