Business Entity Types in Singapore
Topics To Be Discussed
Introduction
The type of legal entity you select to incorporate your business impacts various aspects of your business, including tax obligations, capital investment, business reputation, personal liability, borrowing capacity, growth potential, and regulatory requirements.
The Accounting and Corporate Regulatory Authority (ACRA) of Singapore is the national regulator of business entities, public accountants, and corporate service providers. ACRA oversees the registration of businesses as well as the enforcement of compliance with corporate governance standards.
Below, we explain the three main types of business entities available in Singapore: private limited company, limited liability partnership, and sole proprietorship. We have purposely excluded the lesser known legal forms of business, namely, a public limited liability company (suitable for large corporations), a company limited by guarantee (suitable for non-profit causes), a partnership (an old form of partnership business structure with unlimited liability for partners).
Entity Type: Singapore Private Limited Company
In Singapore, a Private Limited Liability Company (or simply Private Limited Company) is a business structure that stands as a legal entity separate and distinct from its shareholders and directors. This type of company is arguably the most favored choice among available options, making up the majority of privately registered legal entities in Singapore.
Key features of a Singapore private limited company include:
1. Ownership Flexibility
2. Management Flexibility
3. Limited Liability
4. Perpetual Existence
5. Tax Benefits
6. Superior Reputation
Exempt Private Limited Company
To simplify regulatory compliance requirements for smaller private limited companies, a Singapore company with fewer than 20 shareholders and no corporate shareholders is classified as an Exempt Private Limited Company (EPC). An EPC is:
- Exempt from the obligation to attach financial statements to its Annual Return.
- Exempt from having to hold annual general meetings (AGMs)
- Not required to appoint an auditor if it meets certain criteria.
Subsidiary Company
A private limited company owned by another legal entity, commonly known as the parent company, is often referred to as a subsidiary company or a wholly-owned subsidiary. This structure allows the parent company to exert control over the subsidiary while benefiting from its operational independence and distinct legal status. A subsidiary company:
- The liabilities of the subsidiary are not passed to the parent company. It maintains its own legal status, financial records, and liability, which helps limit the parent company's exposure to risks and liabilities associated with the subsidiary’s operations.
- It is required to submit only its own annual returns and financial statements, and not those of its parent company.
Entity Type: Limited Liability Partnership (LLP)
A Limited Liability Partnership is another type of business entity in Singapore that allows two or more individuals or entities to co-own and operate a business. LLC is a separate legal entity from its partners. Partners have limited liability, meaning they are personally liable only for debts and losses resulting from their own wrongful actions and not for those incurred by the LLP through other partners.
This structure is ideal for professionals offering similar or complementary services who wish to share office resources and a customer base to better serve their clients. Typical examples of businesses well-suited for a partnership include law firms, medical practices, and accounting firms.
Profits are typically shared based on each partner’s performance, effort, or involvement in the business. A partner in a partnership is an individual or entity that co-owns and operates a business with one or more partners. Partners share responsibilities, resources, profits, and liabilities according to the terms outlined in the partnership agreement.
- A partnership business entity always requires at least two people in a partnership. The business structure may have to be dissolved when a partner exits due to disputes, retirement, death, or otherwise.
- Partnerships generally have less credibility and are less attractive to investors compared to companies. This is because partnerships do not offer shares, making it harder to attract other investors.
- Partnerships do not enjoy various tax benefits and incentives that are extended to companies.
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Entity Type: Sole Proprietorship
A Sole Proprietorship in Singapore is a business structure in which a single individual owns and operates the entire business. While it is limited to one owner, the sole proprietor can hire staff to help manage and run the operations. A sole proprietorship is not a separate legal entity which means the owner is personally liable for the business financials.
A sole proprietorship comes with significant drawbacks, which often make it suitable only for simpler, small-scale business activities typically managed by local residents. Some of these drawbacks include:
Unlimited Personal Liability
Lack of Continuity
Limited Growth and Expansion
No Tax Incentives
Which Business Structure to Choose in Singapore?
Selecting the right business structure for your venture in Singapore should depend on your specific circumstances and future goals. Here are some general guidelines to help you make an informed choice:
- Private Limited Company: Both for local and foreign entrepreneurs, this structure is the most recommended form of business to incorporate in Singapore, regardless of their scale or sector.
- Limited Liability Partnership: An LLP is well-suited for professionals (such as accountants, lawyers, and architects) who wish to form a joint practice with one or more partners in the same field.
- Sole Proprietorship: This structure is ideal for local individuals who run small businesses on their own, especially if the business activities do not carry significant liability risks. However, it is important to note that the owner's personal assets are at risk in the event of business liabilities.
Foreign Company Incorporation in Singapore
Singapore Subsidiary Company
A subsidiary company is simply a limited liability company owned by another corporate entity, commonly referred to as the parent company. When the subsidiary is entirely owned by the parent company, it is known as a wholly-owned subsidiary. Key facts:
- A Singapore subsidiary is legally a separate entity from its parent, therefore the liabilities of the subsidiary generally do not extend to the parent company.
- As a locally incorporated entity, a Singapore subsidiary is eligible for various tax benefits and incentives available to Singapore companies.
Singapore Branch
Office
A Singapore branch office is an extension of a foreign company and not a separate legal entity from its parent company. This setup allows the foreign parent company to directly engage in business activities in Singapore under its own name rather than under a distinct corporate identity. While the branch office operates in Singapore, its activities and liabilities are directly tied to the parent company. Key facts:
- The parent company is fully responsible for all liabilities incurred by the branch office.
- Branch offices are not eligible for the tax benefits typically available to Singapore-based companies.
Singapore Representative
Office
A Singapore representative office (RO) is a temporary arrangement that allows foreign companies to assess the business environment in Singapore without conducting any revenue-generating activities. Key facts:
- Temporary arrangement for up to 3 years to explore the Singapore market.
- Cannot enter into contracts or engage in business activities that result in revenue.
- Subject to annual renewal of its status.
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