Your Company Structure defines the liability, the taxes your pay, and your relationship with other business partners. We explain the options with simple examples.
What kinds of company structure exist in Singapore?
There are 3 basic types of business organization you can choose from:
- Limited Liability Company (Pte Ltd or LLC)
- Sole Proprietorship
- General Partnership
- Limited Partnership
- Limited Liability Partnership (LLP)
They vary in terms of liability, the number of owners, and relationships between them. We describe their key features, benefits, and shortcomings, so you can decide what works best for you.
Limited Liability Company (Pte Ltd or LLC)
Pte Ltd is the most common choice for entrepreneurs in Singapore. It’s an exempt private company limited by shares. There can be from 1 to 20 individual shareholders, not companies, and as many directors as you need. It provides a legal entity that is separate from its founders, thus limiting your liability (hence the name). This means that the debts, the risks, and the responsibilities are made in the company’s name, not in yours. It also means you will pay the corporate tax (17% maximum) as opposed to the personal tax (up to 22%), and makes your company eligible for the exemptions.
The downside is that there are certain requirements that the LLC needs to fulfill, such as employing a Company Secretary and filing annual returns to ACRA.
You want to open a cupcake business. You plan to get a bank loan, equip a prep area, employ several cooks, and cater to large events. You register “Cupcakes from Heaven Pte Ltd”.
Decide what’s best for you.
Between sole proprietorship and a private limited company, the decision will define the taxes you pay, the liability, and your obligations to the government bodies.
Sole Proprietorship is a business set up by one individual. It doesn’t provide a separate legal entity: the entrepreneur personally owns all the risks. For example, you’d have to take a bank loan in your name, and pay out the debts yourself. The upside is it is very easy to start and manage. As the owner pays the personal tax off the income, it may be cheaper than Pte Ltd in the beginning.
This is not an option for foreigners: they have to incorporate Pte Ltd.
You want to open an online cupcake shop. You will invest your own money, you don’t need any employees, and you plan to do everything yourself from your own kitchen.
A Partnership is formed by two to twenty partners. There are several ways to set it up:
- General Partnership (or just Partnership) is similar to Sole Proprietorship, except there is more than one owner. The liability is unlimited, and the partners are each taxed with personal tax off their individual income.
You and your friend open a consultancy bureau “Cupcakes and Macarons” where each partner manages and bills his own clients.
- Limited Partnership provides partners with different liabilities: one is a general partner and the other is limited (or dormant) partner. The role of the limited partner is often restricted to funding.
You want to open an online cupcake shop. You plan to do everything yourself, but you invite two friends of yours to invest their money and become dormant partners. They can’t participate in managing the business.
- Limited Liability Partnership (LLP) is a partnership similar to Pte Ltd: it creates a separate legal entity. However, it requires fewer compliance activities, for example, there’s no need to file annual returns. Each partner is taxed with personal tax off their individual income. If one of the partners is a company, it is taxed with corporate tax, but the LLP is not eligible for corporate tax exemptions.
Your company “Cupcakes from Heaven Pte Ltd”, you, and your friend form “Patisserie Gurus LLP”, where you offer services as a cupcake caterer, a consultant on cupcakes, and your friend consults on macarons.
How do I choose what’s best for me?
There are administrative costs.
Calculate how much it takes to manage a private limited company.
There are several issues to consider:
- Liability. Only Pte Ltd and Limited Liability Partnership provide a separate legal entity and limited liability. The other forms expose you to personal risks.
- Taxes. Only Pte Ltd pays corporate tax rate and can apply for tax exemptions, with other forms you pay personal tax. After a certain turnover, it is more beneficial to pay corporate tax.
- Compliance requirements. Pte Ltd calls for hiring a Corporate Secretary and submitting annual reports to ACRA. These duties can be outsourced to an agency.
- Funding. Separate legal entity makes it easier to apply for loans and attract investment.
|Feature||Limited Liability Company (Pte Ltd, LLC)||Sole Proprietorship||General Partnership||Limited Partnership||Limited Liability Partnership (LLP)|
|Owned by||At least 1 Director 1-50 Shareholders||1 person||2-20 partners||2+ partners||2+ partners|
|Taxes||Corporate tax (max 17%) Eligible for exemptions||Personal tax (max 22%)||Personal tax (max 22%)||Individual partners taxed at personal tax rate (max 22%) Corporate partners at corp tax rate (max 17%)||Individual partners taxed at personal tax rate (max 22%) Corporate partners at corp tax rate (max 17%)|
|Compliance requirements||Company Secretary Annual filings to ACRA||Easy||Easy||Easy||Easy|
In short, the go-to option is a private company limited by shares (Pte Ltd). A foreign company registered in Singapore has to be set up as a Pte Ltd.
Sole Proprietorship is a riskier alternative that might be easier and cheaper to maintain in the beginning. Partnerships solve specific needs of several people that don’t want to set up a Pte Ltd.