The business entities which exist in Singapore today include sole proprietorships, partnerships, and private limited companies. Each of these business entities plays an important role in the economic landscape of Singapore today. Thus, all three are needed in Singapore.
A business entity is an organization created by one or more people for the purposes of carrying out trade or business activities. There are different types of business entities including private limited companies, partnerships, and sole proprietorships. Business entities are referred to as the type or structure of the business instead of the business activities which are conducted. Business entities are subject to taxation; therefore, they must file a tax return. Certain business entities are not considered to be separate from their owners for the purposes of taxation. These entities include partnerships and sole proprietorships. The income and deductions related to these business entities are reported on the same tax return as that of owner of the business.
Many entrepreneurs and investors from all over the world have chosen to conduct business operations in Singapore because it is one of the easiest places in the world for the conducting of business activities. This in turn makes it easier for these entrepreneurs and investors to become familiar with and understand the business opportunities that exist in the country. However, there are certain advantages and disadvantages of each business entity which might not be immediately evident. Therefore, those planning to start a business in Singapore ought to learn more about these advantages and disadvantages.
The different business entities in Singapore are also necessary. This is because different business entities operate in different ways and are treated differently by the government for the purposes of taxation and legal matters. Furthermore, businesses of certain business entities will be able to better serve certain customers than others, thus causing a need for businesses of all manner of business entities to exist. Some business owners might also not have the financial means to set up one of the more complex and resource-consuming business entities. Thus, different business owners in Singapore may start businesses of different entities according to their own financial capabilities; no business owners are therefore prevented from starting a business in this way.
There are several factors which determine the business entity to be used by any company in Singapore. These include the nature of the business activities to be undertaken, the number of owners, the amount of capital to be put towards investment, the financial risks or lack thereof to be taken by the company, the long-term business plan, and the requirements of the business.
The types of business entity which exist in Singapore are the sole proprietorship, also known as the sole trader; the partnership, which can be further divided into the ordinary business partnership, limited partnership (LP), and limited liability partnership (LLP); and the private company limited by shares, also known as the private limited company.
Any of these business entities may be selected by one who is interested in starting a business in Singapore. Should you be such a person, we at Paul Hype Page & Co are able to serve your needs. We will assist you with the incorporation of your Singapore business. We will also communicate with any relevant authorities related to incorporation on your behalf if such is required.
Why Sole Proprietorships Are Necessary
A sole proprietorship, which may also be known as a sole trader, is a type of business entity which is owned and run by one individual. In a sole proprietorship, there is no legal distinction between the individual and the business. For this reason, any liability of the business is to be paid by the business owner. As long as the sole proprietorship is completely owned and controlled by the sole proprietor, the sole proprietor has unlimited liability and can be sued in either the person’s or the business’s name. This is one of the reasons why a sole proprietorship is not considered to be a separate legal entity.
Due to the fact that the profits of a sole proprietorship is taxed based on the personal income tax rate, a sole proprietorship is not taxed at the standard corporate tax rate of 17%. This also means that it is ineligible for the tax incentives created by the Singaporean government which are meant for companies based in Singapore. This is why the Inland Revenue Authority of Singapore (IRAS) does not consider sole proprietorships and partnerships to be companies.
Sole proprietorships are needed in Singapore because they provide opportunities for those who have business ideas to put those ideas into action without involving an excessive degree of risk. This is because sole proprietorships allow business owners to begin their business venture on a small scale. Over time, if the business becomes larger and more successful, the sole proprietor may consider adopting a partnership structure to allow for the entry of more funds and capital which will be shared between all partners.
Why Partnerships Are Necessary
Partnerships in Singapore can be divided into three categories. These are the ordinary business partnership, the limited partnership (LP), and the limited liability partnership (LLP).
Ordinary Business Partnership
The ordinary business partnership business entity is similar to a sole proprietorship with regard to structure, liability, and taxes. However, the most significant difference between the two entities lies in the fact that the owners of an ordinary business partnership may be comprised of two or more partners. In Singapore, all ordinary business partnerships may not have more than 20 individual partners. Unlike a sole proprietorship, an ordinary business partnership allows foreign individuals or companies to be partners.
The most significant risk associated with an ordinary business partnership relates to the fact that it is not considered a separate legal entity. Thus, all partners are personally liable for the debts and losses of the ordinary business partnership regardless of which partners caused the occurrence of the debts and losses.
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Due to the risks associated with a partnership, some might prefer to set up a limited partnership (LP) because its owners may benefit from limited liability. In Singapore, an LP has at least two partners; there is no upper limit on the number of partners which an LP may have. At least one partner must be a general partner who will have unlimited liability and will be personally liable for all of the LP’s losses and debts. The other partners may be limited partners. Limited partners are not personally liable for the LP’s debts or losses except for those for which the limited partners have accepted responsibility.
Just as is the case with a sole proprietorship and partnership, an LP is not eligible for any tax incentives provided to companies. Profits earned are be subject to each partner’s personal tax rate. If any partner is a company, corporate tax rates apply.
Tax-related issues in Singapore can sometimes be difficult to understand. This is where we at Paul Hype Page & Co can come in. We are able to be of service with regard to any matters related to taxation in Singapore. You may contact our tax specialists who will provide you with any information which you might need.
Limited Liability Partnership
A limited liability partnership (LLP) is very different from an ordinary business partnership as well as a limited partnership; it resembles a private limited company. Despite this fact, partners of an LLP are taxed at their personal income tax rate. As is implied by its name, in an LLP, each individual partner’s liability is limited.
The significant differences between an LLP and other partnership types are connected to legal status. An LLP is considered to be a separate legal entity from its partners. It can own property in the LLP’s name; other types of partnership may not do so. Furthermore, while partners are to be held personally liable for debts and losses, such liabilities are restricted to debts and losses resulting from the partners’ own wrongful actions and not those of other partners.
An LLP is also required to submit an annual declaration of solvency which will mention if the LLP is able to satisfy its debts while carrying out its normal course of business. This requirement does not apply to other types of partnership.
Partnerships are necessary because some people who might not have the means to start their business on their own might become able to do so if they were to work with others. A partnership offers an opportunity for a business owner combine knowledge and resources with companies or other individuals.
Why Private Limited Companies Are Necessary
As the term suggests, a private limited company is one which is owned privately by several shareholders. Most members of the public are usually unable to apply to own its shares. In Singapore, the names of private limited companies are to have the suffix “Private Limited” or “Pte Ltd” after the name of the company. A private limited company in Singapore may not have more than 50 shareholders.
The most important benefit of private limited companies lies in its limited liability. This means that the members of the company will not be held personally liable for its debts and losses. Unlike all the other business entities, a private limited company may be eligible for tax exemption schemes. It is also taxed at the standard corporate tax rate of 17%. Any private limited company in Singapore which is eligible may claim a 75% tax exemption on its first S$100,000 worth of chargeable income during each of its first three consecutive years of assessment. The Singaporean government also provides a further 50% exemption on the private limited company’s next S$100,000 worth of chargeable income for each of the first three consecutive years of assessment.
Private limited companies are necessary in Singapore because they are the most common business entity selected by foreigners who live there. This is the case because of the tax incentives for which some are eligible as well as the limited liability which all private limited companies possess. Therefore, private limited companies form much of the foundation of Singapore’s conducive business environment and steady rate of economic growth.
Why Different Business Entities Are Needed in Singapore FAQs
What is the history of Singapore’s corporate tax rate?Tiwi2020-07-03T14:26:23+08:00
Singapore’s corporate tax rate has fallen dramatically over the past two decades. After peaking at 26%, the Singaporean government enacted many reductions to the corporate tax rate in the ensuing years. Today, Singapore’s corporate tax rates stands at just 17%.
Why are sole proprietorships and partnerships unable to claim tax exemptions?Tiwi2020-07-03T14:26:05+08:00
Ordinary business partnerships, limited partnerships, and limited liability partnerships differ in fundamental ways. The methods in which they are to be run contain significant differences. Therefore, these partnerships have to be classified separately.