Looking to start a business of your own but don’t know where to begin? Let us guide you through the different types of business structures in Singapore, before you proceed further!
There are 5 different options for founders to choose from, but let’s break them down and discuss them in this article:
- Sole Proprietorship
- Partnership
- Limited Partnership (LP)
- Limited Liability Partnership (LLP)
- Company
We will also be sharing some pros and cons of each type of business structure. Thereafter, we will also be suggesting the suitability of each structure depending on the entities involved.
1. Sole Proprietorship
A sole proprietorship is a business structure where the entire business is run by a single owner. The owner, also known as the sole proprietor, has absolute power over all the decisions made within the business. Hence, a business structure like this is suitable for low risk businesses to be run by individuals.
Pros
- Can own property in individual’s name.
- Easy to set up, manage, and close.
- Can sue others under individual’s own name.
Cons
- Not a separate legal entity.
- Owner has unlimited liability. As a result, the owner can be sued under individual’s own name.
- Owner is personally liable for all debts and losses of the business.
Taxes
Profits will be taxed according to the owner’s personal income tax rates.
2. Partnership
A partnership is a business formed by 2 or more persons with a common goal of earning profits. However, the maximum number of partners allowed is 20. A partnership exceeding 20 partners is required to incorporate as a company. Thus, a partnership is suitable for professional firms such as accountants and lawyers.
Pros
- Can sue under firm’s name.
- Lesser statutory controls than companies.
- Flexible internal structure.
Cons
- Not a separate legal entity.
- Partners have unlimited liability. In other words, they can be sued under firm’s name.
- However, partners cannot own property under the firm’s name.
- Partners are jointly liable for the partnership’s debts and losses incurred by other partners.
Taxes
Profits will be taxed according to each partner’s personal income tax rates.
3. Limited Partnership (LP)
A limited partnership is similarly a partnership consisting of 2 or more persons. However, there needs to be at least 1 general partner and 1 limited partner. There is also no limit on the number of partners within the partnership. An LP is suitable for businesses where one partner is ready to bear unlimited risk.
Pros
- Limited partner has limited liability, while general partner takes on unlimited liability.
- Can sue under the firm’s name.
- Limited partner is not personally liable for the debts or obligations of the LP beyond the amount of their agreed contribution.
Cons
- Not a separate legal entity.
- However, partners can be sued under firm’s name.
- Moreover, partners cannot own property under firm’s name.
- General partner is personally liable for all debts and losses associated with the LP.
Taxes
Profits will be taxed at the individual partners’ personal income tax rates (if individual). Otherwise, profits will be taxed at the corporate tax rate (as a corporation).
4. Limited Liability Partnership (LLP)
An LLP is a partnership where each partner’s liability is limited. There needs to be at least 2 partners to form an LLP, but there is no cap on the number of partners in an LLP. This business structure is suitable for businesses looking to combine the features of a partnership and a company.
Pros
- Is a separate legal entity.
- Each partner has limited liability.
- In addition, partners can own property under the LLP’s name.
- Partners are not personally liable for the debts and losses incurred by other partners within the LLP.
- Can sue under the LLP’s name.
Cons
- Can be sued under the LLP’s name.
- Moreover, individual partners are personally liable for the debts and losses resulting from their own wrongful actions.
- There exists various constraints in the transfer of ownership.
- Not eligible for tax exemptions available to companies.
Taxes
Profits will be taxed at the individual partners’ personal income tax rates (if individual). Otherwise, profits will be taxed at the corporate tax rate (as a corporation).
5. Company
A company is a business entity registered under the Company Act, Chapter 50. It is a legal entity separate and separate from its shareholders and directors. In summary, there are 3 types of companies namely:
- Exempt Private Company – Consists up to 20 members and no corporation holds beneficial interest in the company’s shares.
- Private Company – Consists of up to 50 members.
- Public Company – Does not have a limit on the number of members it can have.
A company is suitable for business owners looking for an advanced and flexible business entity. Moreover, it is also the most popular option when incorporating a business.
Pros
- Is a separate legal entity.
- Shareholders’ personal assets are protected and members are not personally liable for any debts and losses of the company.
- Moreover, members have limited liability.
- Ownership is transferrable.
- As a result, members can own property and sue under company’s name.
Cons
- Can be sued under company’s name.
- Above all, companies are governed by tighter and stricter rules and regulations.
- In addition, liquidation or winding up can be more costly and messy.
- Also, Companies need to maintain ongoing compliance with ACRA/IRAS.
Taxes
Profits will be taxed according to the corporate tax rates.
In conclusion, these are the 5 types of business structures available in the Singaporean business environment. If you have any further queries on any of them, feel free to contact us here. More information can also be found on ACRA’s website.
In addition, if you would like to find out more about other accounting and finance related content, you can check out our resources here:
