If you’re looking to start a business in Singapore, you may be wondering what is the best business structure to use. The legal structure is an important consideration that can affect the level of personal liability, tax rates, credibility in the market, as well as ability to expand and raise money. This is LOL’s guide to the various business structures in Singapore and the considerations for each.
Limited Liability Company (LLC)
LLCs are a separate legal entity and come with limited liability. An LLC can be private or public and in Singapore there are three main types of LLCs:
1. Private Limited Company can only have a maximum of 50 shareholders and cannot issue shares to the general public. Most popular way to structure a business for privately incorporated businesses in Singapore. It is the most flexible and scalable of all the legal structures. Its key benefits are:
- Separate legal entity that can enter into contracts on its own name, can own assets, can sue or be sued
- Limited liability for shareholders; Each shareholders liability is limited to the amount of share capital subscribed
- Company can live on even if shareholders resign, pass away or become bankrupt and ownership can be easily transferred
- Structure makes it easier to raise capital from existing or new shareholders and creates a better image
- Company can take advantage of the tax benefits available to a private limited company in Singapore
2. Public Company Limited by Shares needs to have at least 50 shareholders and can issue shares or debentures to the general public to raise capital. These companies must register their prospectus with the Monetary Authority of Singapore (MAS) before making any public offers and are subject to more stringent rules and regulations. Primarily, large business use this structure.
3. Public Company Limited by Guarantee is a special type of structure that is primarily meant for non-profit entities working towards the public good. In this structure, there are no shares and each member’s liability is limited to the amount that the member undertakes to contribute in the event of a wind up.
This is not a separate legal entity. The business owner personally owns all the assets and liabilities of the business and takes on unlimited liability. This means that if the business cannot pay off all its liabilities the business owner will be personally responsible for all the debts and losses and creditors can come after the owner’s assets. It has a limited scope for future expansion. This business structure is simple but risky.
This is generally not a separate legal entity but allows two or more people to co-own a business. A partnership comes to an end with the death, insolvency, incapacity or retirement of a partner or at any time on notice of dissolution from a partner. There are three types of partnerships in Singapore:
1. General partnership – there is personal liability wherein each partner can be held responsible for another
2. Limited partnership – has general partners and limited partners. Limited partners’ liability is limited to their investment in the partnership however they are unable to participate in the management of the business. General partners are responsible for the acts of the limited partners.
3. Limited liability partnership – more recent structure that combines features of partnerships and companies. It provides a separate legal entity and limits liabilities of partners. This structure is suited for fields where two or more professionals build a joint practice (eg accountants, lawyers) and is not ideal for other businesses. It requires detailed complicated agreements on how profits and managements responsibilities are divided which are usually is drawn up by a lawyer. Also, an LLP must have at least two partners at all times.
Options for Foreign Companies
In addition, for Foreign Companies looking to set up presence in Singapore, there are three specific structures to consider:
1. Subsidiary in the form of a Private Limited Company with the foreign parent as the shareholder. This provides a separate legal entity that can also avail all the benefits of a private limited company.
2. Branch office which serves as an extension of the parent. A branch office does not have a separate legal identity and the liabilities of the branch extend to the parent.
3. Representative office which serves as a temporary arrangement for market research activities. A representative office is not a separate legal entity and it cannot engage in activities that generate profit.
Please contact us if you require any assistance in determining the appropriate legal structure for you or assistance in setting up your business structure.