When launching a business in Singapore, choosing the appropriate business structure is an essential first step. Important considerations such as ownership control, taxation, legal liability, and fundraising simplicity are all influenced by your chosen business structure.
A straightforward sole proprietorship would be a quick and affordable way to start a firm, but its main drawback is that you could be putting your assets at risk when you do so. Although incorporating as a private limited corporation entails more legal formalities, it limits liability.
When deciding between sole proprietorships, partnerships, limited private companies, representative offices, and other typical forms of business formation in Singapore, new entrepreneurs must consider long-term goals, outside capital, and tax ramifications.
This article provides an in-depth look at the pros and cons of various options to help you make an informed decision.
1. Sole Proprietorship
Being a single proprietorship is Singapore’s easiest and most typical company structure. This indicates no legal separation between the owner and the business; a single person owns and operates the business.
Regarding company formation Singapore, a sole proprietorship entails total control over the business, full profit retention, and limitless personal liability. This makes it a dangerous decision since your assets will only be safeguarded if the company is sued.
Establishing a sole proprietorship is cheap and simple. Official registration is optional, but you must get the right market licenses. This structure works best for new or low-risk firms.
2. Partnership
Two or more people own a partnership firm and enable sharing resources, skills, and profit/losses.
Partnerships allow for capital raising from multiple sources and greater operational scale. But much like sole proprietors, partners also have unlimited joint liability. Formal partnership agreements are optional but are highly advisable to outline rights, responsibilities, profit-sharing, etc.
General partnerships require minimal registration formalities, but limited partnerships necessitate more extensive filings.
3. Limited Liability Company
A popular incorporation choice, private limited companies offer liability protection to owners while providing more credibility with banks, investors, and customers than informal sole proprietorships.
Shareholders’ assets are shielded from business debts and lawsuits. Limited personal liability makes LLPs appealing to higher-risk enterprises or those needing external financing. Forming a company in Singapore can be done in just a few days online but requires at least one local director and shareholder.
The minimum paid-up capital is only S$1, with annual filing and audit requirements. Though more complex, the corporate structure provides long-term flexibility for evolving businesses.
4. Private Limited Company
Private limited companies are the most common type of incorporation for small-to-medium enterprises in Singapore. This structure limits owners’ liability to their share capital, but restrictions on share transfers can make raising funds more difficult.
For-profit companies allow greater ownership control for founders and incentives like share schemes to attract talent. Setup costs and regulatory compliance are higher than sole proprietorships but lower than publicly listed companies.
At least one Singaporean resident director is required. While less suited for quick asset sales or securing external investors, PLCs benefit from perpetual succession.
5. Public Listed Company
The practice of public corporations involves open trade sharing on stock exchanges in which they acquire large capital from the public markets. However, undertaking an IPO becomes a process of time and determination.
The strictest laws, corporate governance mandates, and public disclosure obligations apply to limited businesses. The status and respect of being listed publicly might help with marketing. The drawbacks include diminished privacy and shareholder demands for rapid financial gain. Maintaining a listing also involves significant legal and accounting overhead better suited to mature businesses with strong management.
6. Non-Profit Company
This structure suits non-commercial ventures focused on social causes and services rather than generating profits.
NPOs can get tax exemption status, but operational revenues and fundraising are still required. Setup involves formal registration and submission of a constitution detailing objectives, membership rights, etc.
NPOs require at least three directors, most of whom must be Singapore citizens or permanent residents. While share capital is allowed, assets and surplus income must be used for stated public or mutual community benefits.
7. Representative Office
Foreign companies exploring the Singapore market often open local rep offices first. ROs can undertake promotional and market research activities in Singapore but cannot engage in direct revenue-generating business.
Operational costs are thus lower without formal incorporation needed. Registration is optional if the RO engages five or fewer employees. Larger ROs must register with Singapore’s Accounting and Corporate Regulatory Authority. Rep offices are a useful springboard before committing to a full branch office or subsidiary setup.
8. Branch Office
Branch offices with a more permanent presence can undertake regular company operations, earn revenue, and engage in contracts in their names. The branch is registered legally, and the formation becomes a prerequisite by nominating at least two locally authorized representatives.
Branches are not seen as different corporate organizations. Therefore, the headquarters automatically takes responsibility for all such obligations and liabilities. In the same way, branch income is also charged under the foreign company’s corporate tax bracket. Branches are comparatively simpler than local subsidiaries, but foreign corporations may refer to the branch firms in Singapore when they urgently need direct control over Singapore operations.
Bottom Line
The key considerations while setting up a business in Singapore include compliance costs, control of ownership, capital needs, incentive eligibility, and ease of dissolution.
One of the advantages of sole proprietorships is that they have lower startup costs but imply unlimited liability, while partnerships allow pooling resources. The private companies have a lower liability but must file their reports and register with authorities.
Rep offices offer a low-cost inter regarding your target industry, operation costs, borrowing outside funds, and long-term goals. Seek advice from accountants and lawyers dealing with entities to know the best plan.
