Choosing the right business structure is one of the most important choices you’ll have to make when launching a company in Singapore. Private limited companies, partnerships, and sole proprietorships are among the options available in Singapore. Before registering a company in Singapore, it is imperative to understand the differences and implications of each structure, as each has advantages and disadvantages.
Choosing the Right Business Structure: Sole Proprietorship vs. Partnership vs. Company in Singapore
- Sole Proprietorship
In Singapore, the most basic and common kind of business structure is the sole proprietorship. It is owned and run by a single person, who has total authority over all business choices. A sole proprietorship requires little paperwork to set up and is quite simple to operate.
Under this structure, the business’s debts and liabilities are all directly carried by the owner. Thus, personal assets might be in jeopardy if the company fails or encounters legal problems. On the other hand, a sole proprietorship’s main benefit is its simplicity—no formal registration or filing fees are required.
Benefits of Sole Proprietorship
- The sole proprietor has total authority over decision-making and business operations. All of the big business decisions are made by the sole proprietor.
- A sole proprietorship is easy to register and requires less paperwork. For those who want to launch a business fast, it’s a hassle-free option.
- Businesses with smaller profits may benefit from sole proprietorships since they are subject to personal income tax rates.
Considerations for Sole Proprietorship
- An unlimited personal liability is the main disadvantage of a sole proprietorship. This means that if the company accrues debts or legal liabilities, your assets could be jeopardized. It’s important to keep personal and business finances separate and to consider getting the right insurance.
- Scaling and capital raising are two areas where sole proprietorships can face difficulties. Because you are the only investor in the company, it can restrict growth opportunities.
- Partnership
Another common business structure in Singapore is the partnership, which is particularly useful for companies run by two or more people who wish to split the profits and responsibilities. The owners of a partnership are referred to as partners and they share control over the daily operations of the company.
Advantages of Partnership
- Partners in a partnership split up the tasks and responsibilities. This makes it possible to divide the work, use each partner’s strengths, and encourage collaboration.
- It is simpler to pool financial resources when there are several partners. Additionally, partnerships are far better than sole proprietorships at attracting investors and securing funding.
- Partnership agreements are tailored to each partner’s requirements and preferences. This flexibility enables effective decision-making and the ability to change it when necessary.
Considerations for Partnership
- Just like sole proprietorships, partnerships have unlimited liability. For the debts and liabilities of the partnership, each partner is individually liable. Open communication and a well-defined partnership agreement are necessary to reduce the possibility of conflicts.
- The commitment and compatibility of the partners are essential to a partnership’s success. Changes in partner dynamics or disagreements can harm the company’s stability and growth.
- Private Limited Company
A private limited company operates as a distinct legal entity from its owners. Of the three, it provides the strongest structure, but it also comes with more complicated procedures and legal requirements. Because of its benefits, this structure is preferred by many entrepreneurs even with its added complexity.
Advantages of Private Limited Company
- One of a private limited company’s most important benefits is its limited liability. The amount that each shareholder has invested in the company determines how much liability they have. Personal assets are usually protected from business-related liabilities.
- Investors, suppliers, and customers tend to view a private limited company as having greater credibility and trust. Additionally, it provides perpetual succession, which guarantees that the business will continue to operate even if its shareholders change.
- Private limited companies have easier access to financing sources like venture capital, bank loans, and initial public offerings. This arrangement makes it easy to issue shares and draw in investors.
Considerations for Private Limited Company
- Stricter financial reporting, annual audits, and statutory filing requirements apply to private limited companies. Using accounting services and hiring a company secretary can help guarantee that legal requirements are met.
- Compared to other structures, starting and managing a private limited company is more expensive. These expenses consist of professional services fees, registration fees, and ongoing compliance costs.