FAQ ON BUSINESS SET UP
There are a number of alternative structures through which business can be conducted. Choosing the most appropriate structure for your business requires careful thought. Below we overview some of the most commonly asked questions and key matters to be considered.
The operating structure determines a business’s legal, financial reporting, auditing and taxation status. To assist with the future growth and development of the business while meeting the various needs of its owner(s), the operating structure requires careful selection to avoid the need to amend it at a later date that may be difficult and expensive to implement due to legal costs and taxation implications.
Self-employment / Sole Proprietor, Partnership (General and limited partnership), Company.
| Sole – Proprietorship | Partnership | Limited Partnership (LP) | Limited Liability Partnership (LLP) | Company | |
| Legislation | Business Registration Act | Partnership Act | Limited Partnership Act | Limited Partnership Act | Companies Act |
| Definition | A business owned by one person | An association of two or more persons carrying on business in common with a view to profit | A partnership consisting of two or more persons, with at least one general partner and one limited partner | A partnership where the individual partner’s own liability is generally limited | A business form which is a legal entity separate and distinct from its shareholders and directors |
| Owned by | One person / corporation (can be local, foreigner, company) | Generally between 2 and 20 partners. A partnership of more than 20 partners must incorporate as a company under the Companies Act, Chapter 50 (except for professional partnerships) (can be local, foreigner, company | At least 2 partners; one general partner and one limited partner. No maximum limit. (can be local, foreigner, company | At least 2 partners, no maximum limit. (can be local, foreigner, company, another LLP but must have one local manager) | Exempt Private Company –20 members or less and no corporation holds beneficial interest in the company’s shares Private Company – 50 members or less Public Company – can have more than 50 members (can be local, foreigner, company) |
| Legal Status | Not a separate legal entity Owner has unlimited liability Can sue or be sued in individual’s own name Can also be sued in business name Can own property in individual’s name Owner personally liable for debts and losses of business | Not a separate legal entity Partners have unlimited liability Can sue or be sued in firm’s name Cannot own property in firm’s name Partners personally liable for partnership’s debts and losses incurred by other partners | Not a separate legal entity
General partner has unlimited liability
Limited partner has limited liability
Can probably sue or be sued in firm’s name
Cannot own property in firm’s name
General partner personally liable for debts and losses of the LP Limited partner not personally liable for the debts or obligations of LP beyond amount of his agreed contribution |
A separate legal entity from its partners Partners have limited liability Can sue or be sued in LLP’s name Can own property in LLP’s name Partners personally liable for debts and losses resulting from their own wrongful actions Partners not personally liable for debts and losses of LLP incurred by other partners | A separate legal entity from its members and directors Members have limited liability Can sue or be sued in company’s name Can own property in company’s name Members not personally liable for debts and losses of company |
| Registration Requirements | Age 18 years or above. Singapore citizen/ Singapore permanent resident/ EmploymentPass/ DependentPass holder. If owner not resident in Singapore, he must appoint a local manager who is ordinarily resident in Singapore Self-employed persons must top up their Medisave account with the CPF Board before they register a new business name, become a registrant of an existing business name, or renew their business name registration Undischarged bankrupts cannot manage business without court or Official Assignee’s approval | Age 18 years or above. Singapore citizen/ Singapore permanent resident/ EmploymentPass/ DependentPass holder. If owners not resident in Singapore, they must appoint a local manager who is ordinarily resident in Singapore Self-employed persons must top up their Medisave account with the CPF Board before they register a new business name, become a registrant of an existing business name, or renew their business name registration Undischarged bankrupts cannot manage business without court or Official Assignee’s approval | At least one general partner and limited partner. Both can be individuals (at least 18 years old) or body corporate (company or LLP). If all general partners are ordinarily resident outside Singapore, they must appoint a local manager who is ordinarily resident in Singapore Self-employed persons must top up their Medisave account with the CPF Board before they register as a partner of a new LP, become a registered partner of an existing LP, or renew their LP registration Undischarged bankrupts cannot manage business without court or Official Assignee’s approval | At least two partners, who can be individuals (at least 18 years old) or body corporate (company or LLP) At least one manager ordinarily resident in Singapore and at least 18 years old Undischarged bankrupts cannot manage business without court or Official Assignee’s approval | At least one shareholder At least one director ordinarily resident in Singapore, at least 18 years old If a foreigner wishes to act as a local director of the company, he can apply for an EntrePass from the Ministry of Manpower Undischarged bankrupts cannot be a director and cannot manage a company without court or Official Assignee’s approval |
| Formalities and Expenses | Quick and easy to set up Easy to administer and manage Registration cost is minimal Less administrative duties to adhere to Must renew registration annually | Quick and easy to set up Easy to administer and manage Registration cost is minimal Less administrative duties to adhere to Must renew registration annually | Quick and easy to set up Easy to administer and manage Registration cost is minimal Less administrative duties to adhere to Must renew registration annually | Quick and easy to set up Fewer formalities and procedures to comply with than a company Registration cost is relatively minimal and fewer regulatory duties to adhere to than a company No statutory requirement for general meetings, directors, company secretary, share allotments, etc. Only an annual declaration of solvency must be lodged by one of the managers stating whether the LLP is able or not able to pay its debts during the normal course of business One time registration | More costly to set up and maintain More formalities and procedures to comply with Must appoint a company secretary within 6 months of incorporation Must appoint an auditor within 3 months after incorporation unless the company is exempt from audit requirements Annual Returns must be filed Statutory requirements for general meetings, directors, company secretary, share allotments, etc. |
| Statutory Audit Requirement | No requirement for audited report | No requirement for audited report | No requirement for audited report | No requirement for audited report but strongly encouraged | Need audited reports but exemption for private (exempt) companies with turnover of less than S$5 million |
| Filing of financial statements | None | None | None | Annual Declaration of Solvency or Insolvency to be filed by local manager | Yes but exception exists - do not have to file if company is private exempt company |
| Taxes | Profits taxed at owner’s personal income tax rates | Profits taxed at partners’ personal income tax rates | Profits taxed at partners' personal income tax rates (if individual)/ corporate tax rate (if corporation) | Profits taxed at partners’ personal income tax rates (if individual)/ corporate tax rate (if corporation) | Profits taxed at corporate tax rates |
| Any set-up tax exemption (i.e. tax benefit) | No | No | No | No | Yes, for newly set up companies for first 3 years of incorporation The corporate income tax rate is 0% on the first S$100,000 taxable income for each of the first three tax filing years, except for… . 8.5% tax on taxable income of upto S$300K The taxable income above S$300,000 will be charged at tax rate of 17% (conditions apply) |
| Continuity in Law | Exists as long as the owner is alive and desires to continue the business | Exists subject to partnership agreement | Exists subject to partnership agreement If there is no limited partner, the LP registration will be suspended and general partners are deemed registered under the Business Registration Act Once a new limited partner is appointed, the registration of the LP will be restored to “live” and general partners’ registration under the Business Registration Act ceases | The LLP has perpetual succession until wound up or struck off | A company has perpetual succession until wound up or struck off |
| Conversion allowed? | Can be converted to a Company | Can be converted to a Company or LLP | If no limited partner, the LP registration will be suspended and the general partners will be deemed to be registered as a sole-proprietorship or partnership under the Business Registration Act, Cap 32. | New registration of LLP | A company can convert “downwards” to become an LLP |
| Closing the Business | Fast and easier procedure By Owner – Cessation of business Registrar can cancel registration if not renewed or where Registrar is satisfied business is defunct | Fast and easier procedure By the partners – Cessation of business or dissolution of partnership Registrar can cancel registration if not renewed or where Registrar is satisfied business is defunct | By general partner – cessation of business or dissolution of LP Registrar can cancel registration if not renewed or where Registrar is satisfied LP is defunct |
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Partnership
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Company
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First Three Years of Income Tax Filings
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