Business Registration in Singapore – Understanding the Various Businesses
If you are looking into starting your own business in Singapore, you need to know the different types of business available to you. You should ask yourself what you are expecting from your venture such as what you will have to pay in taxes, what do you expect customers to perceive from your business, whether you will be protected from liabilities, will you be able to borrow money against it, and whether you can expand in the future?
Let’s take a look at the various business opportunities that are available in Singapore and what each entity will provide. Keep in mind, all businesses have different tax requirements, regulatory requirements, and organizational structures.
To begin with, we will briefly go over the 3 major business types in Singapore:
Private Limited Company:
This is a small business that is privately owned and any liabilities are limited to the owner’s shares. You are restricted to 50 shareholders and the shareholders are not allowed to publicly trade shares.
Public Limited Company:
This type of business has strict regulations and required by law to publish their financial standing in order for investors to decide if the value of their stocks are worth that amount. The securities are traded on the stock exchange where they are bought or sold by anyone.
Public Company Limited By Guarantee:
This business entity is for non-profit organizations such as charities. This business does not have share capital and the liability of the members is limited to the amount of the guarantee which is usually minimal.
About Foreign Registrations:
If you have a company but want to operate out of Singapore, you can set up a subsidiary, a branch office, or a representative office. Here’s a breakdown of the three alternatives:
A subsidiary is a private limited company that has a parent company of shareholders. If your business is small or a medium-sized operation, this is usually the preferred option for registering in Singapore.
A Branch Office:
This kind of operation is registered in Singapore as a branch of the parent company. It is not a separate entity. The liabilities are spread over to the parent company.
A Representative Office:
This is a business that is a temporary registration for conducting marketing research. It cannot engage in profit activities and has no legal standing in Singapore.
Here are the different partnership structures you should look into before making a decision:
About A Sole Proprietorship:
This is probably the easiest structure to set up but comes with many risks. A sole proprietorship is not a separate entity, the owner and the business are literally one. The owner personally owns all assets and is responsible for the liabilities. Should you not be able to pay off the business’ liabilities the creditors will come after your personal assets. If your business is sued or you cannot pay your bills, you are totally responsible for the liabilities. Many start-up owners do not realize this partnership comes with a huge financial risk. We do not recommend this kind of business structure for a start-up company or for a hopeful entrepreneur.
About A Partnership:
A partnership does not have the limited growth restrictions that a sole proprietorship has. If 2 or more people are involved in the business, it will be seen as a partnership. Keep in mind, this business type does not exist outside of the partners. The business will discontinue if one of the partners passes away or retires, if it is unable to pay its debts, or cannot manage its operations. Also, a partner has the power to dissolve a partnership if they are not satisfied by giving notice. You should consult with an attorney and form an agreement that all partners would have to vote for the dissolution of the business and able to elect someone else to replace the partner. Unfortunately, a partnership is not the best option for business owners and is not recommended.
There are three kinds of partnerships in Singapore:
A General Partnership:
A general partnership can be formed by only 2 people with a maximum of 20. The partners pay their taxes through their personal income tax based on the shared income from the partnership.
Two of the leading reasons why this business structure is not a good choice:
- It is similar to a sole proprietorship in which the partners are accountable for all debts and liabilities.
- Each partner is held accountable for the behaviors of the other partners.
A Limited Partnership (LP):
In Singapore, a limited partnership is a different alternative. It is structured with limited partners and a general partner. The liabilities that face a limited partner are their investments in the partnership. They are not allowed to participate in the management of the business. This is the role of the general partner who is responsible for all the business’ debts and obligations. Once again, if you want to set up a business in Singapore, a limited partnership is not a very good choice.
A Limited Liability Partnership (LLP):
Out of the 3 options for a partnership, a limited liability partnership, or LLP, is probably the most progressive as it has several features for a partnership and business. In 2005, Singapore enacted the Limited Liability Partnership Act. When you register a limited liability partnership you and the other partners have more flexibility for operating as a partnership and will have many benefits similar to a private limited company. That said, a limited liability partnership must have at least two members at all times.
A limited liability partnership is usually formed by two or more professionals within a given field such as a law firm, architectural firm, etc. This is not a choice for businesses that are providing a given trade.
The owners of the business must create a detailed agreement that addresses the profits and responsibilities and how they are divided up. If this is an option for you, it is highly recommended you bring in an attorney to draw up the agreement as it can get very complicated and all legalities must be in place. Based on the professional field of the partners, they are solely responsible for creating their own clients in an LLP.
If you are interested in any partnership structure, you may consult with us before committing yourself. Partnerships can be complicated and have different aspects that could work for you or lead you down a path of destruction. You should understand each entity before making a final decision and an attorney will be able to guide you in the right direction.
Choosing The Right Structure For Your Business:
Before deciding on the business structure that will work best for you, you should know what your plans are and what your given situation is. The following information will help you make the right choice for your business:
A Sole Proprietorship might be the answer for you if you are local and want to register as a small business. You will be the only owner and your business products and/or services will have unlimited liability such as debts that your business incurs, so consider carefully if this is the right option for you. A Sole Proprietorship is easy to register and does not come with a lot of baggage.
A Limited Liability Partnership might be just what you need if you are offering a service in a particular professional field such as a law firm or architectural firm. You will have professionals in the same field who have already expressed their interests in joining you to create a joint practice.
All said and done if you want to set up a business in Singapore, creating a Private Limited Company could be the best choice. Even though you will have to abide by compliance requirements that can be somewhat complex, this is the best structure for business in Singapore for your company’s future growth.