Choosing the right business structure is an important thing to do in the first stage of Singapore company incorporation. There are many types of companies and businesses in Singapore that you can pick, depending on your needs and purposes. Overall, the following are the most common ones:
- Private limited company
- Public limited company
- Sole proprietorship
Private Limited Company
This is the most chosen option among all types. In simple words, it is a company that is privately owned by a maximum of 50 shareholders. The shareholders can be either individuals or corporations.
The reason why most foreign entrepreneurs register a private limited company in Singapore is because of its favorable characteristics. These characteristics include the separate legal status, the member’s limited liability, and the eligibility for tax benefits.
In particular, a private company has a distinctive legal entity that is separated from its members. This means that the company can enter a contract, acquire and sell property, sue, and be sued in its own name.
Having a separate legal entity also means that the shareholders in the company have limited liability. In case a private company goes bankrupt, the only loss that the shareholders bear is their owned shares. They will not hold any further personal liability beyond that for the business debts.
Furthermore, a private limited company in Singapore can be eligible for many exclusive taxation grants and schemes. The corporate income tax imposed on Singapore companies is quite low, standing at 17%. However, the actual payable tax of a private company is lower due to many tax-cut schemes. For example, it can be entitled to a tax exemption rate of 75% and a yearly tax rebate.
Public Limited Company
A public limited company is a company that can have over 50 shareholders. All the characteristics of a private company can also be found in this company type. The major differences between the private and public companies are the number of shareholders and the ability to raise capital. Particularly, a public limited company can issue shares or debentures to the public, while a private one cannot.
Foreign entrepreneurs usually choose public limited companies in Singapore to increase their capital more quickly. In return for this advantage, there are many compliance requirements and heavy loads of paperwork to take care of. Public companies usually spend much more resources on administrative and management tasks.
Sole proprietorship is also one of the top-picked forms for structuring a business in Singapore. It is owned by one single person (sole proprietor).
This business type does not have a distinctive legal entity or a corporate structure. The owner is responsible for all the debts and liabilities of the business. That is why sole proprietorship is one of the riskiest types of business in Singapore.
In addition, a sole proprietorship is short-lived since its owner cannot transfer the ownership to another person. It is also hard for a sole proprietorship to raise its capital due to poor public perception.
In respect of taxation, a sole proprietorship is not subject to the corporate tax rate of 17%. Since it is treated the same as the owner, it will be taxed according to the personal income tax, progressively from 0% to 22%. This type of business also cannot apply for many tax-cut schemes like a limited company.
For the advantage of such a business type, the owner has absolute power over the business, including the income. He can make any business decision or spend all of the earned profits. The small number of compliance requirements is another benefit for an investor to consider establishing a sole proprietorship.
A partnership is a business that is set up by two or more partners whose main goal is to generate profits. The activities of a partnership usually revolve around the partners’ skills and expertise.
Partnership is further divided into 3 subtypes with different sets of characteristics: general partnership, limited partnership, and limited liability partnership.
A general partnership is not a separate legal entity. The number of partners can go from 2 to 20. They will hold unlimited liabilities for their own actions as well as others’.
Like a general partnership, a limited partnership does not have a distinctive legal status. There is no limit on the number of partners. The partners can be either individuals or corporations.. The partners can be either individuals or corporations. However, there must be a general partner who fully manages the business.
The general partner will have unlimited liabilities. Meanwhile, other partners, called limited partners, will have liabilities limited only to their investment.
Limited liability partnership
Unlike the above two, this type of partnership is considered a separate legal entity. The number of partners can go from 2 to infinite. The partners can be either individuals or corporations.
Due to the distinctive legal status, the partners of such partnership only have limited liability to their investment. But they may also hold personal liabilities for their own wrongdoings, but not for other partners’ actions.
This type of partnership stands out from the other two because of its separate entity and partners’ limited liability. It seems quite similar to a limited company. However, the biggest disadvantage of this partnership, compared to a limited company, is taxation.
A limited liability partnership is taxed according to the partners. Individuals will be taxed according to Singapore personal tax, while corporations will be taxed according to Singapore corporate tax.
There are many company and business types in Singapore. You are recommended to opt for a private limited company. The reasons are that it can provide you with a high degree of safety and many other tax benefits.
You can register the company by yourself with longer processing time. With help from a trusted service provider, you can expect to receive the result of your company incorporation in only 24 hours.