The government of Singapore through the years has established regulations that foster a business-friendly environment in the country, making it the perfect platform to start expanding in the Southeast Asia region. Additionally, with a robust economy and legal system, Singapore is a preferred choice to set up your business and make your company grow.
In this guide, we will be covering various points. We will talk about the different options for initiating a business in Singapore. If you want to learn about the different business structures, this is the guide for you! Also, we have prepared a whole section dedicated to foreign companies or entrepreneurs that want to start their company, yes, you heard right! We will be expanding with more details in the following sections of this guide.
Business Structures in Singapore
Just right before we start with this section, we will give an introduction about the company’s regulations and the authority. But just a short one, don't worry, we won't be getting all legal!
Companies Act 1967
This is one of the most important legislations impacting the way that businesses, meaning activities that generate profit, are conducted and regulated in Singapore. Some of the other aspects of the Companies Act of 1967 are the duties and rights of key roles in the companies such as shareholders, directors, partners, and owners, as well as the regulations and conditions to cease the activities of each business entity. Another important point to mention in this section is the government body that is involved in the process to register businesses in Singapore, the Accounting and Corporate Regulatory Authority (ACRA).
Having this in mind, we can move into the next part, the business types in Singapore.
The main types of business
If we visit the website of the regulatory authority (ACRA) in Singapore, it is easy to find information about the basic business structures and even some guides about the incorporation process. Here we will be covering the structures from the most basic one to the more complex one, and we will be expanding each of them.
Activities that are continuously done, to generate profit, need to be registered with the local authorities. For example, engaging in the trading or retail sale of goods or providing services. But what happens when these operations are run by a sole individual or entity? This is where the figure of the Sole Proprietorship enters, which allows formalizing a business activity for a sole individual, or a sole entity such as a company or a limited liability partnership.
So now that we have the basic understanding, this business structure is formed by a sole party or in other words a sole proprietor that conducts a profit-making activity. It’s important to mention that since the business and the individual are considered to be the same, it’s not considered to be a separate legal entity and the owner has unlimited liability.
For more details about other characteristics of this business type and other questions related to the registration process, please consult our dedicated article here.
Before we continue with this business structure, it is important to mention that it is placed together with the sole proprietorship in the same category as being the simplest business structure available in Singapore. One of the elements that have in common with it is the goal of making a profit. However, the key change is that it is carried out by two or more partners with a maximum of 20 partners. Just as with the sole proprietorship, a general or ordinary partnership does not have an independent legal status, which means that the partners will be personally liable for the debts and engagements that the partnership enters into. Additionally, a Partnership needs to be established through a Partnership Agreement, which establishes the rights and duties of the general partners, which have unlimited liability.
To learn more details about this business type, we have prepared our dedicated article, which can be consulted here.
Moving on to the next business type, we have the Limited Partnership. Yes, you read right, there is another type of Partnership! But what makes it different from the General Partnership? A Limited (Partnership) adds a bit of complexity to the mix, with a new type of partner!
A Limited Partner is a bit different from other (general) partners. If we think about it, it works more as an investor would do. Investors don’t get into the operations but only contribute with money. Just as with other Partnerships, a Limited (partnership) doesn't have a separate legal identity. Most of the responsibilities will fall under the general partner. Limited partners don't worry, you are safe! You only are responsible for the contributions that were recorded on the Partnership Agreement.
If you wish to know and learn more about this topic, our team has prepared the following article!
Limited Liability Partnership (LLP)
Compared to the other business structure of this guide, this is one of the newest, since it was officially approved in 2005. The Limited Liability Partnership, or LLP, provides a point between a Partnership and a Company. What do we mean by that? Well as the Partnerships, it has partners instead of shareholders. However, it has a separate legal standing from the business owners, like a company, protecting the personal assets of each business owner.
Moreover, to form an LLP, one needs to establish an agreement and a minimum of two partners. As an LLP doesn't have a limit to the number of partners and each partner is taxed according to its nature, if it is an individual, the profit generated will be taxed as Personal Income Tax. On the other hand, if a partner is a corporation, this will face Corporate Income Tax from the activities of the LLP.
To learn more about this interesting business entity, we encourage you to read our dedicated article, which can be found here.
Companies or Corporations
Companies in Singapore can be privately or publicly owned. But for this guide, we will be covering only the (Singapore) Private Limited Company. And as a limited company, it offers more protection to the owners! Having a separate legal entity from the shareholders makes it a preferred choice. This is what is known as a Limited Liability Company.
A Private Company can be started with only 1 Singapore dollar. Yes, you hear right, one share with that value! Also, with a simple structure, it only needs one director that can live in Singapore. If your business change and you need to add more complexity to the structure, you can easily do it! Changing the structure of the company is as easy as modifying the MAoA (Memorandum and Articles of Association).
Come take a look at the most popular way of conducting business in Singapore by reading our article about Private Limited Companies here.
It is important to mention that this is the preferred vehicle when a foreign company wishes to establish a subsidiary in Singapore. You can learn more about it in our article about starting a subsidiary in Singapore for your foreign company.
Now that we have covered the basic business structures of Singapore, we can move into the next section, where we will be discussing some options for foreign companies and individuals that want to establish their operations in Singapore.
Registering Foreign Companies in Singapore
The regulations in Singapore allow the participation of foreign individuals and foreign companies, which are often referred to as the parent company, to own wholly or partially other locally incorporated companies in Singapore. Being said that, these are the most common options that people choose to tap into this market:
A Representative Office, in Singapore, is a tool used by foreign companies to explore the market and conduct a list of activities that don't involve making a profit. Taking this first step before the registration of a corporate entity will allow foreign companies to get a better understanding of their business potential in Singapore and the region. It is important to mention that a Representative Office expires up to a certain term, which the maximum is of 3 years.
From the list of the allowed activities, everything related to market research, promotional activities, finding contacts, and other liaison actions, are permitted. As it does not have a separate legal identity, its parent company needs to assume all the liability for its actions.
Another option for a foreign company is to open a Branch Office, which is a way to create an extension of itself to operate in Singapore. With a (Branch) office, a foreign company can generate profits. But, there is the other side as well, it gives more risk to the parent company! The liability that a Branch office gets, will be sent directly to its headquarters. Also, the business activity can not be different from the foreign company.
This guide was made to help you! With the several options that we have mentioned here, you can have a better understanding of your choices. Now it’s up to you to decide which business structure will work best for you! But, if you still have questions that this guide didn't solve, we advise you to contact an expert. They will be able to guide you in the right direction! Although it may seem like an additional expense, their advice will save money and problems for you! Don't waste time with administrative processes that consume your time, focus your time on growing your business!