Taking risks is a part of a businessman’s life. However, not every decision you make needs to pose a risk; you can make informed decisions.
One of the basic decisions that every entrepreneur has to make at the very beginning of a successful incorporated business is choosing the type of business structure that is most suited to his plans. If you’re wondering about the same thing, then read on to know more as to what each business entity entails.
Sole Proprietorship
This is the simplest of all business structures; it is relatively easy to manage and quick to set up. In this kind of structure, the owner and the business are considered as a single legal entity. All the assets and liabilities of the company are owned by the business owner. His word is considered as final and binding in all business-related decisions.
However, this structure is not recommended to new entrepreneurs because as simple as it sounds, it is also equally risky. As the owner is the only proprietor, he becomes entitled to unlimited liability, thereby making him accountable for all debts and losses in the business. This means that in case the business is unable to repay its debts and liabilities, the creditors can come after the owner’s personal assets for settlement.
Company
In this business structure, the owner and the business are considered as two separate entities. The owners are known as shareholders and each shareholder is required to hold a minimum of one share. In Singapore, the main types of companies are as follows –
- Private Limited Company: This type of a company can have a maximum number of 50 shareholders and needs to be locally incorporated.
- Exempt Private Limited Company: This type of a company can have a maximum of 20 shareholders, none of whom are to be considered as corporate entities.
- Public Company Limited by Shares: This entity is also required to be locally incorporated and can have more than 50 shareholders. It needs to be registered with MAS and can raise capital by offering its shares and debentures to the public.
- Public Company Limited by Guarantee: This entity conducts activities with the intent of national and/or public interest which are generally non-profit in nature.
- Foreign Company or Singapore Branch: A company which has been incorporated outside of Singapore but wishes to open a branch within Singapore as an extension of the parent company (instead of a separate entity) can be registered as a Singapore Branch.
Read More » Visual Guide on the Types of Business Structures in Singapore
Effective Corporate Tax Rates
Partnerships
This kind of a structure enables two or more people to set up and co-own a business with the common goal of generating profit for the business. It is possible to acquire capital, assets and even manpower on mutually decided agreements in a partnership. There can be at least 2 and maximum 20 partners in this business structure.
Should the number of partners exceed 20, the business entity needs to be registered as a company. Partnerships can be ended if any one of the partners leaves the business, retires, is declared an insolvent, and/or dies, thereby leaving the rest of the partners to form a new partnership.
One partner can make business decisions on behalf of the other partner in his absence. Hence, one partner may be held personally responsible for the actions of the other, even in covering business losses and debts.
- Limited Partnership (LP)
This type of partnership requires a minimum of two partners and a maximum of 20. In LPs the business needs to have at least one general partner and one limited (dormant) partner. The liabilities of limited partners are determined by their investment in the partnership. This partnership is most suitable for businesses that are low risk and want to keep a low profile.
Limited partners are unable to participate in the management of the business. Due to this limitation, this might not seem like a good option to some for setting up a new business in Singapore.
- Limited Liability Partnership (LLP)
This type of partnership allows a considerable amount of flexibility of functioning as a partnership but keeping the partners and the business as separate entities. To be set up, it requires at least 2 partners. There is no limit to the maximum number of partners. The partners are not personally liable for the debts and losses of the LLP brought about by other partners.
Conclusion
Depending on the kind of business you want to start and your plans for it, you can choose any of these structures to move your business forward. These business decisions are not only going to determine how much you end up paying in taxes but also the amount of compliance duties you have to fulfill.
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