Types of Business Entities in Singapore

A private limited company is a LLC in which the shares are held by less than 50 persons and are not available to general public. Most privately incorporated businesses in Singapore are registered as private limited companies. A private limited company’s name in Singapore usually ends with Private Limited or Pte Ltd. For example, our company, Hawksford Singapore Pte Ltd, is incorporated as a private limited company. The shareholders of a private limited company can either be individuals or corporate entities or both.

A private limited company is the most advanced, flexible, and scalable type of business form in Singapore. It’s also the most preferred type of Singapore business entity for serious entrepreneurs (as opposed to sole proprietorship or limited liability partnership). For more detailed information about private limited companies, refer to Singapore company registration guide.

Why entrepreneurs prefer Private Limited Company

• Separate legal entity: A private limited company has its own legal identity, separate from its shareholders and its directors. It can acquire assets, go into debt, enter into contracts, sue or be sued in its own name.
• Limited liability: The liability of the members to contribute to the debts of the company is limited to the amount that they each agreed to contribute as capital to the company.
• Perpetual succession: The company’s existence does not depend on the continued membership of any of its members. Ease of transfer of shares or changes in shareholders ensures that company continues to exist even in the event of death, resignation, or insolvency of shareholders or directors.
• Ease of raising capital: You can raise capital for expansion or other purposes by bringing in new shareholders or issuing more shares to existing shareholders. Investors are more likely to purchase shares in a company where there usually is a separation between personal and business assets. Also, most banks prefer to lend money to limited companies.
• Credible image: As an incorporated business entity, it commands a better image than a sole proprietorship or a partnership firm, and investors will be more willing to become part of the company as it demonstrates a vision to grow and expand. As a private limited company, your business will be taken more seriously by potential clients, suppliers, bankers, and other professionals you will be dealing with.
• Ease of transfer of ownership: Ownership of a company may be transferred, either wholly or partially, without disrupting operations or the need for complex legal documentation. This can be done through the selling of all or part of its total shares, or through the issue of new shares to additional investors.
• Tax benefits and incentives: A Singapore private limited company is a very efficient tax entity. The effective corporate tax rate for Singapore companies for profits up to SGD 300,000 is below 9% and capped at 17% for profits above SGD 300,000. Furthermore, there is no capital gains tax. Singapore follows a single-tier tax policy which means once the income has been taxed at the corporate level, dividends can be distributed to shareholders tax free.

A public limited company is a LLC that may offer shares to the general public. A public limited company must have at least 50 shareholders and is subject to significantly more stringent rules and regulations since they have the power to raise funds from the public. A public limited company is usually listed on a stock exchange. Public limited companies are outside the scope of this article as they are meant for large businesses.

A public company limited by guarantee is a type of business entity meant for non-profit purposes. For more information, refer to setting up a non-profit entity in Singapore.

A general partnership is formed by a minimum of 2 persons and maximum of 20 persons. Partners pay their taxes as personal income tax, based on their share of income from the partnership.

 A general partnership is not a very attractive way to structure a business in Singapore due to the following reasons:

• Similar to a sole proprietorship, partners are personally liable for the debts and liabilities of the business.
• Each partner can be held responsible for the actions of another partner.

Limited partnership is an alternative to the general partnership type of business form in Singapore. It introduces the concept of a limited partner in addition to a general partner. The liabilities of limited partners are limited to their investment in the partnership (capital or property). However, limited partners are unable to participate in the management of the business. In a nutshell, even a limited partnership in Singapore is not a very attractive vehicle for setting up a business for most people.

Among the three types of partnership business entities, LLP is the most recent and most advanced business incorporation structure. It combines the features of partnerships and companies. LLP was introduced in Singapore in 2005 through enactment of Limited Liability Partnership Act. Registering an LLP gives owners the flexibility of operating as a partnership while enjoying many of the benefits that come with a corporate body like a private limited company. It is important to note, however, that a LLP must have at least two partners at all times.

A LLP is primarily meant for carrying a profession (e.g. accountants, law firms, architects, etc.) where two or more professionals would like to build a joint practice in a common field, and is not suited for businesses that carry a trade. The owners must enter into detailed agreements about how the profits and management responsibilities are divided. It can get very complicated and generally requires the services of a lawyer to draw up the agreement. Partners in a limited liability partnership are  usually responsible for cultivating their own clients based on the partner’s specific area of focus.

Refer to our guide on Singapore LLP registration for more information.