One of the key things to decide when initiating a business in Singapore is the right entity or a form that your business will take. The three most common business bodies available in Singapore are Private Limited Companies, Sole Proprietorship, and LLP (Limited Liability Partnership). It is relatively simple to start a business in Singapore if you are already a resident but understanding these business structures and their differences is very essential.

In this article, we have gathered details on business entities currently dominating the business world in Singapore. Below you will find a comparison of Sole Proprietorship Vs Private Limited Company Vs LLP.

Sole Proprietorship

A sole proprietorship is the simplest form of business structure in Singapore. It features a sole proprietor, a person who solely owns the businesses. A sole proprietor earns a living by doing business, carrying on a trade, or managing a vocation. A self-employed person does not report to a boss. Moreover, the revenue they generate is not considered a salary but a profit.

Singapore residents, citizens, and Employment Pass holders can register a sole proprietorship. Companies and foreign businessmen may also register a sole proprietorship, but they must hire a Singaporean manager. What’s more? It is an efficient, low-cost business setup.

Characteristics of Sole Proprietorship

• Owned by one person.
• A sole proprietorship does not come under the heading of “legal entity.”
• Taxes apply to profits at personal income tax rates.

Private Limited Company

Among all types of companies in Singapore, private limited entities are the most popular business bodies. Unlike other business bodies in Singapore such as LLP or sole proprietorship, a Private limited company has a proper and separate legal status from its directors and stakeholders, who have limited liabilities for the losses and the debts of the business. This entity usually has the word “Pte Ltd” as an extension of its name. Many European countries and the US know this business structure as a “corporation.”

Start-up companies in Singapore pay over 4.25% tax on the first $100,000 of indictable income or profit for the first three successive years. An exemption of a further 50% is paid on the next $100,000 of indicatable, profited income.

Characteristics of Pte Ltd Company

• Profits are shared between stakeholders as dividends.
• Pte Ltd companies can raise money through the share issue or by borrowing.
• A Pte Ltd company must be registered with a registrar.

LLP (Limited Liability Partnership)

A Limited Liability Partnership (LLP) is a perfect mixture of a private limited company and a partnership. An LLP business structure gives the owner the flexibility of running the business on a partnership while retaining separate legal characteristics like a Private Limited company. This entity is highly appropriate for individuals working in professional services such as architects, lawyers, management consultants, and accountants.

Who can register for an LLP? Singapore citizens, Employment Pass Holder, and residents can easily apply for an LLP. But Employment Pass holders are needed to appoint a local manager for their business. The biggest advantage of this business model is that it is a low-cost partnership with limited liabilities.

Characteristics of LLP

• It is a separate legal entity.
• Partners can be corporate entities or individuals.
• There is no maximum limit for partners, but a minimum of two partners is required.
• At least one manager is required who is a citizen of Singapore.

Comparison between Business Structures—Sole Proprietorship Vs LLP Vs Pte Ltd Company

Legal Identity and Liability

A Sole proprietorship is owned by a single person and has no separate legal identity. The sole proprietor is personally liable for losses and debts of the company.

On the other hand, an LLP is a legal entity separate from its directors and stakeholders. It is a limited liability setup, where business obligations remain within the entity, shielding the members via limited liability provision.

A private limited company is also a separate legal entity that is independent of its directors and stakeholders. In this case, shareholders bear no liability for the company’s debts and losses. The liability of a shareholder is only restricted to the investment in the business.

Ease of Expansion

Your capital is the main component of your business’s growth and expansion.

As a sole proprietor, it is very difficult to raise capital through investment or capital loans. Thus, capital remains limited to your personal finances and the revenue generated by your company. Therefore, business expansion in a sole proprietorship is very difficult.

Generally, LLPs also go through difficulties when raising external capital, which often depends on their partners’ aids.

As a private limited company, you have the advantage of raising capital by adding venture funds, equity partners, business financing, etc. Banks also prefer to lend money to Private Limited companies over sole proprietorships or LLP setups.

Taxation

For sole proprietors, all business profits are seen as personal income for the business owner. Therefore, sole proprietorship setups are taxed at the personal income level at the personal income tax rate.

Similarly, for LLPs, profits generated from the business are regarded as part of each partners’ personal income and are also taxed at a personal income tax rate.

Private Limited companies in Singapore, however, are taxed at a business level at the corporate tax rate. A Pte Ltd company enjoys various tax-related perks and exemptions.

Public Perception

The perception of your business among your bankers, employees, vendors, and customers can significantly change the meaning of your business. Sole proprietorship structure is the least preferred type of model for serious business according to public perception. LLPs have a moderate public perception, while a Private Limited Company is regarded as serious, credible, and a good business model with stature.

Transfer of Ownership

An LLP or a sole proprietorship cannot be sold as a whole. Instead, the license, permits, and assets are individually transferred.

Whereas, a private limited setup can easily transfer full or partial ownership of the company, that too without disrupting the working operations of the business.

Dissolution

Eradicating a sole proprietorship is relatively easier than terminating a private limited company or an LLP. You can terminate a sole proprietorship by issuing a notice of termination to registration authorities, followed by the notice of cessation.

However, terminating a private limited company or an LLP is a lot trickier. You can either opt to wind up or strike off your operation. In either case, the eradication process can take up to 4-12 months, depending on the complications involved.

What Is the Right Option to Choose?

Out of all three business structures, a private limited company is the best option for aspiring entrepreneurs hoping to start a business in Singapore. You enjoy special tax exemptions, your assets are sheltered from business liabilities, and you have a flexible and expandable business model.

Due to all these bonuses, most businesses prefer to set up a private limited company in Singapore over a sole proprietorship or an LLP.

If you want assistance setting up a business in Singapore, consult Mi2U Business Support today! The service helps business owners comply with regulations and provides support in various business-related tasks such as GST registration, tax filing, accounting, and more.