Limited Liability Companies (LLC)
A Limited Liability Company (LLC) is one of the types of companies in Singapore where its liabilities are limited to the amount of share capital. As stated in the Singapore Companies Act, LLCs have legal personality, meaning they are independent legal entities separate from their members. This delineation ensures the owners’ liabilities are confined to the company’s assets, saving their personal assets from any risks. Here, we list the various types of companies in Singapore that are LLCs:
Private Limited Company (Pte Ltd)
Private Limited Company Singapore is an LLC where shares are owned by fewer than 50 individuals and aren’t available to the general public. The shareholders in these companies can include both individuals and corporate bodies. Notably, the majority of privately incorporated businesses in Singapore operate under this structure.
Why entrepreneurs prefer Private Limited Companies?
Private Limited Companies offer a flexible and scalable business structure compared to other business structures in Singapore such as sole proprietorships or limited liability partnerships. Let’s delve into why most entrepreneurs find the Private Limited Company structure appealing:
A private limited company possesses an independent legal identity, separate from its directors and shareholders.
In the event of liability arising from the business, the liability of members is capped to the amount that each party agrees to contribute (share capital) to the company.
This refers to the ongoing existence of the company, irrespective of changes in its membership. With the procedural ease of changing shareholders and transferring shares, the company continues uninterrupted, even amidst changes such as resignation, death, or insolvency of directors or shareholders.
Ease of raising capital
Private Limited Companies are the favored entity for raising capital to fund expansion and working capital. By issuing shares to new or existing shareholders, they demonstrate a clear separation between personal and business assets, which attracts investors. Banks are also more inclined to lend money to private limited companies.
As an incorporated business body, private limited companies are viewed with more legitimacy than sole proprietorships or partnership firms, and as a result, investors are more willing to invest in a company as it projects a clear vision of growth and expansion. As a whole, private limited companies are taken more seriously by potential clients, professionals, suppliers, and bankers amongst other entities that businesses interact with.
Ease of Ownership transfer
Ownership in a Limited Liability Company Singapore can be transferred without disrupting operations or requiring complicated legal documentation. This transfer is done through the sale of shares, either wholly or partially.
Tax Incentives and Benefits
Private limited companies are highly efficient tax entities. The corporate tax applicable for profits up to S$300,000 is below 9% and capped at 17% for profits above this threshold. There is no capital gains tax in Singapore. In addition, Singapore follows a single-tier tax policy, which means that once a company’s income has been subject to tax at the corporate tier, dividends can be distributed to shareholders tax-free.
Public Limited Company
A Public Limited Company is a type of Limited Liability Company in Singapore that can offer its shares to the general public. This particular type of company in Singapore must have a minimum of 50 shareholders and adhere to stricter rules and regulations due to their ability to raise funds from the public. These companies are typically large corporations and are often listed on a stock exchange.
Public Limited Company Limited by Guarantee
This variant of public limited companies is one of the types of companies in Singapore meant for non-profit organizations.
Though it’s the simplest among the types of companies in Singapore, sole proprietorships are not separate legal entities. This makes them the riskiest business structures. Here, the owner and the business are inseparable legally. The owner personally owns all assets and all liabilities of the business, exposing them to unlimited liability. Creditors can sue the owner and reach personal assets to cover the sole proprietorship’s liabilities, posing enormous financial risks.
The partnership is another type of company in Singapore that offers a solution to the limited expansion of sole proprietorships by allowing two or more individuals to establish and co-own a business. Unfortunately, like sole proprietorships, partnerships do not have independent legal existence, meaning events such as death, insolvency, incapacity, or the retirement of a partner could end the partnership. While not recommended for most entrepreneurs, it could suit certain situations. Singaporean partnerships come in three types:
Generally, general partnerships are not advisable since each partner is personally exposed to the partnership’s liabilities. Each partner’s actions can implicate the others.
This business structure in Singapore can be a better choice than general partnerships. It includes one general partner and one limited partner, whose liabilities are limited to their business investments. However, limited partners can’t take on managerial roles.
Limited Liability Partnership (LLP)
The most sophisticated and recent model among the three types of partnerships, LLPs combine the characteristics of partnerships and private limited company Singapore establishes under the Limited Liability Partnership Act 2005. LLPs provide owners with the flexibility of running a partnership and the benefits of a private limited company Singapore.
LLPs are suitable for professional firms like accounting firms, law firms, and architecture firms, where two or more professionals are looking to establish a joint practice.
It’s advisable for the partners to draft written agreements detailing the division of profits and managerial responsibilities. Since this process is not straightforward, lawyers are generally required. Each LLP partner is typically responsible for securing and maintaining their own clients based on their area of expertise. However, note that an LLP requires at least two partners at all times and is not suited for entities carrying trades rather than professions.
Foreign Company Registration Options
A subsidiary company is a private limited company incorporated in Singapore with its parent company as its shareholder. For small and medium enterprises (SMEs), a subsidiary company is usually the preferred choice as there may be tax compliance issues or cost issues.
A branch office is registered locally as an extension of a parent company and is not a separate and independently incorporated entity. Also, the liabilities of a branch office extend to its parent company.
A representative office is registered in Singapore as a temporary arrangement with the objective of conducting marketing research. A representative office does not possess any legal status and is restricted from engaging in profit-making activities.
Which business structure would be ideal for me?
Choosing the right business structure depends on your unique circumstances and objectives. Here is a general guide:
If you’re a local intending to register a small enterprise where you’ll be the sole owner and the nature of your products or services does not carry liability issues, a Sole Proprietorship may be more convenient. But remember, this structure exposes your personal assets to business liabilities.
If your business involves providing professional services (like law, accounting, medicine, architecture, etc.) and you have partners seeking to establish joint practice in the same profession, a Limited Liability Partnership (LLP) would be suitable.
In most other cases, a Private Limited Company is the preferred choice. Despite its more complicated compliance requirements, it is usually the best structure in the long run.
How we can help you
Deciding on the ideal business model in your unique circumstances is absolutely essential as a long-term decision for the very foundation of your business. it is important that your business agreements are well drafted with the rights, interests and duties of each party clearly established. Should you be in a position where you may need our assistance, please do not hesitate to contact us at firstname.lastname@example.org or call us at +65 6298 2537 so that we can advise you on your matter.