Choosing a corporate business structure in Singapore will boost it when you incorporate your company setup. What you choose ultimately affects your new business’s restrictions, risk considerations, legal business entities, and organizational structure as a whole. Here, you can choose the share classes you’ll be working with, the applicable share transfer laws, as well as the business’ administrative costs, tax rates, scalability, and, of course, the compliance obligations that go along with it. Here is a comprehensive guide for the ideal legal business setup when choosing a business structure in Singapore.
Choosing the Best Corporate Structure For Your Singapore Company
The following are some of the critical factors you should consider while choosing a business structure in Singapore:
- Company Size: While sole proprietorships are acceptable for solopreneurs, organizations with many stakeholders are often advised to consider becoming a limited liability company, complete with either public or private shares.
- Type of Business: Considering that your Singapore company setup will essentially decide the boundaries of your operations, you might wish to consider what kind of business you intend to operate. For example, you could use a Partnership structure if you want to register a professional agency. You can choose a sole proprietorship or any limited liability form for regular business operations.
- Business Risks: Liabilities are handled differently by the various business forms in Singapore. Therefore, you should choose the best corporate structure depending on the everyday business hazards you may encounter. A Sole Proprietorship or a General Partnership is a suitable business structure for solo entrepreneurs looking to launch low-risk operations. On the other hand, a Limited Liability Company would be a preferable choice for high-risk corporate enterprises. This enables you to create a separate legal entity that will hold the company’s losses and debts separate from your personal obligations.
- Compliance obligations: The various company formations are handled differently by Singaporean authorities. Each form of organization has a unique set of obligations for compliance and registration. For instance, if you’re considering forming an LLC, you’ll need to keep a record of your shareholder meetings and submit it together with your annual corporate returns. However, sole proprietorships can get away with only filing their personal tax returns.
Despite its reputation for fostering foreign business, Singapore does not grant non-citizens the same incorporation rights as domestic business owners. Foreign entrepreneurs are given less weight by the Accounting and Corporate Regulatory Authority (ACRA), which regulates every commercial organization in the nation.
Plain Sole Proprietorships, Limited Liability Companies, and Partnerships may be established without restriction by citizens. Still, foreign enterprises must go above and beyond that and select between a Subsidiary Company, a Representative Office, and a Branch Office.
- Business Plan: As you go for a Singapore company setup, considering your short- and long-term business strategies is usually a good idea. Your business plan may reduce the sorts of business structures suitable for your corporation. Choose a business form (such as an LLC) that can allow more stakeholders if you intend to grow and attract investors in the future. In addition to the firm becoming a separate legal entity, this also releases the proprietors from any financial liability on a personal level.
Singapore’s different business structures
In Singapore, registered enterprises fall into three categories:
- Subcategories of business structures with different business operations fall under these broad categories. For instance, two Limited Liability Company variations are Public Limited and Private Limited. You can pick between general partnerships, limited partnerships, and limited liability partnerships when it comes to partnerships.
- Due to this, sole proprietorships are Singapore’s most essential and easy-to-understand business structure. Shares, stockholders, and compliance reports are not difficulties. Corporate income itself is not subject to standard business taxes. The Inland Revenue Authority of Singapore instead anticipates that you would submit your personal income tax return along with your business returns.
- This corporate structure does, however, come with a price, and a very high one at that. The company’s legal obligations, such as the losses and debts incurred from your business activities, are required of business owners. The court will collect your personal assets to cover the costs if the firm is sued but doesn’t pay its debts.
- You may want to review the IRAS income tax rate schedule if you believe that paying your business taxes with your personal income is beneficial. You’ll observe that whereas the tax rate on personal income typically ranges from 0% to 22%, the rate on corporate income in Singapore doesn’t go above 17%.
- Sole proprietorships are only recommended for people running low-risk businesses, all things considered. Without a doubt, this organizational form is not suitable for expanding small- to medium-sized firms.
LLC: Limited Liability Company
- Due to the fact that limited liability corporations are available to various shareholders and continuously shield them from the company’s liabilities, they are among the most popular types of business structures in Singapore. The company operates under a different identity from the equity holders. Personal immunity from the company’s losses and obligations is granted this way.
- However, setting up and running these kinds of businesses in Singapore is more complex than running a sole proprietorship. In addition to many other things, you must submit corporate income taxes, decide on administrative matters as a group, and comply with various authorities.
- In Singapore, partnerships function similarly to sole proprietorships but have more than one individual member. Essentially, two or more people join forces, pool their skill sets, and create a successful business. Then, each person becomes a partner and receives a share of the company’s revenues.
- It’s important to note, however, that, unlike LLCs, partnerships do not have a lot of compliance requirements, such as filing business returns and audit reports. A constitution is another thing you won’t require. Although it’s always a good idea to have all the partners sign a legally binding partnership agreement, there is no need for any written documentation to register a firm.
- However, when it comes to corporate responsibilities, partnerships are significantly disadvantageous. These kinds of Singaporean corporations, like sole proprietorships, won’t protect you from the associated liabilities.
- The truth is that each partner is subject to some level of personal guilt due to their business activities. Additionally, any unpaid partnership obligation is ultimately recouped from the members’ personal assets. However, depending on the circumstance, partners are shielded from the malice, wrongdoing, and egregious negligence of one or more members.
Now that the fundamentals of choosing a business structure in Singapore have been disproved, you can compare the attributes to choose the best categories of firms. While you’re doing it, you should be able to determine which Singapore company setup is best for your business. Accordingly, decide the legal business entities and other factors to make it successful.