Different Types of Businesses in Singapore

Do you have a business idea to start your company? In Singapore, most companies and businesses have to be registered with the Accounting and Corporate Regulatory Authority of Singapore (ACRA) in order to legally operate. During the registration, there are a few different types of companies that you can choose from. It is important to choose the company type that suits you. Let us share with you the benefits and differences between the different types of companies in Singapore. 

Different Types of Business types in Singapore

In Singapore, there are 3 main types of company/business entities that you can register your company – Sole Proprietorship, a Private Limited Company or a Limited Liability Partnership.

1. Sole Proprietorship

A sole proprietorship is the least complicated form of company to start in Singapore.

A sole proprietorship is a company that can be owned and controlled by an individual, a company or a limited liability partnership. There are no partners in the company. Instead, all the parties involved in setting up and running the company are considered as owners with equal responsibility to the company.

Under a sole proprietorship, the company is not considered as a separate legal entity. This means that the owners of the company are responsible for all financial and criminal liability of the company. Any breach of the law (criminal liability) or debts incurred by the company (financial liability) will be penalized on the owners, who will take full responsibility for the offences.

The legal status of a sole proprietorship can be defined as follows:

• It is not a separate legal entity from the business owner
• The business owner has unlimited liability (i.e. the business owner is personally liable for all the debts and losses of the sole proprietorship)
• It can only sue or be sued in the owner’s name

While there can be multiple owners in a sole proprietorship, the owners will all share equal responsibility in the company, regardless of their contribution to the company. There are no shareholders and directors in the company, only owners with equal responsibility. 

Sole proprietorship companies need not prepare financial reports or submit annual filings to ACRA. Instead, sole proprietors have to renew their business licenses every 1 – 3 years.

 

2. Private Limited Company (Pte. Ltd.)

A Private Limited (Pte. Ltd.) Company is a company entity that can be owned by multiple individuals or another company.

In order to register a Pte. Ltd. Company in Singapore, there are a few requirements that have to be fulfilled:

• Minimum 1 Shareholder, Maximum 50 shareholders
• Minimum 1 Company Secretary
• Minimum 1 Local Director (Singaporean/Permanent Resident)
• Usually Minimum paid-up capital of $1 with Minimum 1 Share
• Company must have a Singapore registered office address
• Desirable Company Name (Must Be Approved by ACRA)

To learn more about the requirements for registering a Private Limited Company in Singapore, see: Detail Requirements for Registering a Pte. Ltd. Company

In a Private Limited Company, owners, who are the shareholders of the company, can choose to base their shares on the amount of investment or paid-up capital that each shareholders contribute to the company. This means that they will have different amount of responsibility and ownership of the company, depending on their percentage of shares in the company.

A private limited company is recognized as a separate legal entity in Singapore. This means that unlike a sole proprietorship, the financial liabilities of the company will not fall under the responsibility of the shareholders. This means that all debts and losses of the company will be the responsibility of the company itself and not the shareholders. 

However, the shareholders and directors will still be held responsible for the criminal liability of the company.

A private limited company will have to prepare annual financial report and hold Annual General Meetings annually for the directors to report to the shareholders on the status of the company. The Annual Returns will need to be filed to ACRA yearly or the company will risk being penalized or get struck-off by ACRA. For more information on the annual filings required for private limited company, see: Company Filings here. 

 

3. Limited Liability Partnership (LLP)

Limited liability Partnership (LLP) company can be owned by multiple partners. It is a separate legal entity from the partners who own it.

Therefore, an LLP is capable of:

• Suing and being sued in its name;
• Acquiring and holding property in its name;
• Having a common seal in its name and
• Doing such other acts and things in its name, as bodies corporate may lawfully do and suffer.

Instead of having equal responsibilities among the partners, in an LLP, partners will need to draft up a special and specific agreement for their partnership. Normally, the partnership agreement is drawn up by a lawyer.

The agreement will determine the different responsibilities that the partners will have in the LLP. For example, a partner may, however, be held personally liable for claims from losses resulting from his own wrongful act or omission, but will not be held personally liable for such wrongful acts or omissions of any other partner of the LLP. This is different from a sole proprietorship, where the owners will be held equally liable.

Although an LLP is not required to file annual returns to ACRA, an LLP is required to keep accounting records, profit and loss accounts and balance sheets that will sufficiently explain the transactions and financial position of the LLP. In addition, the LLP must submit to the an annual declaration of solvency or insolvency (i.e. being able or unable to pay its debts respectively) which will be made available to the public.

 

Key Differences between the different business types

1. Number of Owners

A sole proprietorship is run by only one business owner.

A limited liability partnership is run by a minimum of 2 partners and there is no maximum limit to the number of partners in the business.

In a private limited (Pte. Ltd.) company structure, the owners of the company are known as shareholders. There can be up to 50 shareholders in a pte. ltd. company. Once a private company has more than 50 members, it will have to be listed as a public company as well.

2. Legal Liability

Private Limited (Pte. Ltd.) Companies and LLPs are business structures in which businesses and their owner(s) are considered separate legal entities. If your business is a separate legal entity, this means that the law regards it as a separate “person” from its owner(s). Your business will also have limited liability, whereby the financial liabilities of the company will not fall under the responsibility of the shareholders or partners. This means that all debts and losses of the company will be the responsibility of the company itself and not the shareholders or partners involved. However, the criminal and legal liability of the company will still fall under the responsibility of the shareholders or partners involved in the company.

Apart from the capability of suing and being sued in its own name, your company will also be able to own property in its own name.

Unlike private limited companies and LLPs, sole proprietorships are business structures in which the business and its owner(s) are considered a single legal entity. Hence, the individual business owner or partners have unlimited liability and are personally liable for the business’ debts and any other legal action taken against the business.

3. Legal Formalities and Expenses

Private Limited companies are subjected to more legal formalities and procedures compared to the other 2 business types.

For private limited companies, they are required to prepare their annual financial report of the company, hold their annual general meeting and also to file their annual returns to ACRA.

Sole-proprietors and limited liability partnerships on the other hand, merely have to renew their business registration annually and declare income tax based on the owners’ personal income tax rates. It is not necessary for businesses with these business types to prepare any financial report or to file annual returns to ACRA.

Read more about annual filings here.

4. Ownership and Profit Sharing

For private limited (pte. ltd.) companies, they are owned by shareholders who then appoint directors to manage the company. The directors are answerable to the shareholders for the company’s performance, and whether the company is making a profit. Profit very much depends on the performance of the company as managed by the directors. It will be split among the shareholders depending on the number of shares each shareholder holds.

On the other hand, limited liability partnerships are managed by the partners depending on their agreement, while in a sole proprietorship, the sole proprietorship has absolute control over the business. Profit depends on the performance of the owner(s) in the company and how they run the business. Profits are shared by the partners in the case of a partnership, and for a sole proprietorship, all profits go straight to the sole proprietor.

5. Business Succession and Ownership Transferability

Only Private Limited (Pte. Ltd.) companies and Limited Liability Partnerships (LLPs) have perpetual succession. In other words, they will continue to exist even if all their owners and/or controllers die, until they are wound up or struck off the register. This ensures that business operations may continue as per normal even if an owner or controller suddenly dies. The ownership of the company is transferrable from one owner to another.

Sole-proprietorships do not have perpetual succession. They will cease to exist upon the death of the business owner(s). In other words, the business “dies” together with its owner(s). The transfer of ownership is not as fluid as Pte. Ltd. Company and LLPs.

 

 

Need more advice before you start your company?
Contact Us Now or Book an Appointment for a free consultation now! 

Tel: +65 6336 9911
Whatsapp: +65 9869 5512
Email: helpdesk@lionsworld.com.sg
Visit us: 111 North Bridge Road #21-01 Singapore 179098