According to the findings of the World Bank’s annual “Doing Business” 2018 report, Singapore ranks 2nd in the Ease of Doing Business index. Singapore has been in top 3 out of 190 economies for the past 12 consecutive years. Singapore’s straight-forward, comprehensive and simple policies structure makes it successful for incorporating a company with ease. It is fairly easy for entrepreneurs and investors to set up shop and understand the business environment. There is a type of entity for every kind of business need. The following article gives an introduction to the types of business entities in Singapore and will be useful for entrepreneurs and investors who might be interested in starting a business in Singapore.
Sole Proprietorship – Single Owner entity in Singapore
A sole proprietorship is a type of business entity that is owned by an individual and differentiation cannot be made between the individual and the business. The entity is wholly owned and controlled by the sole proprietor, he has unlimited liability and can sue or be sued in his or her own name, or the business name. In this case, a separate legal entity does not exist.
The profits earned would be taxed as personal income tax, hence a sole proprietary would not be able to benefit from the effective corporate tax rate of 0% – 17%, nor can it benefit from the multitude of tax incentives offered by the Inland Revenue Authority of Singapore (IRAS), which is only meant for companies.
In general, a sole proprietor is a person who–
- Is at least 18 years of age
- Is an ordinary resident in Singapore and
- Is not an undischarged bankrupt
A sole proprietor can also be a company provided the company appoints a natural person who fulfills these requirements to act as a manager.
A non-resident cannot apply for a sole proprietorship.
Partnership – More than one Owner entity in Singapore
Holds similarity to a sole proprietorship in terms of structure, liability, and taxes, the only difference is that a partnership requires two or more partners, subject to a maximum of twenty individual partners. If the partners in the partnership exceed 20 individuals, then the partnership is required to incorporate as a company under the Companies Act.
In general, –
- A local manager must be appointed who is a natural person and is at least 18 years old.
- Is an ordinary resident in Singapore
- Is not an undischarged bankrupt
In this case, foreign individuals and companies are allowed to be partners. The tax rate imposition is similar to that of a sole proprietorship if the partner is an individual, the personal income tax rates would apply and if the partner is a company, corporate tax rates would apply.
The greatest risk a partnership possesses is the fact that it is not considered as a separate legal entity and all partners are personally liable for the partnership’s debts and loses.
Limited Partnership – Partnership with an option for Limited Liability
In a limited partnership, “limited” means limited liability for all partners. There is no cap on the maximum number of partners, but the minimum number of at least two partners holds. Of all the partners, one partner will be appointed as a general partner, who will hold unlimited liability and will be personally liable for all debts and losses.
The general partners and limited partners can either be individuals of at least 18 years old or a corporate entity. If a general partner is not an ordinary resident, a manager who is an ordinary resident will have to be appointed. Similar to sole proprietorship and partnership, a limited partnership will not qualify for any tax incentives provided to companies and will be taxed subject to the partner’s personal tax rate. If a partner is a company, then corporate tax rates would apply.
Limited Liability Partnership (LLP) – Commonalities between a limited partnership and private limited company
Here, each partner’s liability is limited. LLP owns a separate legal entity status and can own property in LLP’s name, which is not possible in other types of partnership. A partner is personally held liable only for his wrongdoings in the company and it doesn’t affect the liability of other partners.
An LLP has to submit a declaration of solvency annually to state whether the LPP has the ability to satisfy its debts during the normal course of its business. This specific requirement is not applicable to other forms of partnership entities.
There are two main categories of companies:
- Private company
- Public company
Private, as the name suggests, is a company owned privately by several shareholders whereby the members of the public are unable to apply for the shares, whereas public companies are open for subscription and transfer of shares. Public companies shares can either be listed on a stock exchange (where shares are readily available for purchase by any individual) or unlisted altogether (the company’s best interest lies in the public interest).
Private Limited Company
A Private Limited Company is the most chosen form of company. It is because of the tax incentives that can be applied for, separate legal entity from its shareholders and directors. It means that the members of the company will not be held personally liable for the debts or losses of a company. A private limited company qualifies for tax exemption schemes and is taxed effectively at 0-17% corporate tax rate.
For newly incorporated companies, a full tax exemption can be claimed on its first S$100,000 of chargeable income for each of its first three consecutive years of assessment. A further 50% exemption is given on the next S$200,000 of chargeable income for each of the first three consecutive years of assessment.
Apart from this, a private limited company needs to comply with various other policies and procedures, such as appointing a company secretary within six months of incorporation and an auditor within three months of incorporation, unless the company is exempt from audit requirements. There is also a requirement for annual returns to be filed annually with ACRA.
For every kind of business need, there is a type of company structure, if you need guidance on how to proceed with a type of structure or what type of structure does your business needs to grow in future, Contact a Corporate Service Provider.