Singapore Business Entities Types- The Basic Guide

This tutorial explains the many forms of business entities in Singapore, as well as their distinguishing features and benefits. Each of these organizations must comply with regulatory requirements on a yearly basis. Depending on the entity structure, different tax rates apply.
Singapore was ranked second in the World Bank’s annual Doing Business 2018 survey, which compared 190 economies in terms of the basic requirements to set up and structure a company (such as accessing electricity, registering property, company structure options, paying taxes, trading across borders, and resolving insolvency, among other indicators).

Singapore’s success and position as one of the easiest countries to do business may be ascribed mostly to its simple, comprehensive system of company structure and governance, which entrepreneurs and international investors can easily grasp and understand. However, there are some benefits and drawbacks to each business entity and associated company structure that are not immediately apparent. This article compares the many forms of business entities and company structures and will be a useful resource for any entrepreneur or foreign investor interested in establishing a business in Singapore.

Sole Proprietorship is a great option for small businesses.

A sole proprietorship, often known as a sole trader, a proprietorship, or a “one-man show” by laypeople, is a type of business entity owned and operated by one person, with no legal distinction between the individual and the business.

Because it is entirely owned and controlled by the sole owner, the sole proprietor has unlimited responsibility and can be sued in his or her own name or the name of the business. A sole proprietorship is not treated as a distinct legal entity.

Another significant distinction is that the profits of a sole proprietorship are taxed at the personal income tax rate, so a sole proprietorship will not benefit from the effective corporate tax rate of 0-17%, nor will it benefit from the plethora of tax incentives designed specifically for corporations – the Inland Revenue Authority of Singapore (“IRAS”) excludes sole proprietorships and partnerships from its definition of “companies.”

In general, a sole proprietor must be at least 18 years old, a Singapore resident, and not listed as an un-discharged bankrupt. A sole proprietor can, however, be a company, in which case the company must appoint a natural person who meets certain conditions to function as a management.

In practice, investors who reside outside of Singapore are unable to apply for a sole proprietorship because the sole proprietor must be normally resident in Singapore.

Partnership – An Option for Small Businesses with Multiple Owners

The most major distinction between a partnership and a sole proprietorship in terms of structure, liability, and taxes is that a partnership can consist of two or more members, with a maximum of twenty individual partners. When a partnership surpasses this limit, it is required by the Companies Act to incorporate as a company.

As with all other business entities, a natural person of at least 18 years of age who is habitually resident in Singapore and is not an un-discharged bankrupt must be nominated as the local manager. Foreign persons or companies might be partners in this corporate arrangement. Similar to a sole proprietorship, the tax rate imposed will be that of the partner; that is, if the partner is an individual, personal income tax rates will apply; if the partner is a corporation, corporate tax rates would apply.

The fact that a partnership is not recognized a separate legal body means that all partners are individually accountable for the partnership’s debts and losses, even if such debts and losses are incurred by other partners.

A Limited Partnership is a form of limited liability.

Given the risks connected with a partnership, a limited partnership allows for some liability protection. There are at least two partners, similar to a partnership, but there is no maximum number of partners. At least one of the partners will be the general partner, with unlimited liability and personal liability for all debts and losses. The other partners may be limited partners, who are not personally liable for debts or obligations save to the extent agreed upon.

The general partner and limited partners can both be individuals over the age of 18 or corporations. Furthermore, if the general partner is not generally resident, a local manager who is typically resident must be chosen. A limited partnership, like a sole proprietorship or partnership, will not qualify for any tax breaks available to businesses, and earnings produced will be subject to each partner’s personal tax rate. If the partner is a corporation, however, corporate tax rates will apply.

Limited Liability Company

Despite its name, a limited liability partnership (“LLP”) is distinct from a partnership and a limited partnership, and is more akin to a private limited corporation. The primary difference is that LLP partners are taxed at their personal income tax rate. An LLP, as the name suggests, limits the liability of each individual partner.

The main distinction between an LLP and other types of partnerships is its legal status: it is considered a separate legal entity from its participants and can own property in the LLP’s name, whereas other types of partnerships cannot. Furthermore, while partners may be held individually accountable for debts and losses incurred as a result of their own improper conduct, not those of other partners,

An LLP, on the other hand, must file an annual statement of solvency, which states whether the LLP has the ability to pay its debts during the normal course of business. This criterion does not apply to other types of partnerships.

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