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 zero 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$200,000 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.
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. 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.
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 most preferred and recommended option is to set up a private limited company. 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
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.|
|Low cost setup with limited liability protection.||Tax exemptions – first S$100,000 of net profit each year is tax-free and the next S$200.000 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 20 percent)||Taxed at personal income tax rate (max is 20percent)||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||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.|