Singapore is known to be one of the best places in the world for starting a business. This is according to an annual survey by The World Bank, where 190 economies of the world were benchmarked and compared in fundamental requirements of starting a business and structuring the company such as registering property. In this comparison, Singapore was ranked number 2 in the world. This is why so many foreign entrepreneurs immigrate here every year to incorporate a company in Singapore.
If you are planning to start a business in Singapore, it is very important for you to understand all types of business entities available. There are many business entity types in Singapore, so you have to choose wisely because your decision will decide what amount of taxes you will pay if you want to do business. There are certain things that you need to know about each of the business entity types in Singapore. In this article, we will have a comprehensive analysis of each of the business entities. So, let’s get to the main topic.
Types Of Business Entities In Singapore
If you are an Investor or Entrepreneur who wants to start a business in Singapore, then the following are the business entity types that you can consider. Before you engage in any Singapore company registration services to set up your company, you need to decide what type of business entity you want and inform your service provider.
Sole Proprietorship – Suitable For Small Businesses
This is a type of business entity in which there is a single owner who individually runs the business, and there is no legal difference among the individual and the business both are considered the same. This is why we call it a sole proprietorship because a single person completely controls it. But you must keep in mind that a sole proprietorship cannot be considered as a separate legal entity.
One more thing that you need to know about this business entity is that the tax is imposed on the base of the personal income tax rate, it means that a sole proprietor cannot benefit from the effective corporate tax rate of 0-17%. Also, he will not be able to take advantage of the multitude of tax incentives that are only for the companies. According to the Inland Revenue Authority of Singapore (IRAS), sole proprietorship or partnerships do not comply with the definition of a company.
There are some requirements for this type of business entity; the sole proprietor must be 18 years old and should be residing in Singapore. He shouldn’t be labelled as an undischarged bankrupt. It can also be a company, but there is a requirement that the company needs to hire a person as a manager who fulfills these requirements. As discussed earlier, it is only suitable for small businesses. If you are a foreign investor, then it is not possible for you to apply for a sole proprietorship when you incorporate a company in Singapore.
Partnership – A Substitute For Small Businesses To Have More Than One Owner
If we compare in terms of structure, liability, and taxes, then a partnership is very similar to a Sole Proprietorship. The main difference is that there could be two or more partners in a partnership. There is a maximum limit of 20 individual partners. Once the number of partners increases from the given cap, you need to register as a company under the act of companies.
This business entity type allows foreign companies to be partners, and the tax rate will be imposed according to partners. If a partner is a company, then the tax rate will vary according to the company, and if the partner is a single person, the tax rate will be according to the individual rates.
The major risk in partnership is that every partner is personally liable for the debts and losses in the partnership, even if any other partner is the reason for a loss. Hence, you need to consider carefully whether a partnership is suitable for you when you start a business in Singapore.
There are a lot of risks in the partnership; therefore, the limited partnership provides you an option to have limited liability. It is quite common for entrepreneurs to opt for this entity when they start a business in Singapore. In this type of business entity, there is no limit to the partner’s quota. It requires to have at least one partner as a common partner who needs limitless liability and will be individually responsible for all debts and losses.
Like a Sole Proprietorship, a limited partnership cannot have benefits and incentives that are provided to a company. The tax rate will be according to each partner’s individual income tax rate. However, if one of the partners is a company, then the company tax rate would be applied for that partner.
Limited Liability Partnership (LLP)
Although there is a difference of just one word in the name as compared to limited partnership, the actual difference is much greater between a limited partnership and limited liability partnership. There is a huge resemblance between a private company and a LLP.
The main similarity between LP and LLP is that the partners are taxed at their individual income tax rates. The difference is that the liability of each individual partner is limited in LLP. Another key difference between Limited partnership and Limited Liability Partnership is their legal status.
LLP is considered a separate legal entity. You can own a property on your company’s name, which is not possible in any other form of partnership. Also, in LLP, the partners are personally held liable for the debts and losses resulting from their own wrongdoings, not of other partners. In LLP, you have to submit an annual declaration solvency to state whether your LLP can solve its debts or not. This provision is not applicable to any other entity, hence this is the most common business entity choice for both entrepreneurs seeking to incorporate a company in Singapore.
What Is The Difference Between A Private And Public Company?
If you wish to incorporate a company in Singapore, then you have two options:
- Private Company
- Public Company
If you are going to open a private company, then it means that different shareholders will privately own a company. It means any person from the general public cannot apply for the shares of a private company.
Public companies on the other hand are openly available for subscription. Either the shares of a public company are listed on the stock market where people that possess the required capital can purchase the shares, or they are unlisted.
If you want to start a business in Singapore, you should wisely choose the business entity type of your company so that you don’t get caught up in any legal and financial problems in the future. If you are unable to decide the business structure, it is always recommended to get help from experts providing Singapore Company Registration Services.
They are able to guide you better according to your needs and requirements. It is also important to note that foreigners seeking to incorporate a company in Singapore cannot do so without engaging a company offering Singapore Company Registration Services. Before engaging in a service provider, you need to ensure that they can suit your company’s needs and fulfil your requirements.
The process to incorporate a company in Singapore is fast and easy if you have done your due research on types of business entities available. One last tip we have is to check the various tax benefits and levies your company will be able to receive based on each type of business entity. This will help you reach a better decision on the most appropriate business entity for your company in Singapore.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.