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The first step to starting a business is to decide on the entity type to register. In Singapore, you can either:-
- Register an unincorporated body such as a sole-proprietorship or a partnership
- Incorporate a legal entity such as a limited liability partnership or a private company limited by shares
Your choice of entity type will depend on various factors such as:-
1. Nature of Business
2. Licensing requirements
3. Number of investors
4. Limited liability of shareholder vis-ŕ-vis unlimited liability
5. Management expertise
6. Business continuity plan
7. Tax Incentives
8. Financial commitment
If you are the sole driver of the business, you can either register a sole-proprietorship or a one director-shareholder company. A sole-proprietorship is a simple structure with very minimal compliance obligations. The main disadvantage of the sole-proprietorship is the potential risk of having your personal assets being seized by your creditors as a sole-proprietor has unlimited liability towards the debts of the business. If you are concerned about unlimited liability of a sole proprietorship, then it would make sense for you to register a private company limited by shares. If you are a Singapore citizen or a Singapore Permanent Resident, you may incorporate a one director-shareholder company which is essentially a private limited liability company with 100% interest registered in your name. In this way, your liability towards the debts of the company will be limited to the extent of your share capital contribution.
If you are a foreigner wishing to set up your own individual business in Singapore, you can register a private company limited by shares provided you appoint someone who is resident in Singapore as one of the directors of the company. The resident director together with you will constitute the company’s board. The requirement for a local person only applies to directorship. There is no requirement for local ownership unless your business requires licensing from another government authority which may prescribe a certain percentage of local participation.
A foreign owner who plans to relocate to Singapore to manage the business will have to apply for a working visa.
If there are 2 or more of you starting a business together, you can choose to register:-
1. a “traditional” partnership or a limited liability partnership
2. a private company limited by shares
A “traditional” partnership works in the same way like a sole-proprietorship except that there are 2 or more partners or persons involved in this structure. It is an unincorporated body and partners are jointly and severally liable towards the debts of the business. Different individuals with different expertise can form a synergy by coming together in a partnership. The consideration here is whether you want to run the risk of unlimited liability or you would prefer to limit your liability to the extent of your contribution. Regardless of how you decide to structure your partnership, it is best to draw up a partnership agreement detailing each partner’s rights, duties and responsibilities.
An alternative to the “traditional” partnership is to form a limited liability partnership or an LLP as it is commonly known. A LLP affords its partners limited liability with minimal reporting and compliance requirements as compared to a private limited company. It’s a very popular structure amongst entrepreneurs who are starting out in the venture and do not want to incur the full blown costs associated with running a company. One point to note is that an LLP is taxed like a traditional partnership and unlike new companies, new LLP do not get to enjoy the tax incentives given by the Inland Revenue Authority of Singapore for new start-ups.
Both forms of partnership would need to appoint a local manager (can be a Singaporean or Singapore Permanent Resident) who is responsible for the running of the business.
If you are unfazed by the many compliance obligations associated with the company structure, you and your partners can proceed to register a private limited company. To set up the private limited company, you would need to agree amongst yourselves the following:-
2.1 Who will be the directors? All the partners or only some. Please note that directors are only stewards of the company. They are the ones who will be responsible for the management and operation of the company and there are rights, obligations and responsibilities attached to directorship.
2.2 How will the shares of the company be divided? It is in equal proportion or there are differences to account for the different capital contribution and expertise brought on by each partner. Here again, we suggest to draw up a shareholders’ agreement to set out the rights and obligations of each partner.
If your foreign partner wants to relocate here to manage the business, he would need to apply for a working visa.
A newly set-up company which meets the criteria will be given tax incentives in the form of exemption from payment of corporate tax for the first 3 years of its first S$100,000 profits. To qualify for the tax exemption, the company must be a tax resident of Singapore with at least 10% of its shares owned by an individual. The incentive is given by the Singapore government to encourage entrepreneurship. This tax incentive will not apply to you if you decide to register a partnership.
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