Every Type Of Company You Can Start In Singapore
Who can forget the iconic PCK Pte Ltd? If you are like some of our staff, that legendary 1997 Singaporean sitcom would have been the first time you saw the words “Private” & “Limited” together, forming a company name.
However, if we were to ask you to list out all the types of companies that you can think of, how many would you be able to name?
Furthermore, how many of those would you be able to comprehensively elaborate on their structure, tax brackets, subsidy eligibility, and so on?
Look around you. You have to admit that the conducive legal environment and our go-getting attitude have made it a welcoming home for companies operating across a wide range of traditional and new-age industries.
It allows for a plethora of business structures or legal entities that will best satisfy the different needs of business owners. Entrepreneurs must then make one of the most confusing decisions of their lives - the correct sort of business entity to pick.
The type of company chosen will eventually determine essential concerns such as owner liability, business transferability, finance and expansion potential, and, most importantly, the tax and compliance costs of sustaining the corporation.
Types Of Business Entities Found In Singapore
We know that you’re excited to start learning. We are just as excited to let you in on the knowledge of all the business entities you can find in this little red dot. So, let’s begin with the most famous one of all.
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a business formed by registering with Singapore's Accounting and Corporate Regulatory Authority (ACRA) under the Companies Act.
It is a separate legal entity, which means there is a legal barrier between the owners and the entity.
The corporation can enter into contracts and hold assets. It can sue and be sued in its own right.
The company's liability is limited to its share capital, and each member's obligation is limited to the amount of share capital subscribed by the member (shareholder). Individuals or corporations can be stockholders. The stockholders' assets are protected from the company's obligations.
The LLC structure can be further broken down into:
A. Private Limited Company
The Private Limited Company, also featured in Phua Chu Kang, is the most popular and desired type of entity among Singapore entrepreneurs.
A Private Limited Company's shares are not available to the general public; all of its shares are owned privately. A Private Limited Company may not have more than 50 shareholders.
The suffix 'Private Limited' or 'Pte Ltd' appears at the end of the names of this type of entity in Singapore.
B. Exempt Private Limited Company
A Private Limited Company that is immune from the statutory annual audit is known as an Exempt Private Limited Company (EPC). A Private Limited Company must meet the following standards to qualify as an EPC:
It must have a maximum of 20 shareholders.
No corporation should have a beneficial interest in its shares, which means no corporate shareholder.
The annual revenue shall not exceed S$5 million.
Instead of drafting and filing an audited statement with the ACRA on an annual basis, EPCs are to submit a declaration signed by the directors and company secretary verifying the business's solvency.
Note that in the event ACRA demands, EPCs must continue to preserve records of financial statements prepared under Singapore's Financial Reporting Standards (FRS).
Due to changes in the Companies Act, more companies are now eligible for the exemption, even if they do not qualify as an EPC. Such businesses are called 'small' businesses.
From the 1st of July, 2015, a company can be excluded from the yearly audit requirement if it meets at least two of the following requirements for the two most recent fiscal years:
Annual revenue of less than S$10 million
Total assets must not exceed S$10 million
Fewer than 50 workers
Small parent companies or subsidiaries that are part of a small group will also qualify for audit exemption.
A small group that meets at least two of the three quantitative criteria listed above on a consolidated basis for the two most recent fiscal years.
Benefits of a Private Limited Company?
✤ This is the most common business type because, in addition to restricting shareholders' liability, it also allows greater control over ownership.
✤ The ownership can be easily transferred, either entirely or partially, by simply transferring the shares. In the event of a change in ownership, assets, licences, and permits can be simply transferred.
✤ Though the compliance costs are higher than for a sole proprietorship, the tax burden is much reduced by Singapore's favourable corporate tax rates. Companies with taxable profits pay 4.25 percent on the first S$10,000 and an additional 8.5 percent on the second S$190,000. Profits over S$200,000 are taxed at a flat rate of 17 percent.
✤ It is generally simple to raise capital by issuing more shares to existing shareholders or issuing new shares to new shareholders. This helps the company's growth and expansion. It also makes it easier to obtain financial help from banks and other financial entities.
✤ The death or insolvency of shareholders will not jeopardise the company's existence. It remains legal in eternity until it is removed from the registry.
B. Public Company
Next up, we have public companies. Here, there are two types:
✧ Limited by Shares
A public limited corporation is an LLC with more than 50 stockholders. It may issue stock to the general public.
A Public Limited Company's name is preceded by the suffix 'Limited' or 'Ltd.'
They can be listed on the stock exchange, but they must first submit a prospectus to the Monetary Authority of Singapore (MAS) to raise cash from the public.
Its benefits are similar to those of a private limited company in terms of limiting shareholders' liabilities, a competitive corporate tax rate, and a prestigious image in general.
They now have better access to capital; they can raise funds by selling shares, debentures, and bonds to the general public.
Shareholders benefit from increased liquidity since they can purchase and sell shares on the stock exchange.
They are, nevertheless, subject to tight laws, and financial matters are subject to increased public scrutiny. The expense of compliance is really expensive. The board of directors and management are answerable to the shareholders.
✧ Limited by Guarantee
A Public Company Limited by Guarantee is a company that is formed for the benefit of the public welfare and is not for profit.
This category includes societies and organisations that are registered for the goal of promoting the arts or for charitable purposes.
The members' liability is restricted to the amount that the members agree to contribute to the company's assets in the event of its dissolution.
The amount of assurance provided by the members will be specified in the Memorandum of Association and is often insignificant.
The word 'Limited' does not appear in the names of such businesses.
It should be highlighted that no shares are involved in this sort of business, and the members are not required to contribute any capital.
Non-trading and non-commercial entities, such as trade associations, charitable bodies, professional societies, religious bodies, incorporated clubs, or other not-for-profit endeavours, usually take on this form.
Sole Proprietorship (SP)
This is the most fundamental structure and the second most common sort of entity.
The name Sole Proprietorship refers to the fact that there is just one individual or corporate owner.
ACRA registration must be renewed up to 60 days before its expiry date.
There is no legal barrier between the business and its owner.
The business, despite being registered with ACRA, does not result in a separate legal entity, the owner's risk is unlimited. The proprietor is personally liable for the company's debts and annual filing is not required for a sole proprietorship.
Since it does not limit the owner's liability, it is only appropriate for more risk-averse businesses.
Although it is stated that corporations can own sole proprietorships, corporations generally do not like this form due to the ‘unlimited’ risk of liability.
Individuals engaging in small enterprises, freelancing, or other low-profile businesses typically favour this structure due to the low compliance requirements and costs involved.
Profits are classified as the owner's income and are subject to personal tax rates.
There are substantial consequences if the proprietor of the business incurs massive debts or is issued for other responsibilities. In such litigations or for debt recovery, the owner's assets will be attached.
It will be difficult to get capital, as all of it may have to come from the owner alone, and lending institutions typically need personal assets to be given as collateral. It usually does not have a prestigious reputation and as a result, growth and expansion will be hampered by a lack of money and a negative perception.
The business cannot be sold in pieces, assets must be sold separately, and the owner's permits may not be transferable.
Because the sole proprietorship lacks a legal existence of its own, it will cease to exist at the death of the owner and hence lacks perpetuity.
If you want to build your brand and business, a sole proprietorship is not the best option. This is because while it may be easy to start a business of this kind and the startup process is not particularly demanding (a single person can start and run a sole proprietorship), not many serious entrepreneurs will be able to grow it past being a small or medium-sized one because of the above negative factors.
There are three types of partnerships that you would want to take note of.
1. General Partnership (GP)
There are three types of partnerships that you would want to take note of.
Partnerships are formed when two or more individuals or corporations, known as partners, join together. The number of partners is limited to 20. If the number of partners surpasses 20, the business must be registered as a corporation.
Individuals and businesses can form a partnership. The partnership must be registered with ACRA and renewed up to 60 days before its expiration date.
It is not a legal entity in its own right and can sue or be sued in the name of the firm, but it cannot hold property in its name.
The partners' liability is unrestricted and their assets are not insulated from the business's debts and obligations. Each partner is personally liable for the liabilities of the other partners.
The earnings are divided among the partners, and the profits are taxed at personal tax rates because they are recognised as the partners' income. In the event of corporations, corporate tax rates will apply.
The benefit of a partnership structure is that owners/partners can pool their resources in terms of capital, expertise, assets, and so on. It should also be noted that the ongoing compliance is relatively more lenient and this translates into lower administrative costs.
However, the dangers are similar to those of a sole proprietorship, so it is not suggested for high-risk enterprises or those with aggressive expansion ambitions. Corporations, in addition to individuals, enter into such business entities solely for short-term initiatives.
2. Limited Partnership (LP)
This is similar to a general partnership, except it has both general and limited partners, with at least one of each type. There is no restriction on the number of partners and the limited partner's responsibility is restricted to the number of his contributions, and he is not personally accountable.
Unlike limited partners, general partners are individually liable for the company's debts and liabilities. The limited partner is not permitted to take on active managerial positions in the business.
3. Limited Liability Partnership (LP)
The LLP is a relatively new type of entity that combines the characteristics of both partnerships and corporations. In this form, two or more partners (individuals, businesses, or another LLP) engage in an agreement to conduct business on mutually agreed-upon terms and conditions.
Each partner's responsibility is restricted to the amount of his or her contribution. There must be at least two partners, but there is no maximum number of partners.
This partnership has its legal personality, much like a firm. It can sue and be sued in its own right and is capable of acquiring property. Though the partners are not personally accountable for the LLP's debts and losses, they do become personally liable for debts and losses caused by their activities.
Unlike a GP or an LP, the partners are not personally accountable for the debts of the other partners. Profits are taxed at personal tax rates for individuals and corporate tax rates for corporations.
The LLP has the flexibility of a partnership while also having the benefits of a corporation, such as liability limitations. It also has perpetuity and does not end with changes in the partnership such as death, bankruptcy, resignation, and so on.
It is simple to set up, and the registration fee is less than that of a corporation. Because the compliance requirements are small, the compliance expense is similarly minimal. Its registration, unlike that of a GP, does not need to be renewed on an annual basis.
This is often appropriate for professional practices such as doctors, lawyers, engineers, architects, etc.
Quick Summary Comparison Of LLC, LLP & Sole Proprietorship
Not a Singaporean, but want to set up shop in Singapore?
Foreigners are not prohibited from owning any of the structures under the law. Singapore permits 100 percent foreign ownership. However, before selecting an entity, we must investigate its suitability.
If the foreigner is not a Singapore resident, all types of entities require a locally based manager to carry out the duties and obligations outlined in the legislation. To register the company entity, the foreigner must use a professional service provider or a filing agent.
Because sole proprietorship and partnership entail limitless liability to the owners/partners, if you are not physically present in Singapore to operate the firm, you may not be able to appropriately govern and monitor it.
This may result in the corporation failing to meet certain commitments and, in the worst-case situation, dragging you into debt which will expose your assets to unjustified hazards.
A foreigner who desires to establish a business and be present in Singapore to supervise its activities must first obtain clearance from MOM.
On the other hand, if you are in Singapore, say on a Dependant Pass (DP), you can start the business by forming a partnership or sole proprietorship. You must, however, apply for a Letter of Consent to work for your own company by submitting your ACRA profile for your single proprietorship/partnership and you must provide a letter permitting you to hire yourself on behalf of your company.
For all practical purposes, forming a Private Limited Company is the best bet. This entity restricts your liability, and you may also apply for an Employment Pass or Entrepass to administer the business in Singapore.
What options do foreign companies have to set up shop?
Representative Office (RO)
RO is a temporary extension of a foreign firm that conducts market research and other market exploration activities in Singapore before making a substantial investment commitment. It is forbidden to engage in any commercial or revenue-generating activities.
Because it lacks its legal character, the foreign firm is liable for the RO's actions and responsibilities. There is a personnel headcount limit, and a representative from the foreign company's headquarters must be stationed in the RO.
Except for firms functioning in the banking, finance, and insurance industries, which are registered with the Monetary Authority of Singapore, all other ROs must be registered with the International Enterprises Singapore (IE Singapore).
Branch Office (BO)
A foreign company's branch office must be registered with ACRA. It is an extension of the foreign corporation and does not have its legal existence. The foreign company's name must appear on the Branch Office, as well as a statement stating that it is a Branch Office. When establishing a branch office in Singapore, the foreign firm assumes responsibility for the BO's obligations and liabilities.
The foreign firm is required to submit audited accounts to ACRA on an annual basis. Profits can be repatriated if it engages in commercial revenue-generating operations within the scope of the foreign corporation. Profits arising from revenues attributable to the Singapore jurisdiction will be subject to local corporate tax.
It should be noted, however, that the BO is a non-resident organisation for tax reasons and will not be eligible for local tax breaks or exemptions.
It is a locally incorporated private limited company in which the foreign business owns all or most of the shares. Singapore allows for 100 percent foreign ownership, therefore the foreign firm can either hold all of the shares or share ownership with a local entity or another foreign company. Foreign SMEs often prefer to establish a local subsidiary because it has its legal entity and is treated as such for tax and other legal purposes.
The profit of the subsidiary is subject to local corporation tax rates. It is entitled to local tax breaks and exemptions as a tax resident entity. The subsidiary's liabilities are not passed on to the parent business, and its assets are protected. The subsidiary is not required to reveal the parent company's finances. It is solely needed to file its annual returns.
By far, the best option for small and medium-sized international enterprises interested in conducting business from Singapore is the subsidiary company. If they don't need any feasibility studies and want to get started right immediately, they can set up a subsidiary company and begin operations right away.
There you have it, ladies and gentlemen, it was a long road, but we hope that our guide has helped you get a better understanding of the various types of business structures that are at your fingertips here in this great nation.
In our opinion, setting up an LLC or private limited company is the finest option for aspiring entrepreneurs in Singapore out of all the options. Your assets are safeguarded from business responsibilities, you receive government tax incentives, and you have a framework that allows you to scale your business in the future.