BUSINESS ENTITY OPTIONS
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Companies are defined as legal entities held separate from their directors and shareholders. There are a few types of companies, explained below.
A private company is identified by its company name, which typically ends with “Pte Ltd.” Shares of private companies are not available to the public, and cannot be held by more than 50 different shareholders.
Private companies have several legal advantages. First, since they are separate legal entities from their shareholders, private companies limit the legal liability of their shareholders to their involvement in the company. Further, a change of shareholders does not jeopardize the company’s established existence. This is due to the ability to transfer shares from one shareholder to another.
In addition, laws in place for private companies make them highly tax efficient, with tax rates of less than 9% for profits up to S$300,000, and 17% for profits more than S$300,000. Scalability is also a big plus for private companies, due to their flexible nature and ease of obtaining more capital through new shareholders.
Exempt Private Company
An exempt private company (EPC) is a private company that has a maximum of 20 shareholders, fewer than the 50 allowed in a standard private company. Like private companies, exempt private companies are separate legal entities from their shareholders, reducing the liability to which each individual shareholder is subject. In addition, EPCs earning less than S$5,000,000 per year do not have to file audited accounts with the Accounting and Corporate Regulatory Authority (ACRA) and can simply submit a declaration of solvency instead, minimizing accounting technicalities and red tape.
A public company’s shares are available for purchase to the public, and are therefore subject to comparatively stricter regulations than private companies. Generally larger, public companies must have more than 50 shareholders, and are often listed on the stock exchange.
Public Company Limited by Guarantee
This specific public company structure is ideal for non-profit organisations. There are no shares or shareholders, and any excess funds (profits) are not paid out to the members but retained for future reinvestment. PCLGs may also fully exempt from taxes, especially if they are registered as charities. This business structure is meant for specific niche purposes and may not be appropriate for all businesses.
A partnership is a different type of business. Consisting of two to twenty members, a partnership is not a separate legal entity, and this its existence is dependent on continued solvency and existence of its partners. Any single partner has the power to disband the entire partnership, and partners are liable for both the partnership and for any of the partners. Once the number of partners grows beyond 20, the partnership must be converted to a company (see above).
A limited partnership consists of at least two partners, one of whom is a general partner while the rest are limited partners. Like a partnership, a limited partnership is not a separate legal entity from its partners; the general partner is primarily responsible for all liabilities the limited partnership may incur, while the limited partner is only liable commiserate with his responsibility. A limited partner may or may not be involved in the day-to-day management of the limited partnership.
Limited Liability Partnership (LLP)
A Limited Liability Partnership (LLP) is a mixture of a partnership and a private limited company, combining the desirable flexibility of a partnership, with the diffused legal liability intrinsic to a company.
An LLP is a legal entity separate from its partners, thus a change of partners does not affect the LLP’s established existence. Partners cannot be held liable for penalties incurred by other partners, or by the LLP itself, but all partners can be held liable for penalties stemming from their own actions within the partnership.
An LLP is suitable for professionals seeking to collaborate on a joint practice, but detailed arrangements on each partner’s share of both the profits and the responsibilities can be complicated, and should be drafted by a lawyer. An LLP cannot be owned by one individual.
A sole proprietorship is owned, managed, and run by one individual. It does not involve partners, and is largely autonomous in its operation. However, this same desirable autonomy also means increased susceptibility to risk. The owner and proprietor is fully responsible for the liabilities of the company, and his or her personal assets cannot be protected in the event of a business loss. This in an inherently high-risk, high-reward business structure.
BEST BUSINESS STRUCTURES
The key to choosing the right business structure is to match your company’s functionality needs with the unique offerings of each type. When making this decision, the top priority is to consider your business’ ultimate goals and the unique requirements that come with your specific business idea.
For small, conventional businesses involving a single individual, a Sole Proprietorship is the simplest structure to work with. Businesses that provide services alongside other partners should consider setting up some form of partnership, whether a Partnership, a Limited Partnership, or a Limited Liability Partnership. Other types of businesses might consider setting up a Private Company or an Exempt Private Company, due to their ability to rapidly expand with the business.
Our experienced professional consultants will work with you to explore the different options and directions your business can take, and to determine the optimal business structure for your company’s needs.
OFFICE SET-UP OPTIONS
Foreign businesses interested in establishing a presence in Singapore have three options to do so: a subsidiary office, a branch office, or a representative office. Which option is best for your business will depend on your business’ needs, capabilities, and resources to determine which is best for your organization.
A subsidiary company is by far the most popular choice for overseas companies seeking to establish a working presence in Singapore. The foreign parent company retains full and complete rights of ownership, but because it is classified as a separate legal entity, the parent company is not responsible for the majority of the liabilities incurred in other setups. All the while, subsidiary companies enjoy the tax incentives offered to other local companies, maximizing the appeal of doing business in Singapore. The parent company and subsidiary company may have different names, pending approval from the Registrar of Companies. The subsidiary must maintain a local office that houses its statutory documents. The Companies Act also mandates that at least one director of the subsidiary company must be a Singapore resident (either a citizen, permanent legal resident, or employment pass holder).
A branch office, like a subsidiary company office, is its own registered legal entity, but one that is still considered an extension of the parent company. As a result, is the parent company is responsible for the liabilities incurred by the branch office. A branch office is not considered a local (Singaporean) entity and does not enjoy the relevant tax incentives. As a result, small to mid-sized businesses may find this arrangement less appealing than larger businesses.
The branch office and parent company must have the same name, but registration is still subject to approval by the Registrar of Companies. The Companies Act mandates that the branch office’s two designated agents must be Singapore residents (a citizen, permanent legal resident, or employment pass holder). The branch office must maintain a registered local office, and may conduct business that is within the scope of its parent company. While some of the earnings of the branch office will be subject to taxes, any profits gained from overseas operations will not. Both the branch office and the parent company must file audited accounts to the Accounting and Corporate Regulatory Authority (ACRA) annually.
A representative office is suitable for larger companies seeking to gather information about the Singapore market, or carry out activities with no intention to profit. Representative offices are allowed to operate for up to three years, and cannot be involved in any trading or conduct any business activities. Despite these limitations, the low registration costs make representative offices an attractive option to large companies doing market research.
The parent company is responsible for the liabilities incurred by the representative office, and the representative office must be operated by a representative from the parent company. In addition, the staff of the representative company may not exceed five employees. Companies may begin operations as a representative office, then evolve into either a subsidiary company or a branch office, but this change must be made by the end of the representative office’s three-year lifespan.
What are the minimum requirements for one to register a Singapore company?
- Minimum of one shareholder, regardless of nationality
- Minimum of one director, at least 18 years of age. The shareholder can also take on the role of director
- Minimum paid-up capital is 1 Singapore Dollar (S$1)
- A local registered address
- Minimum of one secretary
- Name of company must be pre-approved before registration
Are business licenses required for a Singapore company to begin operations?
Your company may need a license, depending on the category it falls under. These licenses may be under the Accounting and Corporate Regulatory Authority (ACRA) or other relevant government authorities like the Ministry of Manpower (MOM).
Is a Singaporean partner required to form a company in Singapore?
No, foreign interests are allowed to fully own Singapore companies. A local partner is not compulsory.
As a foreigner, can I relocate to Singapore to operate my Singapore company?
Yes, you can do so with the Singapore Entrepreneur Pass or the Singapore Employment Pass. Alternatively, you can also choose to run your Singapore company while located overseas.
Can I hire foreign employees to operate my Singapore company?
Yes, contingent upon the approval of their work pass applications. However, all work pass types (except for the Employment Pass) fall under a quota system, which sets limits upon the number of foreign staff allowed relative to the number of Singaporean staff employed.
How long must my company’s accounting records be retained?
A company’s accounting records and relevant financial documents must be kept for five years after each transaction.
Are details about directors, shareholders and companies publicly available?
Yes, this information is available in the public domain.
Does a Singapore company have to file audited accounts?
Companies have to file their audited or unaudited accounts with the Accounting and Corporate Regulatory Authority (ACRA) annually, with the exception of exempt private companies with annual turnovers of less than S$5,000,000. These may submit a declaration of solvency, instead.
Can I use any local address for my Singapore company?
The address must be a physical location; it cannot be a Post Office Box (P.O. Box). With the advent of the Home Office Scheme, homes may now be used as local addresses for your Singapore company. This may be done upon obtaining approval from the Housing Development Board (HDB) or the Urban Redevelopment Authority (URA) for HDB flats and other properties, respectively.
Is an investment required for the registration of my Singapore business?
A S$50,000 investment is only required if you wish to obtain the Singapore Entrepreneur Pass to relocate to Singapore. This investment is not necessary for locals and foreigners looking to obtain the Singapore Employment Pass to work in Singapore. In these cases, the minimum required investment is S$1.