Singapore LLC (commonly known as Private Limited Company or PLC) vs LLP vs Sole Proprietorship

This guide is a continuation of the topic on various types of business structures in Singapore. The previous guide titled types of business entities in Singapore provided a detailed overview of each of the three main types of entities: limited liability company (LLC), sole proprietorship, and limited liability partnership (LLP). It was also noted that the most preferred and recommended option is to set up a LLC. Detailed information about setting up a LLC can be found in Singapore LLC formation guide.

This guide provides a comparison of Limited Liability Company, Sole Proprietorship, and Limited Liability Partnership entity types to assist you in choosing the most appropriate business structure for your needs.

Legal Identity

Sole Proprietorship in Singapore is not an incorporated entity and therefore has no separate legal identity. In the eyes of the law and the public, you as the owner and your sole proprietorship business are one and the same. As a result, you have complete control over the business and its operations BUT you are personally responsible for all debts and legal actions against the business.

A Singapore LLC and LLP have its own legal identity, separate from its shareholders (who own the company) and its directors (who manage the company). What this essentially implies is that:

  • The entity can incur and receive obligations and hold property in its own name, enter into contracts with its members, directors, employees and with third parties.
  • The entity  can sue and be sued in its own name
  • The entity  continues unchanged even if the identity of its participants changes.
  • The entity  can enter into legal relationships with its members or directors.

 

Sole Proprietorship LLP, LLC
No separate legal identity Separate legal entity

Business Liability

Since a sole proprietorship does not have a separate legal entity, the owner has unlimited liability. In other words, creditors may sue you for debts incurred and can also obtain a court order to claim against your personal assets, including your property. There is no protection offered for your personal assets.

Since LLPs and LLCs in Singapore are setup as limited liability legal entities, their business obligations remain within the entity itself and thus shield their members (partners and shareholders respectively) via the provision of limited liability. Essentially it means that your exposure is limited to the amount you have invested in the entity and your personal assets are protected.

Sole Proprietorship LLP LLC
Unlimited liability – Owner are personally accountable for debts and losses Limited Liability – Each limited partner’s liability is limited to his investment in the LLP. Limited Liability – Each shareholder’s  liability is limited to his investment in the company.

Perpetuity and Succession

As a sole proprietor, you and your business are inseparable. Your business has no perpetuity and comes to a standstill with your retirement or demise. LLPs and LLCs on the other hand have a continued existence irrespective of the status of its partners or directors and shareholders. Members’ resignation or death does not normally affect the continued existence of the LLP or LLC.

Sole Proprietorship LLP, LLC
Lacks perpetual succession Enduring structure beyond members’ death or retirement.

Ease of Expansion

Central to the growth and expansion of your business is capital.

As a sole proprietor, it’s quite difficult to raise external capital through loans or investment in your business. Capital is limited to your personal finances and the profits generated by the business. To secure loans from banks and lending institutions, you must be prepared to put up your personal assets as collateral. Thus, business expansion is difficult and many sole proprietorships never really take off. Also, in a sole proprietorship, there can only be one owner which means you have no way of adding another partner to your business setup.

Generally, LLPs also face the difficulty of raising external capital, which is often limited to its partners’ contributions.

As a private limited company setup, you can take advantage of the ability to raise capital by means of adding equity partners, venture funds, business financing, etc. Investors are more likely to invest in a company where there is a formal separation between personal and business assets. In general, banks prefer to lend money to companies than sole proprietorships or LLPs.

Sole Proprietorship, LLP LLC
Difficult to raise capital. Limited to private finances and partners’ contributions. Easier to raise capital.

Taxation

Sole proprietorships and LLPs in Singapore are not taxed at the business level but at the personal income level of the owners. For sole proprietors, all business profits are considered as personal income for the owner and therefore taxed as part of the personal income at the personal income tax rate. Similarly for LLPs, profits are distributed among partners as per the partnership agreement and treated as part of each partners’ personal income and are taxed at personal income tax rates.

Private Limited companies in Singapore are taxed at the corporate tax rate and get to enjoy various tax exemptions available for companies. The effective corporate tax rate for LLCs for profits up to SGD 300,000 is below 9% and capped at 17% for profits above SGD 300,000. Furthermore, for the first three years of company incorporation, there is zero tax on the first S$100,000 of profits each year. 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.

Taxable Income Approx. tax you will pay as sole prop or LLP (S$) Approx. tax you will pay as  LLC (S$)
100,000 7000 0
300,000 40,000 17,000
600,000 98,000 70,000


Note: The above calculations are for rough estimation purposes only. The tax calculation for LLC above includes full-tax exemption available to new companies.

Transfer of Ownership

A sole proprietorship or LLP, cannot be sold as whole. Instead, you will have to individually transfer each of the assets, licenses and permits.

On the other hand, full or partial ownership of a company can be easily transferred without disrupting operations through the sale of stock.

Sole Proprietorship, LLP LLC
Difficult to transfer ownership of business Easy to transfer partial or full ownership of the company.

Ongoing Maintenance

Sole proprietorships are the easiest and least expensive form of business to set up and maintain in  Singapore. Government fee for sole proprietorship registration is S$65 and the paperwork is minimal. There are no ongoing filing requirements except the annual renewal of the sole proprietorship.

LLP registration is more complex than a sole proprietorship but less complex than a private limited company. The Singapore government registration fee is S$165 plus you will likely need professional help in drafting a partnership agreement. In terms of annual compliance requirements, a LLP must submit an annual declaration of solvency or insolvency to authorities. There are no other documents to be filed.

LLC registration
is a little more complex than the above two entities and the government registration fee is S$315. Also, annual filing requirements are more complex such as the need to file annual accounts, tax return, holding Annual General Meeting, etc. You are well advised to hire a professional firm (corporate secretarial, accounting, or a law firm) to handle the initial company setup as well as ongoing compliance requirements of the company. In other words, the flexibility, power, and advantages of  a private limited company come at a certain price.

Sole Proprietorship LLP PTE LTD
Minimum setup/compliance costs and paperwork. Moderate setup/compliance costs and paperwork. More complex setup/compliance costs and paperwork.

Public Perception

The perception about your business among your vendors, employees, bankers and customers can significantly alter the destiny of your business. Sole proprietorship entity is the least preferred type of setup for serious business from a public perception point of view whereas a company has the most powerful perception. A private limited company structure communicates seriousness, credibility and stature.

Sole Proprietorship LLP PTE LTD
Low public perception Moderate public image Highest credibility and strong public perception

Dissolution

Terminating a sole proprietorship is easier than terminating an LLP or a private limited company. For a sole proprietorship, the procedure calls for issuing a notice of termination followed by a notice of cessation to registration authorities. However terminating an LLP or a LLC is more complex. You can either choose to strike off or wind up your operations. Although striking off is less complex, there are certain statutory requirements that need to be fulfilled before you can follow the strike-off route. The termination process, in either case, can take anywhere between 3-12 months, depending on the complexities involved.

Which Option to Choose?

Of all the three entities, setting up a private limited Singapore company is the best choice for inspiring entrepreneurs. Your personal assets are protected from business liabilities, you enjoy special tax incentives from the government, and you have a structure that allows you to grow big. For details on setting up a private limited company, refer to Singapore Company Registration guide.

Talk to the experts in Singapore businesses

Hawksford helps entrepreneurs and international businesses set up in Singapore.

Find out more

Singapore company formation made easy

Hawksford's experienced and professional staff will be able to guide you through moving or setting-up your business in Singapore.

With our expertise, we can assist you in setting-up your business structure right the first time.

Reach out to Hawksford today

Back to top