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Type of Business Structures in Singapore

Making the right choice of business structure is one of the crucial steps when incorporating a company in Singapore. For one, this decision will have an impact on how much you pay in taxes (taxes payable). For another, it will affect the amount of paperwork your business is required to do (incorporation procedures), the personal liability you face, and your ability to raise money (financing).

Generally speaking, you can decide the type of business entity of your business based on three factors: liability, taxation, and record-keeping. Let us have a quick look at the differences between the most common forms of business entities:

  1. Partnership

    As the name implies, a partnership does not exist without its partners. The partnership ends upon death, retirement, or insolvency. In Singapore, there are three types of partnership structures:

    • Limited Liability Partnership (LLP)
      Introduced in 2005, the LLP is the most recent and most advanced business structure in Singapore as it is a combination of the features of partnerships and companies. An LLP allows owners to have the flexibility of operating as a partnership together with many benefits similar to those found in a private limited company. Furthermore, an LLP must have a minimum of two partners at all times and it is not suitable for business with trading activities.
    • Limited Partnership
      Unlike the LLP, an LP is registered under the Limited Partnerships Act and it does not have a legal personality separate from its partners. In other words, it cannot sue (or be sued) and does not have the right to own property in its own name. A LP consists of at least one general partners and one or more limited partners. General partners are fully liable with their personal assets and can participate in the management of the LP. Limited partners, on the other hand, are only liable up to the amount they have contributed and do not have the power to bind the LP.
    • Sole Proprietorship
      Under this type of business structure, the business partners are personally liable for the business liabilities and debts. In other words, the partners share responsibility as one is held accountable for the actions of a fellow partner.

    You may see more details comparison at Sole Proprietor vs LLP vs Company

  2. Foreign Companies

    In Singapore, foreign companies can have the option to register either a subsidiary, or a branch office, or a representative office.

    • Representative Office
      Precisely speaking, a Representative Office is not a business entity per see but an administrative arrangement of a foreign company. It is primarily set up for non-commercial activities – a Representative Office cannot perform any profit yielding activities.
    • Branch
      A branch office is registered in Singapore as an extension of its parent company and not as a separately incorporated entity. The liabilities of a branch office extend to its parent company.
    • Subsidiary Company
      In Singapore, a subsidiary has a distinct legal identity than the parent foreign company and is treated as a local tax-resident. The parent company, local or overseas-based, owns more than 50 percent of the voting stock. The parent company’s liabilities are limited and its assets always remain protected. The subsidiary can have their own corporate bank accounts, operating capital and they can own assets.

    You may see more details comparison at Foreign Company Setup Option in Singapore

Picking the right business entity will not only allow an entrepreneur to reduce liability exposure minimize taxes, it also ensures that the business can be financed and run efficiently. In other words, the right business structure offers the right mechanism to business owners about how the business operations will continue and it clarifies the ownership of all participants in the venture. If you are unsure which business structure suits your business idea, contact us today – we can help you to sort out the right business entity in Singapore!