Business Structures: Which One is Right for Your Business?

Selecting the optimal type of structure is pivotal for launching a successful business in Singapore. Each structure significantly impacts liabilities, tax implications, and management practices. Therefore, a thorough evaluation is essential to pinpoint the best structure type that perfectly aligns with your specific business objectives.

Overview of Common Business Structures 

Before diving into specifics, it’s important to understand the available structures of the different types of business in Singapore:

• Sole Proprietorship: Owned by one person who takes full responsibility for all debts and obligations of an unincorporated business.
• Partnership: This can be general or limited, allowing two to 20 individuals to share ownership.
• Limited Partnership (LP): A partnership with at least one general partner and one limited partner without a maximum limit.
• Limited Liability Partnership (LLP): Requires a minimum of two partners, with no maximum limit on the number of partners.
• Company: Operates as an independent legal entity, separate from the individuals who own and manage it. It can be established as a Private, Exempt Private, or Public Company. A foreign company can enter the Singapore market by incorporating a subsidiary, establishing a branch or by setting up a representative office.

Factors to Consider When Choosing a Business Structure 

1. Legal Liability Concerns

The different legal structures of a business offer varying levels of protection for personal assets. Here’s how each one handles liability:

• Sole Proprietorship: If the business incurs debts or legal claims, the owner can be sued, and their assets can be used to settle these obligations.
• Partnership: All partners share unlimited personal liability for any debts and legal claims against the business.
• Limited Partnership: General partners have unlimited liability, while limited partners’ liability is capped at their investment.
• Limited Liability Partnership: Partners have limited liability, protecting personal assets except in cases of their misconduct.
• Company: Offers limited liability to shareholders, who are not personally liable for business obligations beyond their share contributions.

2. Taxes

The tax obligations associated with each business structure can significantly impact financial decisions:

• Sole Proprietorship: Profits are taxed at the owner’s personal income tax rate.
• Partnership: Profits are passed directly to partners and taxed individually at personal income rates.
• Limited Partnership: Profits are taxed at the personal income tax rate for individual partners or at the corporate income tax rate of 17%.
• Limited Liability Partnership: Similar to LPs, profits are taxed based on partners’ personal income or corporate tax rates.
• Company: Profits are only taxed at the corporate income tax rate.

3. Investment Considerations

Different legal structures of a business vary in their appeal to investors:

• Sole Proprietorship: Least appealing due to unlimited liability and limited growth potential.
• Partnership: More appealing than sole proprietorships, especially in professional services, but general partners still face personal liability risks.
• Limited Partnership: Attracts investors with limited partner liability, but general partners face unlimited liability, which can deter involvement.
• Limited Liability Partnership: Offers limited liability for all partners and management flexibility, making it attractive for professional services.
• Company: Most appealing to investors due to limited shareholder liability, easy capital raising via shares, and growth potential.

4. Future Goals and Scalability

It’s essential to evaluate how each business structure supports your long-term growth and scalability objectives:

• Sole Proprietorship: Advantages of sole proprietorship include simplicity and full control, but scalability is limited due to funding challenges.
• Partnership: More scalable than sole proprietorships by pooling resources, but growth may be hindered by general partners’ unlimited liability.
• Limited Partnership: Facilitates growth with external investment while maintaining control, suitable for targeted expansion.
• Limited Liability Partnership: Structured to support professional growth and risk management in expanding operations.
• Company: Highly scalable, enabling growth and market expansion through equity financing, ideal for large-scale business objectives.

5. Registration Requirements

When registering or incorporating a business or company in Singapore, various requirements and qualifications must be met depending on the business structure:

• Sole Proprietorship: The owner must be at least 18 years old and a Singapore citizen, resident, or EntrePass holder. If the owner is not a resident, an authorised representative in Singapore is required.
• Partnership: Each partner must be at least 18 years old and be a Singapore citizen, resident, or EntrePass holder. If all partners are non-residents, an authorised representative who resides in Singapore must be appointed.
• Limited Partnership: Requires one general and one limited partner, both at least 18 years old, who can be individuals or corporations. Non-resident general partners need a Singaporean resident manager.
• Limited Liability Partnership: Requires two or more partners and a Singaporean resident manager, all at least 18 years old.
• Company: Requires at least one Singaporean resident director and one shareholder, who are both over 18. Foreign directors need an EntrePass.

Which Business Structure is Best for You?

To choose the best type of business structure in Singapore, consider your business size, industry, financial goals, and risk tolerance.

• Sole Proprietorships: Suitable for individuals starting small, low-risk ventures requiring full control, simplicity, and direct decision-making.
• Partnerships: Best for two or more individuals sharing responsibilities, profits, and unlimited liability, leveraging combined expertise and resources.
• Limited Partnership: Ideal for businesses where some partners want to manage operations actively (general partners) while others prefer to contribute capital without day-to-day involvement (limited partners).
• Limited Liability Partnership: Suitable for professional services firms seeking limited liability and management flexibility with a partnership structure.
• Company: Best for businesses aiming for significant growth, seeking investment, or operating in high-risk industries, providing limited liability and the ability to raise capital through shares.

Make the Right Choice for Your Business

Selecting the right business structure depends on your specific needs and goals. For expert guidance and support, consider Segovia‘s company incorporation services in Singapore. Our professionals provide personalised assistance to help you navigate the complexities of business setup, ensuring a smooth and successful incorporation process.
Whether you need offshore corporate services for global expansion or local expertise to start a new venture, Segovia has you covered.