Overview of legal entity types in Singapore
To help you select the right legal entity for your business, we have written this article to provide an overview of the various types of legal entities in Singapore to offer guidance on the suitable entity for different business structures.
Sole Proprietorship
A sole proprietorship is the simplest but riskiest business form in Singapore. It is not a separately incorporated entity, meaning the owner and the business are one and the same. The owner personally owns all business assets and liabilities, with no protection of personal assets from business risks. This unlimited liability means that if the business cannot pay its debts, creditors can pursue the owner’s personal assets. Due to this significant financial risk, we do not recommend sole proprietorships to aspiring entrepreneurs.
Partnership
A partnership allows two or more people to co-own a business, addressing the limited expansion of sole proprietorships. However, a partnership has no separate legal existence from its partners and ends with the death, insolvency, incapacity, or retirement of a partner. Dissatisfied partners can also dissolve the partnership at any time.
Partnerships are generally use in certain situations particularly in certain type of industries/ businesses that requires professional independence and ethical obligations to their clients. Some examples are law firms audit firms and fund management.
There are three types of partnership in Singapore, (i) General Partnership; (ii) Limited Partnership (LP); and (iii) Limited Liability Partnership (LLP).
1. General Partnership
- Two or more individuals can form a general partnership.
- All partners have an equal right to make decisions and manage the business unless otherwise agreed upon separately.
- All partners have unlimited liability.
- Suitable for businesses where partners are actively involved in management and must take on liability for their actions or advice (e.g. law firms).
2. Limited Partnership (LP)
- At least one general partner with unlimited liability and one limited partner with liability limited to their investment.
- Ideal for businesses seeking investment without involving investors in day-to-day management (e.g. fund structure).
3. Limited Liability Partnership (LLP)
- Partners have limited liability and are not personally liable for business debts beyond their investment.
- Suitable for entrepreneurs testing out their business idea or businesses requiring flexibility in management and liability protection.
Private Limited Company (Pte Ltd)
A private limited company is the most popular business structure in Singapore. It is the favoured choice for serious entrepreneurs, as opposed to sole proprietorships or limited liability partnerships.
A private limited company can have a maximum of 50 shareholders and is not available to the public. Most privately incorporated businesses in Singapore are registered as private limited companies. These companies typically have names ending with “Private Limited” or “Pte Ltd.”
Why Entrepreneurs Prefer Private Limited Companies:
- Separate Legal Entity: A private limited company has its own legal identity, separate from its shareholders and directors. It can acquire assets, incur debt, enter into contracts, and sue or be sued in its own name.
- Limited Liability: Members’ liability is limited to the amount they agreed to contribute as capital to the company. The shareholders’ personal assets will not be use to cover the liability of the Pte Ltd.
- Perpetual Succession: The company’s existence does not depend on the continued membership of its shareholders. Shares can be easily transferred, ensuring the company’s continuity despite the death, resignation, or insolvency of shareholders or directors.
- Raising Capital: New shareholders can be brought in or more shares can be issued to raise capital. Investors are more likely to invest in a company with a clear separation between personal and business assets. Additionally, banks are more inclined to lend money to limited companies.
- Ownership Transfer: Ownership can be transferred, wholly or partially, without disrupting operations. This can be done through selling shares or issuing new shares to additional investors.
- Tax Benefits and Incentives: Singapore private limited companies get to enjoy the Singapore corporate tax policies, including the partial tax exemption and the prevailing corporate income tax rate which currently is at 17%. Additionally, the company can also apply for tax incentives from the relevant government agencies.
Public Limited Company
A public limited company is an LLC that may offer shares to the public. It must have at least 50 shareholders and is subject to stringent rules and regulations due to its ability to raise funds from the public. Public limited companies are usually listed on a stock exchange and are meant for large businesses.
Public Company Limited by Guarantee
A public company limited by guarantee is designed for non-profit purposes.
Variable Capital Company (VCC)
The Variable Capital Company is a new corporate structure for investment funds in Singapore which took effect on 14 January 2020. It is introduced for the fund industry in Singapore and to elevate Singapore’s position as a preferred domicile location for funds.
Some of the key features of a VCC are:
- A variable capital structure that provides flexibility in the issuance and redemption of its shares.
- It can pay dividends out of capital, which gives fund managers flexibility to meet dividend payment obligations.
- It can be set up as a single standalone fund or an umbrella fund with two or more sub-funds, each holding a portfolio of segregated assets and liabilities.
- For fund managers that structure their funds as umbrella VCCs, there may be cost efficiencies from using common service providers across the umbrella and its sub-funds.
- A VCC can be used for both open-ended and closed-end fund strategies.
- Fund managers may incorporate new VCCs or re-domicile their existing overseas investment funds with comparable structures by transferring their registration to Singapore as VCCs.
- VCCs must maintain a register of shareholders, which need not be made public. However, this register must be disclosed to public authorities upon request for regulatory, supervisory and law enforcement purposes.
Foreign Company Registration Options
Foreign companies wishing to establish a presence in Singapore to test the water, can consider to set up either a branch office, or representative office in Singapore. Which to select depends on the business goals.
- Branch Office: A branch office is an extension of its parent company and not a separate entity. The liabilities of a branch office extend to the parent company. Some foreign company uses a Branch Office to manage its permanent establishment risk in Singapore.
- Representative Office: A representative office is a temporary arrangement for conducting marketing research activities. It has no legal status and cannot engage in profit-yielding activities.
Another option is to setup a Singapore subsidiary entity in the form of a Private Limited company where the foreign company is the shareholder. This is the most common corporate form most foreign entities use in Singapore. You can refer to the benefits of a private limited in the above section.
Which Legal Entity Type to Choose?
The right business structure for incorporation in Singapore depends on your specific situation and plans.
NovoPlus can help
When selecting the ideal business structure and corporate entity for your business in Singapore, it is essential to consider your specific circumstances and future goals. Making an informed decision requires careful assessment and evaluation.
At Novoplus, we have the professional expertise to advise and assist you in selecting the right entity type. Please feel free to contact us at finance@novopluscorp.com or reach out to us on Whatsapp using the button on the right of the website to learn more about how we can support your business.
Last Updated on 05/08/2024 by Dennis Chew