Singapore, with its business-friendly policies and vibrant economy, is a top choice for running a business, whether it’s a local or foreign entity. However, before launching your business, there are several important steps to take, including selecting the appropriate business structure.
In Singapore, most business owners opt for either a Private Limited (Pte Ltd) or a Limited Liability Partnership (LLP), each offering unique benefits and conditions. This article will compare these two structures and address commonly asked questions.
We’ll cover:
- What is Private Limited (Pte Ltd)?
- What is Limited Liability Partnership (LLP)?
- Differences between Pte Ltd and LLP
- Which business structure is better for my business?
- Frequently Asked Questions
What is Private Limited (Pte Ltd)?
A Private Limited company requires at least one Singapore resident director and is the preferred choice for many business owners. Shareholders are not personally liable for the company’s debts and losses. This structure provides a separate legal status, ensuring that personal assets and finances are protected from legal action.
Pte Ltd companies must meet regulatory requirements such as holding Annual General Meetings (AGMs), submitting unaudited financial statements to the Accounting and Corporate Regulatory Authority (ACRA), and fulfilling corporate secretarial reporting. They are subject to corporate tax rates of up to 17%, making this structure suitable for companies with long-term expansion plans.
What is Limited Liability Partnership (LLP)?
The LLP is the second most popular business structure. LLP companies are taxed at personal tax rates of up to 22% and must fulfil bookkeeping requirements. A minimum of two partners and a maximum of 20 partners are required, with equal ownership among all partners. Like a Pte Ltd company, LLP partners are not personally liable for the company’s debts. However, shareholders may be held responsible if they cause losses or claims due to wrongful acts or omissions. LLPs are best suited for professional service providers, such as lawyers, architects, accountants, and management consultants.
Differences between Pte Ltd and LLP
To summarise the key differences between these two business structures:
|
Business Structure |
Cost of set-up and requirements |
No. of shareholders and partners |
Tax rates |
Reporting requirements |
Liability and legal status |
|
Private Limited company (Pte Ltd) |
S$315 to set up. Minimum of one Singapore resident director needed. |
S$315 to set up. Minimum of one Singapore resident director needed. |
Corporate tax of up to 15% |
Corporate secretarial reporting, annual general meetings, submission of unaudited financial accounts |
Separate legal entity. Shareholders and owners are not personally liable for company debts and losses. |
|
Limited Liability Partnership company (LLP) |
S$115 to set up. Singaporeans, permanent residents and Employment Pass holders, and foreign individuals and companies can apply. |
Minimum of 2 partners to maximum of 20 partners. Ownership is equal among all partners. |
Personal tax of up to 22% |
Regular bookkeeping; declaration of solvency or insolvency yearly |
Separate legal entity. Partners are not personally liable for any losses or claims incurred by the company. However, partners may be held personally liable if they are found to have caused losses and claims due to their own wrongful acts of omissions. |
Which business structure is better for my business?
Now that you’re familiar with the basics of Pte Ltd and LLP structures, you may wonder which one is suitable for your business. Here are the pros and cons of each:
Private Limited company (Pte Ltd)
Pros:
- Taxed at corporate rates of up to 15%
- Shareholders not personally liable for company debts and losses
- Easier access to loans, tax exemptions, and government grants
- Maximum of 20 shareholders allowed
- Allows for funding through new shareholders
- Continuity of the company even in the event of shareholder or director changes
Cons:
- More compliance requirements, including following regulations in the Singapore Companies Act and submitting unaudited financial accounts to ACRA and/or the Internal Revenue Authority Singapore (IRAS)
- Annual general meetings must be held regularly
- Higher operational costs due to increased compliance
- Higher registration cost
Limited Liability Partnership company (LLP):
Pros:
- Lower registration cost
- Fewer compliance requirements (no directors, corporate secretary, or annual general meetings required)
- Only an annual declaration of solvency or insolvency needed
- Owners not personally liable for business debts and losses
- LLPs are perpetual entities, continuing to exist despite changes in shareholders, unless they are dissolved
Cons:
- Taxed at personal tax rates, which are higher than corporate tax rates
- Ineligible for government loans
- Requires a minimum of two partners at all times, or the company will be dissolved
- Limited ease of ownership transfer
Most business owners prefer the Pte Ltd structure due to lower taxes and access to government grants. If you’re considering this option, RMS can assist you with the setup process. We have helped numerous Pte Ltd companies establish their businesses effectively.
Ultimately, business owners should choose the structure that aligns with their specific needs.
Frequently Asked Questions
Is Pte Ltd the same as LLP?
No, although they share a few similarities. Both structures offer separate legal entities, ensuring that shareholders and partners are not personally liable for business debts and losses. However, there are more differences than commonalities. Pte Ltd companies have additional regulatory requirements, such as directorial and corporate secretarial reporting.
Can an LLP be converted to a Pte Ltd in Singapore or vice versa?
Yes, both conversions are possible, but specific conditions apply. To convert from LLP to Pte Ltd, you need to set up a Pte Ltd, transfer ownership, and dissolve the LLP. For the conversion from Pte Ltd to LLP, the partners must also be shareholders before the conversion date.
Is Pte Ltd considered a limited partnership?
No, a limited partnership (LP) is not a separate legal entity, which means owners can be held liable for LP’s debts and obligations.
Let RMS Help You
Navigating the rules and regulations governing companies can be complex. Let our incorporation services handle this crucial aspect of your business.