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Incorporate in Singapore
INCORPORATION IN SINGAPORE
What are the different Types of business structures?
When you decide to incorporate in Singapore, the most important consideration and the one you should think about the most, is the form of entity best suited to your business. A business is usually structured as a partnership, a limited liability company (LLC) or a corporation. All of these forms of entity have crucial advantages and disadvantages, in terms of tax treatment, image and perception of your business by your customers and suppliers, but also in terms of the amount of paperwork your business has to complete, personal liability, borrowing capacity or ability to grow your business.
In this article, we will review the main business structures in Singapore and their key features to give you an idea of which one might be best suited to your needs.
Private limited company (Pte.ltd)
The Private Limited Company is considered the most advanced and flexible form of business entity in Singapore, and therefore the most popular option.
The maximum number of shareholders is set at 50, with an initial share capital of only SGD 1.
The company can be incorporated in as little as 24 hours by any foreign or local director or company, but it is important to note that the company must have a local director. A foreign director who wishes to act as a local director must apply for an Employment Pass.
As far as its legal status is concerned, the Private Limited Company is a separate legal entity, which means that the company protects its shareholders from liability if the business fails.
The company is required to have a registered office in Singapore. It can also own land in its own name.
Foreign company branch office
Some foreign medium to large size companies may prefer to open a branch office in Singapore. Most of the time, this decision is taken for legal or tax purposes, in the light of home jurisdiction of the parent company.
Branch offices are considered extensions of the parent company and are therefore not considered a resident entity. This mostly means that the parent company will be held liable for the branch office actions but also that the branch office is excluded from some tax exemptions such as the double tax treaty network.
Branch offices can only conduct activities that fall within the scope of its parent company but they can repatriate the turnover and capital. Branch offices will only be taxed for the earnings made in Singapore.
Key consideration when setting up a branch office in Singapore:
- A branch office must have a registered office address in Singapore.
- A Singapore resident Authorised Representative of the branch is necessary
- The ACRA will require information for the branch office as well as for the parent company.
- The same name as the parent company is required for the branch office
Foreign company representative office
Representative offices are business structures that allow a foreign company to explore and test the Singapore market to determine whether or not it wishes to expand its operations in the country.
Representative offices are therefore temporary. They can only operate for 3 years, after which they will have to be converted into a Pte.ltd or a branch office, or closed depending on the data collected during their life cycle.
As representative offices were introduced as a market research tool, they have no legal personality, which in practice means that they can only engage in market information gathering for the parent company. Basic commercial activities such as negotiating contracts are prohibited.
Other requirements to keep in mind:
- The parent company will need to appoint a representative for the Singapore office. The staff is limited to 5 people including the appointed representative.
- Depending on the type of business, you may need to register the representative office with specific institutions such as the Monetary Authority of Singapore (MAS) or International Enterprise Singapore (IE Singapore).
- The foreign parent company must generate a minimum of USD 250,000 in revenues.
- The foreign parent company must have been in operation for at least 3 years.
Sole proprietorship
A Singapore sole proprietorship is a business owned by a single person or company registered in Singapore. A sole proprietorship does not create a separate legal entity from the owner, which means that the owner is personally liable for all obligations incurred in the business and must sue or be sued in his or her own name.
Since sole proprietorships are not considered to be companies, they are taxed in the hands of the individual at the owner’s personal income tax rate. (going from 0% up to 22%).
The main requirements are that they must have a resident manager and be registered with ACRA.
In short, it is a simple structure to set up and close, suitable for small operations but does not offer the same level of protection as other corporate structures.
Singapore has also had to deal with especially challenging labour-market shortages due to the Covid situation. These shortages have escalated the need to boost sectors that have suffered disproportionately due to the imposed restrictions, such as hospitality and food and beverage.
Public Limited Company
A public limited company in Singapore is an LLC that will usually offer shares to the general public meaning they are listed on a stock exchange. They must have a minimum of 50 shareholders and are subject to rigorous regulations as they have the ability to raise funds from the public.
Public limited companies are therefore for large-scale businesses and not the most common company structure in Singapore.
Public company limited by guarantee
On the other hand, the public company limited may be established in Singapore for charitable or non-profit purposes. In general, these companies have some basis of national or public interest.
A public company limited by guarantee has members rather than shareholders. The members of the company agree on a sum to cover the debts of the company that become due if it goes into debt (this sum can be as low as SGD 1). The members will not be liable for more than what was agreed at the outset.
This also means that members are not entitled to the surplus of assets over liabilities on liquidation, which will be distributed to a designated charity.
Partnerships in Singapore
For partnerships in Singapore, entrepreneurs and investors can choose from several structures such as general partnership, limited partnership or limited liability partnership. However, the general and limited partnerships have certain characteristics, such as personal liability for the general partnership or the inability of limited partners to participate in the management of the business, which make them unattractive to most. In contrast, the limited liability partnership is much more common in Singapore, as it is well suited to chartered professionals.
Limited liability partnership (LLP)
The LLP is a legal entity with a legal personality separate from that of its partners. It therefore combines the characteristics of a partnership and its flexibility with those of a corporation. It must have a minimum of two partners throughout its life cycle.
Please note that the LLP has a legal feature called perpetual succession, which means that it is not affected by the death or other departure of a member, it continues to exist regardless of the number of changes in membership.
Apart from losses due to personal fault or omission, partners will not be liable for debts.
The LLP is particularly flexible in the terms of its constitution, which is both an advantage and a potential source of complication. The partners will need to enter into detailed agreements to determine the distribution of profits and management responsibilities, which will usually require legal assistance to avoid future complications.
Comparative table of the most popular foreign business structures
| Private Limited Company | Branch Office | Representative Office | |
| Authorised foreign ownership | 100% foreign ownership allowed | 100% foreign ownership allowed | 100% foreign ownership allowed |
| Minimum share capital | SG $1 | N/A | N/A |
| Company Name | Any name permitted | Name must be the same as the parent company ; must include “branch” | Name must be the same as the parent company ; must include “representative office” |
| Type of activities allowed | Any business activity permitted | Activity must fall within the scope of the parent company | Market research only |
| Liability type | Limited to the Singapore Pte.ltd | Extends to the parent company | Extends to the parent company |
| Resident officers required | Director and Company Secretary | Authorised representative | Designated representative of the parent company |
| Registered Office | Required | Required | Required |
| Applied taxation | Taxed as a Singapore resident. Eligible for tax benefits | Taxed on income from Singapore, not eligible for tax benefits. | Not applicable i.e not income. |
| Tax Return | Annually | Annually | N/A |
| Corporate bank account options | Can open a corporate bank account | Can open a corporate bank account | Can open a corporate bank account |
| Continuity in Law | Perpetual until closing | Perpetual until de-registered | 3 – years plus annual re-registration |
| Timeline to set-up after submission of application | 1 business day | 1 business day | 3-5 business days |
| Governing body | ACRA | ACRA | IE Singapore |
How can our team of experts can help?
Choosing the right structure when you decide to incorporate in Singapore depends largely on your particular needs. The wrong decision will lead your business to complications and sometimes failure.
With the information mentioned above, you can see that some structures are more suitable for small operations, while others are better suited for specific professionals. However, in the vast majority of cases, the limited liability company remains the number one option.
Question about incorporation in Singapore?
Please note that this article is for information purposes only and does not constitute legal advice.
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