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Sole Proprietor vs LLP vs Company in Singapore

It is relatively simple for a Singapore resident to set up a business in Singapore. The first consideration is to decide on the right entity that will meet your business needs. The most common three business entities available in Singapore are sole proprietorship, limited liability partnership and private limited company.

3E Accounting can help you incorporate your company within one hour if all required information and documents are in place.

 

Option 1: Private Limited Company

The private limited company is the most popular business entity in Singapore. Unlike business entities such as a sole proprietorship and limited liability partnership, a PLC has a separate legal status from its shareholders and directors, who have limited liabilities for the debts and losses of the company. It usually has the words ‘Pte Ltd’ or ‘Ltd’ as part of its name. In many European countries and the US, it is commonly known as a corporation.
New Singapore start-up companies pay 4.25% tax on the first S$100,000 of chargeable income (profits) for the first three consecutive years. A further 50 percent exemption is given on the next S$100,000 of chargeable income (profits).

 

Option 2: Limited Liability Partnership

A limited liability partnership (LLP) is a perfect blend of a partnership and a private limited company. A LLP gives owners the flexibility of operating as a partnership while having a separate legal identity like a private limited company. This structure is highly suitable for individuals engaged in professional services such as lawyers, architects, accountants and management consultants. Singapore citizens, residents, and Employment Pass holders can register a LLP. Foreign individuals and companies may also register a LLP but must appoint a local manager. The advantage of such a partnership is that this is a low cost company Singapore setup with limited liability protection.

 

Option 3: Sole Proprietorship

A sole proprietorship is the simplest form of business entity. It features only one owner who is the decisive authority and responsible for all assets and liabilities belonging to the business. Singapore citizens, residents and Employment Pass holders may register a sole proprietorship. Foreign individuals and companies may also register a sole proprietorship but must appoint a Singapore resident manager. What’s more, it is a low cost company Singapore setup.

Comparison of Business Forms
The following table compares the three entity types from a number of different perspectives to further assist you in making a decision that’s appropriate to your needs.

The Tax rate for LLP will be higher if your business is making profit as the LLP Taxes are determined at your personal income tax rate (maximum 22%). Besides, New Singapore start-up companies have 75 percent exemption on the first S$100,000 of chargeable income (profits) for the first three consecutive years. A further 50 percent exemption is given on the next S$100,000 of chargeable income (profits). For the potential tax saving from setting up a company, you can refer to tax saving for setup company. In addition, the tax reporting for LLP will be more complicated compared to company as the tax is on individual basis. This may result in higher taxation fee and the LLP can be more costly to maintain for long run compared to Company in certain cases.

Therefore, most businesses will be preferred to set up a private limited company instead of sole proprietor or LLP.

Detailed information about setting up a private limited company can be found in Incorporation FAQ. Please Incorporation FAQ  for the details.

Types of Companies Structure

Sole Proprietorship

Limited Liability Partnership

Private Limited Company

Suitable For Individual with low risk. Professional firms such as accountancy, law and architecture. Businesses with projected growth, which may require additional funding for expansion.
Advantages Low cost
setup.
Low cost setup with limited liability protection. Tax exemptions – first S$100,000 of net profit each year is tax at 4.25% and the next S$100.000 taxed at 8.5 percent for the first three years. More government grants are available for a PLC.
Disadvantages Personal assets not protected. Taxed at the individual level and requires paying a personal income tax rate that is higher than the corporate tax rate. Compliance obligations such as financial reports, AGMs, etc.
Ownership – Singapore Residents- Foreigners  and corporations allowed only with appointment of a local manager – Singapore Residents- Foreigners and corporations allowed only with appointment of a local manager – 100 percent foreign or locally owned. No foreign shareholding restrictions.- Minimum one Singapore resident director required (We can provide you with nominee services).
Separate Legal Entity No Yes Yes
Cap on Number of Members One Unlimited Maximum 20 for exempt companies
Minimum Setup Requirement One owner Two partners One shareholder and one director (the same individual can be both)
Limited Liability No Yes. The partners of a LLP will not be held personally liable for any business debts incurred by the LLP. However a partner may be held personally liable for claims from losses resulting from his own wrongful act or omission. But a partner shall not be personally liable for such wrongful acts or omissions of any other partner of the LLP. Yes
Audit of Accounts No No The Company will enjoy audit exemption if it is fulfilled the small company requirement.
Tax Treatment Taxed at personal income tax rate (max is 22 percent) Taxed at personal income tax rate (max is 22 percent) Taxed at corporate income tax rate (max is 17 percent)
Cessation of Business upon Death of a Member/Partner Yes Yes No. Equity shares go on in perpetuity.
Annual Compliance cost Bookkeeping, Taxation service is required. Bookkeeping, Taxation service is required. LLP is required to submit Form P to IRAS on annual basis. Each partners are required to report their LLP income or loss in their Form B as well. Bookkeeping, Taxation service is required. In addition, you will need the secretarial services and prepare a set of unaudited financial statement which will cost you extra of $535 for each service. However, you will enjoy higher tax exemption and more government grant. For example, in Year of Assessment (YA) 2012, companies will receive a one-off, non-taxable SME cash grant of S$5,000. This cash grant is given to help companies offset the high costs which may persist in a business slowdown and is large enough to cover your annual compliance costs.

Sole Proprietor