What type of business entity is best for you?
When you are planning to set up a business in Singapore one of the most important decisions you will have to make is choosing which type of business structure you would like to register your business as. The entity of your business has a large impact on many key factors of any business and it’s success, it determines how much you will have to pay in taxes, the liabilities you face in case your business is not starting off as successful as you would have hoped, the options of borrowing money and how you can expand your business later on.
As you can see, choosing the most suitable type of business structure for your own company will have a huge impact on the success or failure of your business adventures. In order to find the correct answer to this question there is a few factors that you need to consider:
- What kind of business (profession/trade) are you going to perform?
- What are your long term plans for this business?
- How much capital are you willing to invest?
- Are you the sole owner of this business or do you operate with partners?
- How much financial risk are you personally willing to take?
Today we want to show you the main features and differences of all the most common business entities of Singapore that you can choose from and hopefully provide you a helpful guideline on the way making the right decision for your personal business success.
In most cases incorporating the correct type of business entity is a fairly straightforward process and can be roughly summarized as follows:
If you are planning to set up a very small business which you will be the single owner of and the nature of your business is largely financially risk-free, then you might want to consider registering your business as a Sole Proprietorship. This is by the far the simplest business entity in Singapore, however, it is also by far the most risky option. Technically, a Sole Proprietorship means that the owner and the business are exactly the same, which results in all liabilities and risks of your business being directly tied to you as a person and are therefore equally your personal liabilities and risks. If your business turns out to unsuccessful and is unable to pay all it’s liabilities and bills then any creditors can potentially come after your personal assets and you could very well end up losing everything. For this reason we only recommend considering this type of business structure for small business with little to no financial risk.
If you choose to establish a business in Singapore together with one or more equal partners, for example if you are performing a common profession and would profit from collaborating with partners of equal qualifications in a joint practice. In this case incorporating your business as a Limited Liability Partnership (LLP) will most likely be your best option. There are Partnership entities available, however, the Limited Liability Partnership is Singapore’s most recently introduced and most advanced business structure for any businesses with more than one owner and is generally superior to any other Partnership entities. When founding a business as a LLP you and all your business partners will be required to draw up a detailed legal agreement regarding how profits and management responsibilities are divided between all owners. In order to ensure this is done correctly and fair to all partners involved it is usually best to get the assistance of a lawyer to set up this contract.
If neither of these specific cases apply to your personal situation then the best choice for your business is most likely to register your business as a Private Limited Company (Pte Ltd). The majority of privately owned companies registered in Singapore are Private Limited Companies and that is for good reason, because this is generally the best business entity in the long run and the most advanced business structure for serious entrepreneurs in Singapore. A Private Limited Company is Limited Liability Company (LLC) that has less than 50 different shareholders and all shares are privately owned and not accessible to the public. As limited liability would suggest, the business owners personal assets are protected from any liabilities of their business and in addition to that the company is legally considered an entirely separate entity that is in no way tied to it’s shareholders. For these reasons a Private Limited Company is the safest option in order to protect your personal assets in case your business is not successful. Being a limited company also makes it easier to expand your companies capital, as banks generally tend to be more willing to lend money to limited companies and potential shareholders similarly consider limited company entities as a better investment. Singapore’s tax rate for Private Limited Companies is effectively one of the most competitive for businesses worldwide, with tax rates of as low as 9% and a flat cap of at most 17% tax for any annual profits above SGD 300.000.
While there are several other business entities available that might be a decent option in some very rare cases, almost all of Singapore’s registered companies are of one of the three types mentioned above and following these guidelines should help you find the best choice for you as an individual with ease. If you feel that your business plan is extremely out of the ordinary you might want to consider the services of a professional to advise you on this matter, however, for 99% of our readers this should not be necessary.