Singapore Business Structures

Singapore business entity types constitute the following:

• Company:
  • Private limited company: A private limited company is a tax efficient, separate legal entity that offers limited liability to its members. For details on how to setup a Singapore private limited company, please refer to our Singapore Company Registration guide.
  • Public limited company: Most public companies are large enterprises with a large number of shareholders and are usually listed on the stock exchange. These companies offer their shares to the public.
  • Public company limited by guarantee: A public company limited by guarantee is a separate legal entity that has no share capital. The company members' liability is restricted. Most non-profit organizations prefer this business structure.
• Sole-proprietorship: The sole-proprietorship is an unincorporated business structure and is not a separate legal entity. The sole proprietor has unlimited liability and there is no protection of personal assets.
• Partnership:
  • General partnership: Partners face unlimited business liability and are personally responsible for the debts of other partners.
  • Limited partnership: A limited partnership constitutes limited partners and general partners. Limited partners' liability is limited to their investment. Limited partners are not involved in the management of the business.
  • Limited liability partnership (LLP): A LLP is a separate legal entity. The partners are not personally responsible for the liabilities of other partners.
• Foreign company office:
  • Branch office: A branch office is an extension of its foreign parent company and is not a separate legal entity. Liabilities extend to the parent company. For details refer to our guide on Singapore Branch Office Registration.
  • Subsidiary: A subsidiary is a Singapore private limited company and is a separate legal entity. Liability is limited to the subsidiary and does not extend to the foreign parent company. For further information, click on Singapore Subsidiary Company Registration.
  • Representative office (RO): A RO has no legal status and is a temporary administrative office meant for conducting market research or co-ordinating activities. Liabilities extend to the foreign parent company.  Please refer to Singapore Registration Office for details.

For comparison purposes, we have chosen the three most common types of Singapore business entities:

1. Private limited company;
2. Limited liability partnership; and
3. Sole-proprietorship.

Yes. Certain business vehicles are suitable for certain distinct types of businesses.

Sole-proprietorship: If the market for the product or service is small; if the nature of the business is simple; if the business does not involve any risks; if the capital requirement for the business is small, the business can be structured as a sole-proprietorship. Examples of sole-proprietorships are freelancers, baby-sitters, tuition teachers, and consultants.

A note of caution: A sole-proprietorship is often the most attractive business structure; however, it is also the most risky as it offers no protection of personal assets.

Limited liability partnership: The LLP is suitable for businesses that require moderate capital and for businesses that require professionals who have certain abilities, talent, skill or experience. Examples include: Accounting firms, legal firms, architects, etc.

Private limited company: Small to medium sized businesses that are looking at long-term sustainability, protection of personal assets from business liabilities and tax efficiency tend to incorporate a Singapore private limited company. Examples include: Retail businesses, import/export business, construction business, restaurant business, employment agencies, travel agencies, event management business, IT consultancies, financial services, education business etc.

A Singapore private limited company is the most tax efficient business structure as compared to a sole-proprietorship or limited liability partnership. This because business income of a company is taxed at the corporate level, which works out to a lower tax liability than business profits that are taxed at the personal level. Note that personal income tax rates range from 0% to 20%  for income above S$320,000.

The current corporate income tax rate in Singapore is 8.5% for profits below S$300,000 and 17% for profits above S$300,000. Additionally, a start-up enjoys a 0% tax rate on the first S$100,00 of profits for each of its first three consecutive years.

Example 1:

Let us assume a start-up business makes a profit of S$100,000 during its first year. If the business were structured as a Singapore private  limited company, it would be exempt from taxes. However, if the business were structured as a sole-proprietorship or partnership, the sole-proprietor or partner would be taxed at the personal income level and would have to pay S$7,100 by way of taxes.

Example 2

Let us assume that a business makes a profit of S$600,000 during its fourth year. Considering that the 0% tax exemption on the first S$100,000 doesn't apply, the tax liability still works out to be in favor of a company and not a sole-proprietorship or partnership. A private limited company would have to pay approx. S$76,500 as compared to the S$98,700 tax liability a sole-proprietor or partner would have to bear.

Unfortunately, sole proprietors face unlimited liability as compared to company owners or partners of a limited liability partnership. This is because the sole-proprietorship business structure is an unincorporated business form and does not have a separate legal status that is distinct from the sole-proprietor. There is no distinction between the sole-proprietor and his business. In the event of business debts incurred, a creditor can seize possession of the sole-proprietor's personal assets such as property.

By contrast, a business that is structured as a Singapore private limited company or limited liability partnership is a separate legal entity from its owners, shareholders, company directors, or partners.  As a result, liability is limited to the investment made in the company (or partnership) and personal assets are safe from creditors in the event of not being able to settle liabilities.

Given the unlimited liability exposure of sole-proprietorships, most entrepreneurs prefer to incorporate a Singapore private limited company rather than registering a sole-proprietorship.

One of the many advantages of forming a Singapore private limited company is ease of raising capital and ease of transfer of business ownership. Capital can be easily raised by bringing in new shareholders who will subsequently bring in equity or by availing of business loans from banks. Most major banks in Singapore have SMEs financing services and products and are willing to lend to companies.

As for transfer of ownership, it can be easily achieved through the sale of stock without the need to affect ongoing business operations.