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Choosing The Right Business Structure

You have a great business idea and now you're taking the next step to set up your business. But you find yourself stuck, not knowing which is the right business structure to select. Choosing the right business structure is an essential step when setting up your business as it would have an impact on your business' legal structure, taxes, statutory obligations and more.


We are here to provide you an overview. To simplify things for you.


Before reading on, do ask yourself the following questions:

  1. How many business partners are there?

  2. Do I want to protect my personal assets in the event of being sued?

  3. Do I want my business to continue beyond me? (i.e. business continuity)

Alright, now let's dive right in.


There are 5 business structures in Singapore to choose from.

  • Sole-Proprietorship

  • Partnership

  • Limited Partnership

  • Limited Liability Partnership

  • Company


Sole-Proprietorship


As per the name, a sole-proprietorship is a business that is owned by one person. If you have other business partners or shareholders, this option would not be applicable to you.


A sole-proprietor has unlimited liability, and is not legally considered a separate entity. The owner can be sued and is personally liable for debts and losses of the business. If you operate a high risk business or would simply like to have limited liability and not be personally liable for debts and losses of the business, this option would not be applicable to you.


A sole-proprietorship only exists as long as the owner is alive and desires to continue the business. If you would like to have perpetual succession of the business, this option would not be ideal.


Other key points to note:

  1. Annual / 3-year renewal is required

  2. Set up fee of $115 (1 year registration) / $175 (3-year registration)

  3. Profits made are taxed at the owner's personal income tax rates


Partnership


A partnership allows for between 2 and 20 partners. If there are more than 20 partners, according to the Companies Act, Chapter 50, you will need to incorporate as a Company (unless it is a professional partnership).


Similar to a sole-proprietorship, partners in a partnership are not considered separate legal entities and have unlimited liability. They are personally liable for the partnership's debts and losses incurred by the collective group of partners.


The continuity of a partnership is dependent on the partnership agreement. A partnership agreement is the legal document that dictates how the business is run and details the relationship between the partners.


Other key points to note:

  1. Annual / 3-year renewal is required

  2. Set up fee of $115 (1 year registration) / $175 (3-year registration)

  3. Each partner will be taxed according to the personal income tax rate on his/ her share of the income from the partnership.

  4. While the partnership does not pay tax, the partnership is still required to file an annual income tax return to show all income earned by the partnership and deductions claimed for expenses incurred in carrying on the partnership business.


Limited Partnership


A limited partnership consist of 2 or more persons, with at least 1 general partner and 1 limited partner. A partner may be a corporate body.


Partners in a limited partnership are not considered separate legal entities .The general partner has unlimited liability and is personally liable for the debts and losses of the limited partnership. The general partner holds complete control of the management of the LP.


On the other hand, a limited partner has limited liability and is not personally liable for the debts and obligations of the limited partnership beyond the agreed contribution, provided he does not take part in the management of the limited partnership.


The continuity of a limited partnership is dependent on the partnership agreement. A partnership agreement is the legal document that dictates how the business is run and details the relationship between the partners.


Other key points to note:

  1. Annual / 3-year renewal is required

  2. Set up fee of $115 (1 year registration) / $175 (3-year registration)

  3. Each partner will be taxed according to the personal income tax rate on his/ her share of the income from the partnership.

  4. While the limited partnership does not pay tax, the LP is required to file an annual income tax return to show all income earned by the partnership and to report the capital contribution of the partners in its income tax return for the purposes of applying the relevant deduction restriction.


Limited Liability Partnership


A limited liability partnership consist of 2 or more partners, with no maximum limit. A partner may be a corporate body.


Partners in a limited liability partnership are considered separate legal entities, and have limited liability. They are only personally liable for debts and losses resulting from their own wrongful actions.


A limited liability partnership has perpetual succession until it is wound up or struck off.


Other key points to note:

  1. The manager of the limited liability partnership is required to lodge a declaration solvency/ insolvency.

  2. No statutory requirement for general meetings, directors, company secretary, share allotments etc

  3. Set up fee of $115

  4. Each partner will be taxed according to the personal income tax rate on his/ her share of the income from the partnership.

  5. While the limited liability partnership does not pay tax, the LLP is required to file an annual income tax return to show all income earned by the partnership and to report the capital contribution of the partners for the purposes of applying the relevant deduction restriction.


Company


There are 3 categories:

  • Exempt private - 20 members or less and no corporation holds beneficial interest in the Company's shares

  • Private - 50 members or less

  • Public - may have more than 50 members

Companies are a separate legal entity from its members and directors, and members have limited liability. They are not personally liable for debts and losses of the company.


A company has perpetual succession until it is wound up or struck off.


Other key points to note:

  1. Appointment of a company secretary within 6 months of incorporation is required

  2. Appointment of an auditor within 3 months of incorporation is required, unless exempted

  3. Set up fee of $315

  4. Annual returns must be filled, and there are statutory requirements for general meetings, directors etc

  5. Profit taxed at corporate tax rate


A company is typically the most appealing business structure. Apart from the factors stated above, a company generally garners more credibility in the public eye- investors, banks, suppliers, customers etc.


Feel free to reach out to us for a consultation.


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