Types of Business Entities Business (Sole-Proprietorship/Partnership) A Sole-Proprietorship is a business firm owned by an individual or one company. There is no partner in the business; the sole-proprietor has the absolute say in the business. Partnerships may have 2 or up to 20 partners. Once there are more than 20 partners, the business entity must be incorporated as a company governed by the Companies Act, Chapter 50. The owner(s) of the business has unlimited liability. The registration of the business is valid for one year; businesses may renew 3 months before the expiry of the business. In a Sole-Proprietorship, the owner must be a local resident in Singapore. If the owner is a foreigner, the owner will have to appoint a local manager. In a partnership, at least one of the owners must be a local resident in Singapore. The owner(s) may be an individual or corporate company. With effect from 13 Jan 2003, a new business registered will be valid for a year from the date of registration. The registration must be renewed before the expiry of the business & it will be renewed for a period of 1 year. To carry on the business after the expiry date is an offence for which the defaulter is liable on conviction of a fine not exceeding $5000 or to imprisonment for a term not exceeding 12 months or to both fine & imprisonment. Major Advantage The registration cost of the business is minimal & there are less administrative duties to adhere to. Major Disadvantage There is no tax benefit and profits are taxed at personal income tax rates. The owner is personally liable for the business. A soleproprietorship/partnership is not a legal entity (i.e. it cannot sue or be sued in its own name and it cannot own or hold any property).
ii. Limited Liability Partnership The Limited Liability Partnerships Act 2005 came into operation on 11 April 2005. As its name suggests, a LLP will essentially be a partnership with limited liability. It will have legal personality and can enter into contracts, hold property and exist irrespective of changes in its partners. It will also retain some degree of internal flexibility of a partnership and has less onerous reporting requirements compared to companies. There must be at least 2 partners & 1 Manager to act for the LLP. There is no limit to the number of partners. The partners can be individual or company. There can be more than 1 manager. Profits form part of each partner¶s personal income and are taxed at personal income tax rates. The LLP can be created by registration of a new LLP or by conversion from an existing company or business to an LLP. Advantages
The personal assets of the partners are protected. In addition, owners are not personally accountable for the wrongful acts of other owners. However, partners can be personally accountable for debts and losses resulting from their own careless actions. Any changes in the LLP (e.g. resignation or death of partners) do not affect its existence, rights or liabilities. Like partnerships, there is no need to audit or file annual returns with ACRA. However, the appointed manager must make an Annual Declaration to ACRA stating whether the LLP is able to pay its debts as they become due in the normal course of business.
Investors may be more willing to join as silent partners as liability for partners is limited Disadvantages Compared to sole-proprietorships and partnerships, LLPs have more formalities and procedures to comply with.
There is a need to strike off/wind up the LLP if the partnership ceases business.
Private Limited Company Limited by Shares
A company is a business entity registered under the Companies Act, Chapter 50. It has a legal personality (i.e. it has rights to own properties, can sue or be sued). It usually has the words: Private Limited / Pte Ltd / Private Ltd / Pte Limited as part of its name. There is separate legal entity from shareholders and directors. There must be at least one shareholder and one director. A shareholder is the investor/owner of the company. A shareholder/director can be the same person. However, most companies opt to have at least 2 directors as banks and other financial institutions usually require 2 signatories. From 1 April 2004, the company can have a minimum of 1 director who must be a local resident in Singapore. A foreigner who wishes to act as a local director of the company can apply for an Employment Pass / Approval In Principal letter from the work pass division of the Ministry of Manpower under the Entrepass scheme. For limited private company, the number of shareholders is limited to 50 & can be a corporate entity. For limited exempt private company, the number of shareholders is limited to 20 & can only be individuals. Profits are taxed at corporate tax rates. There is a need to appoint a corporate secretary within 6 months of incorporation & filing of the annual returns is required.
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Eligibility of Foreigner to Register a Business/LLP/Company in Singapore Foreigners are able to register a business/LLP/company in Singapore. Business (Sole-Proprietorship / Partnership) Foreigners may register as an owner of a sole-proprietorship. However, they must appoint a local manager. The foreigner may also register as an owner in a partnership. The foreigner need not appoint a local manager if the partner is a local resident. The owner must satisfy the following requirements: 0. 1. The individual must be above 21 years old The individual must not be an undischarged bankrupt. Undischarged bankrupt may register for a business subjected to their official assignee¶s approval.
The local manager must be above 21 years old and be one of the following: a Singapore Citizen a Singapore Permanent Resident an Employment Pass holder an Approval-in-Principal Employment Pass holder a Dependant Pass holder Limited Liability Partnership Foreigners may register as a partner of in a LLP. However, there must be at least one partner who is a local resident. Otherwise, the partners will have to appoint a local manager. The foreign partner must satisfy the following requirements: 0. 1. The individual must be above 21 years old The individual must not be an undischarged bankrupt. Undischarged bankrupt may register for a business subjected to their official assignee¶s approval.
The local manager must be above 21 years old and be one of the following: a Singapore Citizen a Singapore Permanent Resident an Employment Pass holder an Approval-in-Principal Employment Pass holder a Dependant Pass holder
Private Limited Company Limited by Shares A foreigner may register to be a director in a company. However, there must be at least one director of the company who is above 21 and be one of the following: Singapore Citizen Singapore Permanent Resident Employment Pass holder Approval-in-Principal Employment Pass holder Dependant Pass holder Directors cannot be bankrupts or persons convicted of dishonesty. A foreigner (above 21 years old) may register to be a shareholder in a company. In order to work in Singapore, the foreigner will need to apply for an employment pass or entrepass.