Why Is Incorporating a Business Better Than Setting Up an LLP?

Planning a timely Singapore business incorporation is a tough task. You have to answer questions related to the business plan, finance, customer needs, product mix, growth and exit strategies. You also have to decide on the right business structure that will fulfil your needs: a Private Limited Company (PLC) or a Limited Liability Partnership (LLP).

Choosing the Right Business Structure

Why is it important to choose the right business structure?

• It dictates the taxation
• It governs business’ statutory compliance
• It impacts account and finances of your business
• Its credibility can affect the loans you can get
• It details your liability
• It describes your responsibilities

Singapore Business Incorporation

In Singapore, you can incorporate a business through private limited company registration. It is the most preferred business structure as it is dynamic, scalable, and credible. It has separate legal identity from its owners or shareholders.

• A PLC limits the shareholders’ liability to their share capital
• They are not responsible for PLC’s debts or liabilities
• A PLC exists perpetually even after the death of it’s shareholders or transfer of shares
• It pays corporate income tax (0%-17%) on its nominal chargeable income
• Can claim tax exemptions, rebates, and benefits
• Dividends distributed are tax-free
• Foreign entities can own 100% shareholding
• Fundraising is easy

As per the Companies Act (Cap. 50), the Company Registrar, ACRA, governs the Singapore company incorporation process.

Pre-Registration Requirements for PLC

• At least 1 Individual or corporate shareholder. There can be as many as 50
• At least 1 local or resident director
• At least 1 company secretary
• Minimum initial paid-up capital of S$1
• Registered local office address
• At least 1 auditor (If required)

Limited Liability Partnership (LLP)

Registering an LLP in Singapore gets you a business firm. It is not an incorporated company. However, it gives you the best of a PLC and a partnership.

An LLP has a separate legal identity. It is an effective vehicle for members having complementing skills or services. Registering an LLP gives them a wide reach.

• 2-20 individuals/companies come together to set up an LLP
• The members’ liability depends on their mistakes, actions or inaction leading to losses or debts to the LLP
• The members pay personal income tax (0%-22%) on the income received from LLP
• Fundraising depends on the credibility of its members
• No tax exemption
• An LLP dissolves if a member dies or leaves

Advantages of a PLC over an LLPs

Corporate Tax

The corporate tax rates applicable to a PLC are in the range of 0%-17%. However, it can claim startup tax exemption during its first 3 years. It can also claim a corporate tax rebate, partial tax exemption, etc. All these benefits bring an effective tax amount to 8.5%-9.5%.

The income of an LLP is considered as that of its owners. They have to pay personal income tax on it. It is in the range of 0%-22%, which are a bit higher. An LLP cannot claim the tax benefits that are available to a PLC.

Capital for Expansion

A Singapore PLC has a credible image in the eyes of investors, lenders, customers, and vendor. It finds it easy to raise capital for the expansion of its business activities.

Raising capital is not an easy task for an LLP. Its credibility depends on that of its members. So, it has to mostly depend on private financing and partners’ contributions when it comes to the expansion of its activities.

Transfer of Ownership

It is easier to transfer the ownership of shares in a private limited company.

It can be full or partial.

Transfer of ownership in an LLP is not an easy process. It involves selling its individual assets. The new owners have to apply for licenses and permits.

SBS Consulting provides Singapore business incorporation services. We are the registered filing agent and are allowed to transact with ACRA. We pay the required fees and submit documents to speed up the private limited company registration process for you. If you have any queries, contact us on +65-6536 0036 or email us at info@sbsgroup.com.sg for answers.