Singapore, renowned for its robust business environment and investor-friendly policies, offers various types of business entities to suit different organizational needs. Understanding the different entity types in Singapore is crucial for entrepreneurs and investors looking to establish a presence in this dynamic city-state.
When incorporating a business in Singapore, all companies must be registered with the Accounting & Corporate Regulatory Authority (ACRA). One of the most crucial decisions to make is choosing the appropriate business structure or legal entity. This choice has far-reaching implications, impacting taxation, the perception of your business by stakeholders, administrative requirements, personal liability, borrowing capabilities, and growth potential.
Each different type of business entity available in Singapore is governed by unique regulations and tax frameworks based on its organizational structure and ownership. There are four main types of business entities in Singapore, including:
- Business: a business can be a sole proprietorship with 1 owner or a partnership consisting of 2 – 20 owners. Its owners have unlimited liability.
- Company: a company in which where the owners have limited liability. This company type is distinguished into 2 types public limited and private limited.
- Limited Liability Partnership: A partnership consisting of 2 or more partners where at least 1 partner is a General Partner and 1 is a Limited Partner. No limit on number of partners.
- Limited Partnership: A limited liability partnership in Singapore is a partnership structure that offers partners limited liability. In a limited liability partnership, there is no restriction on the number of partners involved.
In this article, we will explore three prominent business entities in Singapore: Private Limited Company, Public Limited Company, and Public Company Limited by Guarantee, shedding light on their characteristics, benefits, and considerations.
Private limited company in Singapore
A private limited company in Singapore is similar to a limited liability company in which the ownership shares are held by fewer than 50 individuals or corporate entities and are not available to the general public. The majority of privately incorporated businesses in Singapore opt for the private limited company structure. Such companies typically have names that end with “Private Limited” or “Pte Ltd.” For example, our company, Hawksford Singapore Pte Ltd, is registered as a private limited company. The shareholders of a private limited company can consist of individuals, corporate entities, or a combination of both.
A private limited company is considered the most advanced, flexible, and scalable form of business entity in Singapore. It is widely preferred by serious entrepreneurs over sole proprietorships or limited liability partnerships. For more detailed information on private limited companies, please refer to the Singapore company registration guide.
Why Entrepreneurs Prefer Private Limited Companies:
- Separate Legal Entity: A private limited company possesses its own legal identity, distinct from its shareholders and directors. It can acquire assets, incur debts, enter into contracts, and initiate legal proceedings in its name.
- Limited Liability: The liability of the company’s members is limited to the capital they have agreed to contribute to the company. They can enjoy the protection of their assets from the debts and obligations of the company.
- Perpetual Succession: The existence of the company is not dependent on the continued membership of any specific individual. Transfers of shares or changes in shareholders ensure the company’s continuity even in the event of shareholder or director resignations, insolvency, or death.
- Ease of Raising Capital: Private limited companies have the advantage of raising capital for expansion or other purposes by bringing in new shareholders or issuing additional shares to existing shareholders. Investors are more inclined to invest in a company where there is a separation between personal and business assets. Moreover, banks are generally more willing to lend money to limited companies.
- Credible Image: Being an incorporated business entity, a private limited company garners a more professional and credible image compared to sole proprietorships or partnership firms. This enhances its attractiveness to investors and signifies a vision for growth and expansion. Potential clients, suppliers, bankers, and professionals are more likely to take a private limited company seriously.
- Ease of Transfer of Ownership: Ownership of a private limited company can be transferred, either wholly or partially, without disrupting operations or necessitating complex legal documentation. This can be achieved through the sale of all or part of the company’s shares or by issuing new shares to additional investors.
- Tax Benefits and Incentives: Singapore private limited companies enjoy favorable tax treatment. The effective corporate tax rate for profits up to SGD 300,000 is below 9% and capped at 17% for profits exceeding SGD 300,000. Furthermore, Singapore does not impose capital gains tax. The country follows a single-tier tax policy, meaning that once income has been taxed at the corporate level, dividends can be distributed to shareholders tax-free.
By choosing a private limited company structure, entrepreneurs can leverage the benefits of separate legal identity, limited liability, perpetual succession, capital raising opportunities, a credible image, ease of ownership transfer, and advantageous tax incentives.
Please note that the provided information is for educational purposes only and should not be construed as legal or financial advice. It is always recommended to consult with professional advisors when making business decisions.
Public Limited Company by Shares in Singapore
A public limited company in Singapore is a limited liability company that has the option to offer shares to the general public. Unlike private limited companies, public limited companies must have a minimum of 50 shareholders and are subject to more rigorous rules and regulations due to their ability to raise funds from the public. Public limited companies are typically listed on stock exchanges. However, since they are primarily intended for large businesses, their detailed discussion is beyond the scope of this article.
Please note that public limited companies involve complexities and requirements specific to public offerings and stock exchange listing, making them more suitable for larger corporations. For detailed information and guidance on establishing and operating a public limited company in Singapore, it is advisable to consult professional advisors with expertise in corporate finance and securities laws.
Public Company Limited by Guarantee in Singapore
A public company limited by guarantee is a specific type of business entity designed for non-profit purposes. This entity is commonly chosen by organizations engaged in social services, charity, sports, arts, and other non-profit activities in Singapore. Unlike other business entities, a public company limited by guarantee does not have share capital or shareholders who hold shares for financial gain. Instead, its members provide guarantees to contribute a certain amount in the event of the company’s winding up.
The primary characteristics of a public company limited by guarantee in Singapore include:
- Non-profit Nature: The entity is established with the primary objective of fulfilling a specific non-profit purpose rather than generating profits for shareholders.
- Guarantee System: Instead of having shareholders who own shares, the members of a public company limited by guarantee provide guarantees for a specific amount, which represents their commitment to contribute to the company’s liabilities in case of dissolution.
- Governance and Compliance: Public companies limited by guarantee are subject to specific governance regulations and compliance requirements. These may include minimum membership requirements, guidelines for board structure and composition, and regulations for financial reporting and transparency.
- Public Interest Focus: The activities of a public company limited by guarantee are oriented towards serving the public interest, addressing societal needs, and promoting welfare or cultural initiatives.
For more detailed information on setting up and operating a non-profit entity in Singapore, it is recommended to refer to specific guidelines and resources that focus on the unique considerations and requirements associated with these organizations.
Please note that non-profit entities, including public companies limited by guarantee, have specific legal, regulatory, and compliance frameworks that differ from those of for-profit businesses. It is advisable to seek professional advice from legal and financial experts with expertise in non-profit organizations when establishing and managing such entities in Singapore.
Conclusion
Each entity type offers unique characteristics and benefits tailored to different business needs. Private limited companies provide flexibility, limited liability protection, and tax advantages. Public limited companies offer the ability to raise substantial capital from the public and access stock exchange listings. Public companies limited by guarantee serve non-profit purposes and focus on the public interest.
When choosing the right entity type, entrepreneurs should consider factors such as the nature and scope of the business, liability protection, tax implications, fundraising needs, and long-term objectives. Seeking professional advice is essential to make an informed decision and ensure compliance with legal and regulatory requirements.
Please note that the information provided above is general in nature, and it is recommended to consult legal, financial, and business experts for specific guidance tailored to individual circumstances and goals. Contact us at Singapore Company Formation to get consultation and secretarial support to set up your business.
