What’s the Best Business Structure for You?

Before proceeding with incorporation of company and company registration in Singapore, you first need to determine the business structure that suits your objectives. To do this, you must understand what a business structure is, why it's necessary, and what options are available.

What is a Business Structure?

A business structure essentially dictates your company's legal requirements. While it doesn't necessarily influence your company's day-to-day operations, it does help define ownership, personal liability, business taxes, and growth opportunities.

Why is it Important?

At the basic level, having a business under an established business structure can help you conduct activities in a more organised manner. By understanding the legal requirements that undermine your specific organisation, you can identify the best course of action when setting up a corporate bank account, entering into contracts, and engaging in corporate events.

Knowing what a business structure is and why it’s important can help you make better decisions to enable your organisation to thrive. But before this can happen, you need to ensure that you choose the right structure during the company registration process.

What are the Different Structures to Choose From?

There are four basic structures you can choose from the list below. Each of them offers unique benefits in connection with corporate liability and ownership.

• Limited Liability Company

The limited liability company (Pte Ltd) is the most common choice among local and foreign entrepreneurs in Singapore. It allows a minimum of one individual shareholder and a maximum of 20. A limited liability company can have as many directors as you need.

What makes this so popular among business enthusiasts is that it is considered a separate legal entity that protects the interests of the shareholders by limiting their liability. In other words, all the debts, risks, and other responsibilities fall under the company’s name rather than the owner’s.

The downside, however, is that incorporating a limited liability company needs to accomplish requirements like filing annual returns, abiding by more complex tax obligations, and hiring a corporate secretary.

• Sole Proprietorship

On the other hand, a sole proprietorship is a business structure founded by one individual. Unlike the limited liability company, a sole proprietorship does not have a separate legal entity. It means, all the risks, debts incurred, and responsibilities of the company will fall under the owner.

The upside to this type of structure is that it is comparatively easier to set up and manage. In addition, it's also cheaper than other types because it's considered an extension of the individual. It means that the owner's capital and tax obligations will depend on their personal income, making it more attainable to accomplish.

• Partnership

A partnership business structure is similar to a sole proprietorship. The only difference is the number of owners. Instead of having one owner, a partnership must have at least two partners and a maximum of 20.

In Singapore, there are two types of partnerships available:

• Limited Partnership (LP)

A limited partnership offers different liabilities to the partners, depending on their role in the company. The general partner holds the most responsibility for the company and is liable for its debts and duties. On the other hand, a limited partner is accountable only to the extent of their contribution.

• Limited Liability Partnership (LLP)

A limited liability partnership follows the same concept as a limited liability company. Therefore, the organisation is a separate legal entity, and every partner has limited responsibility. The difference, however, is that an LLP has fewer compliance regulations and is not eligible for tax exemptions.

• Corporation

Finally, a corporation is a company or a group of individuals authorised to operate as a singular legal entity. Although a corporation is distinct and separate from its owners, it possesses many individual rights who are allowed to engage in business activities as a “legal person.”

Elements to Consider

When choosing the best structure for you, be sure to consider the following factors:

• Capital

• Number of owners

• Liabilities and responsibilities

• Risks

• Advantages and disadvantages

If you need further assistance in evaluating each type, contact a reputable corporate services provider to help you find the most suitable structure for your business and proceed with company incorporation in Singapore.