It is highly ideal to start a business in Singapore due to its business-friendly rules and regulations. Entrepreneurs and businesses are attracted to the grants and support provided by the government, and the vibrant economy is a great nurturing environment for start-ups. When you are looking into your company formation in Singapore as an entrepreneur, you will need to consider what type of business entity to register your business as.

As an entrepreneur, you may be choosing between a sole proprietorship and a partnership when you are in the process of company formation in Singapore. In this article, we will go through what exactly is each type of business entity, and which one is most suitable for your newly set up company in Singapore.

1. Sole Proprietorship

The simplest type of business entity is the sole proprietorship. It is owned by an individual; hence there are no other partners. Although the process of company formation in Singapore for a sole proprietorship is the easiest, it’s the riskiest type of entity. A sole proprietorship business is not a separate legal identity; therefore, the owner has unlimited liability.

In this business entity, the business and the owner are not separate. The loss of the business is the loss of the owner, and the same can be said for profit. The owner owns the risks and liabilities of the business; thus, the assets of the owners are not safe. If there is any liability, such as bills, then you will have to use your personal finances to pay them if you do not have any external financial support. This is risky for a newly set up company in Singapore, as many start-ups tend to fail due to lack of financing.

In addition, due to the risks involved in a sole proprietorship, investors tend to avoid them. The business lives and dies with the owner. Moreover, the profit is taxed at the owner’s personal tax rates. For sole proprietorship, the process of company formation in Singapore must be done with ACRA first, and it is renewed every year if the owner wishes to continue the business.

This type of business entity is only suitable for less risky businesses. If you wish to start a business in Singapore and want to be the only owner of your small business, this is the most suitable business entity type for you. Usually, it is difficult for a sole proprietorship to expand their business operations to a large scale, hence be sure to consider the merits and demerits before choosing this entity when you start a business in Singapore.

2. Partnership

A partnership can be owned by two or more individuals. It can be further divided into three types,

  • General Partnership
  • Limited Partnership
  • Limited Liability Partnership

General Partnership

A general partnership is similar to sole proprietorship; the only difference is the number of owners. There can be 2-20 partners in a general partnership. All owners have unlimited liability, and the personal assets are not safe because the general partnership does not have any separate legal existence. The debts and liabilities of the business are the responsibility of the partners.

The partners are taxed at their personal income tax rates according to their income. Like sole proprietorship, the general partnership has a massive risk. A partner can be held responsible for the actions of another partner, so there is a risk involved. Furthermore, the partners cannot own a property in the firm’s name.

A general partnership is suitable for small businesses that have low risk, and there are multiple business owners. As it is much like a sole proprietorship, consider if you have suitable finances to continue supporting the business after the process of company formation in Singapore.

Limited Partnership

In a limited partnership, there are two types of partners. The two types are general partners and limited partners. The general partner has unlimited liability similar to the general partnership, while the liabilities of a limited partner are limited to the investment. But limited partners cannot participate in the management; the management is the responsibility of the general partner. In a limited partnership, there is no limit on partners.

This type of partnership is suitable for people who do not want to take too much risk and save their personal assets. Moreover, it is easier to find limited partners for the investment as compared to general partners for your newly set up company in Singapore. If you wish to start a business in Singapore with the support of a few investors, this business entity type will be suitable for you.

Limited Liability Partnership (LLP)

In LLP, every partner has limited liability, and there is no limit on the number of partners. The partners can own the property in LLP’s name. The benefit of LLP is that each partner is individually responsible for his own actions, including debts and losses caused by the action. A partner is not responsible for the action of another partner.

LLP has its own legal identity and can sue or be sued on its own name. It is suitable for a business in which you do not want to be liable for others’ actions, or you cannot trust your business partners. If you are seeking to start a business in Singapore related to professional practicing businesses, such as engineers and doctors, this business entity type is suitable.

Final Words

Indeed, it’s necessary to study the types of business entities before proceeding with your company formation in Singapore. You need to know which type is better for your business, hence be sure to do your research carefully before you set up a company in Singapore. It is important to build the right foundations for your business before you start, and choosing the most suitable business entity is the first step to take.