Singapore Company Formation – Choosing the Right Legal Form


While forming a company, the most pertinent issue that you need to decide is which legal form to choose for your company as it can have crucial implications on your personal risk in the business as well as the prospects of your business for giving back financial returns. best LLC service in Texas

You would like to consider vital issues like ease of formation, asset liability, business asset appreciation, and tax obligations, before you decide on your business form. Though you will certainly seek legal advice from your lawyer, it is advisable that you get to know the basics of all the legal forms before you meet your lawyer.

In Singapore, businesses mainly operate as companies, sole proprietorship and partnerships.

Company

A company has to be registered under the Singapore Companies Act and a separate legal entity from its members. Though you can incorporate a company with unlimited liability, almost all companies in Singapore are incorporated as limited liability companies due to its advantages over other forms of company formation.

Limited Liability Company (LLC)

The limited-liability company (LLC) is a relatively new form of business organization. The chief feature of a limited liability company is that the liabilities of the owners are limited to the assets in the company, and their personal assets are protected from business liabilities.

Limited liability companies in Singapore can be of the following types:

Private Limited Company

The technical term for a private limited liability company in Singapore is Private Company Limited by Shares. A private limited company’s name in Singapore normally ends with Private Limited, or Pte Ltd.

A private limited company has various advantages over the other two conventional types of business, which makes it the most flexible and the most favoured type of Singapore business entity. A private limited company has its own legal identity, which is separate from its shareholders and its directors. It can acquire assets, go into debt, enter into contracts, and sue, or be sued. In an LLC, members are not individually liable for debts or other obligations of the company. The ease of transfer of shares or changes in shareholders ensures that the company’s continuation is not dependent on the continued membership of its members.

You can raise capital for expansion or other purposes, by bringing in new shareholders or issuing more shares to existing shareholders and your also benefit from the trustworthy image it commands compared to sole proprietorship or a partnership firm. Moreover, the ownership of a company may be transferred, either wholly or partially, without disrupting operations or the need for complex legal documentation. Most importantly, you benefit greatly from tax incentives as the effective Singapore income tax rate for companies for profits up to SGD 300,000 is below 9% and capped at 18% for profits above SGD 300,000, and furthermore, there is no capital gains tax.

However, an LLC also suffers from some disadvantages. Incorporation and sustenance is more complex and you need to follow certain compliance requirements. Also, the closure of company is comparatively more complex.

Public Limited Company

After a private company reaches a certain growth level to become a well established medium-to-large enterprise, the shareholders might decide to take the company public. A public company’s name in Singapore ends with Limited or Ltd.

Public companies are subject to significantly more stringent rules and regulations since they have the power to raise funds from the public.

Sole Proprietorship

In a sole proprietorship, the business can only be owned by one person and the owner personally owns all assets and liabilities of the business. It is the most uncomplicated form of business entity; and it is also comparatively more economical and easier to start and terminate a sole proprietorship company. You are in complete control of all the business affairs including the decision making and you benefit from all income generated by the business without sharing the profit with others. You are also free from the obligation of filing returns annually and only need to renew your membership every year.

However, the disadvantages of a sole proprietorship business far outweigh its advantages. Sole proprietorship is not a separate incorporated entity and therefore you and your business are rendered as the same legal entity. As a sole proprietor, you and your business are considered a single entity for the payment of income tax, and the income of your business is taxed to you. Moreover, as the sole proprietor of a business, you have unlimited liability, which means that if your business cannot pay all its liabilities, the creditors to whom your business owes money can come after your personal assets. Many entrepreneurs are usually unaware of this enormous financial risk.




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