Singapore Fact-File Part 1:
Business Formation for Individuals
1.1 Singapore Individual Business Structures
Forms of company or business structures used by individuals
in business
The most appropriate business form for
a small business person or entrepreneur seeking to establish
in Singapore is likely to be as a sole proprietor, although
there are various other options, including the partnership,
the Limited Liability Partnership, the Limited Partnership
(allowing one partner to be a ‘silent partner’), or a company.
A sole proprietorship with one owner is the easiest and cheapest
business structure to establish, with tax imposed on profits
at personal income tax rates, and liability for business owners
with regard to risks, debts and losses unlimited (as the business
is not a separate legal entity).
A partnership, which can be established by between 2 and 20
individuals or companies, and is also not a separate legal
entity, meaning that all partners are liable for losses, debts
and risks. Each partner’s share of the profits is taxed at
the personal income tax rate (where the partner is an individual),
and at the corporate income tax rate (where the partner is
a company), and a partnership agreement should be drawn up,
outlining the profit sharing arrangement. If a partner exits
the business, or dies, then the partnership is automatically
dissolved, and a new arrangement must be reached between the
remaining partners.
A limited liability partnership combines elements of a partnership
with elements of a company. Profits are again taxed at either
the personal income tax rate or the corporate income tax rate,
depending on the status of the partner. A local manager must
be appointed, and although no annual return is required to
be submitted to the Accounting and Corporate Regulatory Authority,
the company must assure the ACRA, on an annual basis, that
it is able to cover its debts. An LLP is a separate legal
entity, meaning that partners are not personally liable for
debts, losses, and risks, and the death or exit of a partner
does not affect the overall structure.
A limited partnership may be of interest to business owners
with outside investment, as it effectively permits one partner
to be a ‘silent’ partner. In a limited partnership, there
must be a minimum of 2 partners, and there is usually a general
partner (with unlimited personal liability), who manages the
business, and a limited partner, with liability limited to
the extent of their investment, who is generally not involved
with the day-to-day running of the enterprise; if the limited
partner does involve themselves in the management of the partnership,
their liability becomes unlimited. Taxation of the profits
takes place under the corporate or personal income tax systems,
depending on the status of the partner, and the partnership
is not a separate legal entity. There is no requirement to
file annual returns with the ACRA, but accounting and other
records must be retained for at least five years.
It is also possible for a small businessperson to incorporate
a company (incorporated entities can be either private or
public, but the former is more likely to be of interest for
our purposes), and the most common type of incorporated entity
is the private company limited by shares. There must be at
least one shareholder and one director, but 2 or more directors
is the norm, as the majority of interactions with banks and
financial institutions will require 2 signatories. A company
is a separate legal entity, and profits are taxed under the
corporate income tax system.
All of the business structures discussed above must register
with the ACRA prior to commencing business activity.
The terms 'Freelance', 'sole-trader' and 'self-employed'
A distinction is made between a self-employed person carrying
out a trade or profession on their own behalf, and the sole
proprietor of a one man (or woman!) business, as the latter
must register with the Accounting and Corporate Regulatory
Authority (ACRA).
However, no distinction is made for the purposes of taxation;
both groups are subject to taxation under the personal income
tax system.
|
Cyprus
Full Guide
Next
