Overview: LLC vs LLP vs Sole Proprietorship In Singapore
Establishing a small business even sometimes requires a huge financial investment and also a significant amount of time and effort. That is why, when it comes to resolving financial disputes, rights, and ownership, choosing the proper business type will help you in the long run while establishing your business in Singapore.
Entrepreneurs are frequently challenged with the decision of whether to form a Limited Liability Company (LLC), also known as a Private Limited Company, a Limited Liability Partnership (LLP), or a Sole Proprietorship in Singapore.
In this post, we will look at the distinctions between the the LLC vs LLP vs Sole Proprietorship in Singapore.
About LLC vs LLP vs Sole Proprietorship in Singapore In Brief
Sole Proprietorship
A Sole proprietorship is even known as a (single-person business ), which is the most basic kind of business entity. It has just one owner who is the leading decision-maker and is personally accountable for all of the firm’s assets and responsibilities.
A sole proprietorship can be listed by citizens, residents, and Employment Pass holders of Singapore. Apart from this foreign persons and businesses may also establish a sole proprietorship in Singapore, but they must appoint a manager who should be a resident of Singapore.
1) Legal Identity
In Singapore, the simplest but riskiest company entity is a sole proprietorship. It has just a single owner who is the leading decision-maker and is personally responsible for all of the firm’s assets and duties.
There are no partners, and the Sole proprietor has complete control over the operation of the firm.
2) Business Liability
In a sole proprietorship, because the business entity and the owner are inextricably intertwined, suing the business is comparable to suing the owner, and all debts and losses must be borne by the owner.
Furthermore, finances are restricted since most people do not consider a sole proprietorship to be a commercial organization, which is not in any event, thus investment is often in the form of private investment or personal money.
3) Ease of Expansion
As an individual owner, it is quite difficult to get external cash in the form of loans or investments in your firm. Your funds and the income earned by the firm are your only sources of capital.
To obtain a loan from a bank or lending organization, you must be willing to put up your assets as collateral. As a result, business development is challenging, and many sole proprietorships fail to take off.
4) Taxation
Sole proprietorships are taxed at the personal income level of the owners rather than the business level.
For sole proprietors, all business gains are considered personal income for the owner and are thus taxed as part of personal income at the personal income tax rate.
5) Transfer of Ownership
This simplicity of ownership transfer is not easily available in a sole proprietorship. Instead, the assets, licenses, and permissions must be transferred one at a time.
In the case of a sole proprietorship, however, license ownership is tied to the individual and might be difficult to transfer. It is due to the lack of a separate legal personality.
6) Cost to Start & Maintain
In Singapore, a sole proprietorship is the simplest and least expensive type of business structure to establish and manage.
Sole proprietorships cost $100 to register (minus the $15 name registration charge) and $30 to renew each year. There is no need to file anything.
7) Perpetuity and Succession
However, you and your business are intertwined as a sole entrepreneur. Your company has no indefinite lifespan and will come to a halt when you retire or die.
Limited Liability Partnership (LLP)
An LLP is the perfect mixture of a partnership and a PLC. However, the limited liability partnership (LLP) authorizes owners to regulate as a partnership while maintaining a separate legal identity, identical to a private limited company.
Professional service providers such as attorneys, architects, accountants, and management consultants would benefit greatly from this arrangement. Any Singaporean citizens, residents, and Employment Pass holders can be registered for LLP.
Foreign persons and corporations may also form an LLP, but they must pick local management. The benefit of such a collaboration is that it is a low-cost Singapore business establishment with minimal liability protection.
1) Legal Identity
A limited partnership (“LLP”) is a corporate vehicle in Singapore. It is a partnership having at least two participants, at least one of whom is a general partner and at least one of whom is a limited partner. An LP is not a distinct legal entity from its partners.
A partnership is a type of business that is made up of 2 to 20 participants. When a partnership has more than 20 partners, then it must be registered as a corporation under the Companies Act.
2) Business Liability
As separate legal entities, LLCs and LLPs have limited obligations. The owners and directors are not individually accountable for the LLC or LLP’s obligations and liabilities.
3) Ease of Expansion
Mainly, LLPs also face the complication of raising external wealth, which is often limited to its partners’ contributions.
4) Taxation
LLPs are taxed at the personal income level of the individual partner rather than the business level.
Profits are divided among partners in agreement with the partnership treaty, are recognized as a portion of each partner’s income, and are taxed at personal income tax rates.
5) Transfer of Ownership
A limited liability partnership (LLP) cannot be transferred totally. Instead, the assets, licenses, and permissions must be transferred separately.
In the case of an LLP & sole proprietorship, the license ownership is attached to the individual and might be difficult to transfer to the business.
6) Cost to Start & Maintain
LLP registration is $100 (minus the $15 name application charge) and there is a $30 filing fee for yearly declarations each year.
This yearly compliance requires the LLP to submit to the authorities a statement of solvency or insolvency.
7) Perpetuity and Succession
The LLP continues to exist regardless of the status of its directors, partners, & stockholders.
A member’s resignation or death usually does not affect the continued existence of an LLP. Such structure lasts after individuals die or retire.
Limited Liability Company (LLC)
Among all forms of corporations in Singapore, the Limited Liability Company is the most prevalent business entity. However, Limited Liability Company (LLC) is even recognized as a Private Limited Company (PLC) in Singapore.
Just like the other Singapore business organizations such as a sole proprietorship and LLP, an LLC has a different rightful position from shareholders to chiefs, who have complete accountability for the company’s deficits and expenditures.
Its name frequently includes the terms ‘Pte Ltd’ or ‘Ltd.’ It is usually referred to as a company in various parts of European nations and the US.
For the first three years, new Singapore start-up enterprises pay 4.25 percent tax on the first S$100,000 of chargeable income (earnings). A further 50% exemption is available on the following S$100,000 of taxable income (profits).
1) Legal Identity
A private limited corporation has a separate legal identity from its owners and directors, allowing it to engage in contracts, acquire assets, incur debt, and sue and be sued in its name.
As a result, the firm’s shareholders’ liability is limited to the money utilized to acquire shares in the company. Their assets cannot be utilized to pay off the obligations or liabilities of the private limited company; such debts must be paid by the firm.
2) Business Liability
Because LLPs and LLCs are set up as limited liability legal entities in Singapore, their business liabilities remain inside the entity itself, shielding their members (partners and shareholders, respectively) through the provision of limited liability.
Simply put, your risk is restricted to the amount you have invested in the corporation, and your assets are secured.
3) Ease of Expansion
As a private limited company, you can benefit from the opportunity to generate cash by adding equity partners, venture funds, business finance, and so on. Investors are keener to capitalize on a firm when individual and firm assets are legally separated.
In general, banks prefer to lend to corporations rather than sole proprietorships or limited liability partnerships.
4) Taxation
For the first 3 years, new Singapore start-up enterprises pay no tax on the first S$1lakh of chargeable earnings profits. On the following S$200,000 of chargeable income, a further 50% exemption is granted (profits).
Furthermore, there is no capital gains tax. Furthermore, due to Singapore’s single-tier tax structure, corporations pay no dividend tax. Dividends are provided to shareholders tax-free after company income has been taxed. A private limited business can take advantage of all of these tax breaks.
5) Transfer of Ownership
The selling of shares makes it simple to transfer ownership in the firm. That is, the existence of the firm is not dependent on the ongoing participation of any member.
The firm can continue to prosper even if a stakeholder dies or resigns.
6) Cost to Start & Maintain
LLC registration is $300 (minus the $15 name application charge) and there is a $60 annual return filing fee that must be paid when the firm files its annual return each year.
Although every year, financial affidavits are needed to be developed. Depending on the form of the LLC, the financial statements may need to be audited.
7) Perpetuity and Succession
An LLC, on the other hand, continues to exist regardless of the status of its partners, directors, and stockholders.
A member’s resignation or death usually does not affect the continued existence of an LLC.
Comparison of LLC vs LLP vs Sole Proprietorship in Singapore
Here is a brief comparison of LLC vs LLP vs Sole Proprietorship in Singapore:
| Factors | LLC | LLP | Sole Proprietorship |
|---|---|---|---|
| Legal Identity | Distinct legal entity | Distinct legal entity | Not a distinct legal entity |
| Business Liability | Shareholders have limited liability | Partners have limited liability | Proprietors have unlimited liability |
| Transfer of Ownership | Simple to transfer shares partly or wholly | The possessions, licenses, and permits have to be transferred separately | Challenging to transfer ownership |
| Taxation | Profits are subject to corporation taxation | The tax rate applied to profits is determined by each partner’s individual income tax rate | Profits are taxed at the individual income level of the proprietor |
| Raising Funds | Simple to raise funds | Challenging to raise funds. Must continue to be restricted to personal funds and donations from partners | Challenging to raise funds. Must continue to be restricted to personal funds and donations from partners |
| Perpetual succession | Business stays operational irrespective of the condition of its directors, members, and stockholders. | Business stays operational irrespective of the condition of its directors, partners, and stockholders | No perpetual succession |
Conclusion
It is vital to have a thorough understanding of the different types of businesses that are present in Singapore before incorporating a business there. You can then evaluate several business structures to choose which one is most appropriate for your company. In this article, we have provided a proper comparison of LLC vs LLP vs Sole Proprietorship in Singapore in order for you to grasp these company forms clearly.
If you have any further questions regarding LLC vs LLP vs Sole Proprietorship in Singapore, get in touch with our business experts at Odint Consulting.
FAQ’s
Taxed at personal income is a maximum of 22%,
You can add in between two to twenty partners.
Yes, absolutely. However, you have to have a manager, who is a citizen of Singapore.
It has a low cost of set-up with limited liability protection.
The simplest and quickest to establish a business structure is a sole proprietorship, which can be formed with as few as one owner.
Numerous variables, including taxation, the capacity to generate capital, the transfer of ownership, the capacity to raise money, limited liability protection, and others, should be taken into account when choosing the business form.
