Singapore has been lauded as one of the best places in the world to set up a business. The process of company formation in Singapore is fast and hassle-free, which is why so many foreign entrepreneurs and companies come every year to set up a company in Singapore. However, before you start a business in Singapore, you will need to choose a business entity type for your company.
There are different types of business entities, and each has its benefits and restrictions. As a foreign company or entrepreneur, you may not be familiar with the various business entity types you can opt for when you start a business in Singapore. You need to know which entity will be suitable for the business. In this article, we will be going through different types of business entities that will be helpful if you want to set up a company in Singapore.
1) Foreign Companies
Foreign companies can do their business freely in Singapore, and there are separate business entities. There are mainly three types of options for foreign companies.
- Subsidiary company
- Branch office
- Representative office
Subsidiary Company
It’s a local private limited company that can be partially or completely owned by a foreign company. The foreign company can own 100% shares of the company, or the subsidiary can also own some shares, but the majority of the shares belong to the foreign company. The important thing about the subsidiary is that it’s a separate legal entity that, so the parent company has no liability.
A subsidiary company can enjoy the tax benefits of the country that are given to resident companies. It’s the common choice of foreign companies that want to start a business in Singapore, and move some of their business operations here. All foreign company business entities have to undergo the process of company formation in Singapore under ACRA to formally register their business.
Branch Office
A branch office is not a separate legal entity; therefore, the parent company is liable. It’s actually an extension of the foreign company in Singapore. The branch office cannot be tax-resident, so it cannot get the tax incentives and exemptions that are for tax-resident companies. The reason it cannot be a tax-resident is its management and control decisions are taken in a foreign country.
Usually, companies avoid this business entity because it does not have a separate identity and tax benefits, hence it is unsuitable if they want to start a business in Singapore. However, if your parent company wishes to set up a managing office and do not want their business to be too large, then this entity is best for you.
Representative Office
The representative office is a temporary entity, which cannot involve in the profit-making business. It’s preferred only for market research and promotion. If any company wants to know about the market of the country, it can choose a representative office. It’s good for foreign companies that are not sure about establishing a permanent business in the country. Similar to the branch office, it does not have a separate identity, so the foreign/parent company is liable. This office can be formed prior to your parent company’s official company formation in Singapore for purposes such as liaising with local investors and partners.
2) Local Companies
A company is a business entity with a separate legal entity. There are shareholders and boards of directors. It can be divided into four types.
- Private Limited Company
- Exempt Private Limited Company
- Public Limited Company by Shares
- Public Limited Company by Guarantee
Private Limited Company
Private Limited Company is the most common type of business entity in Singapore. Many entrepreneurs and businessmen prefer this when they set up a company in Singapore.
A private limited company is a separate entity. The company is liable for the losses and debts, and it can sue and be sued on its own name. The shareholders or directors are safe in terms of their personal assets. They only have a limited liability, which is their investment in the business.
The company can have a maximum of 50 shareholders, and the shares are not available to the public. It can be tax-resident to enjoy the benefits, such as tax incentives and exemptions. The transfer of the company is quite easy, which is done by selling the shares. Moreover, due to the single-tier system of Singapore, the profit of the company is taxable, and there is no tax on dividends.
If you are interested in company formation Singapore, then a private limited company can be an excellent option. It’s suitable for most SMEs.
Exempt Private Limited Company (EPC)
EPC is similar to Private Limited Company, but it’s exempted from the annual audit. The maximum number of shareholders is only 20, which is much less than a private limited company. The shareholders cannot be any corporate. This business entity has its own perks, but the annual revenue should be less than $5million. If the annual revenue is under the limit and other requirements are suitable, then it can be an excellent entity for entrepreneurs looking to start a business in Singapore and want to start a small company with no more than 20 shareholders.
A public limited company is a company that offers its shares to the public. The shareholders should be no more than 50. It’s also a separate legal entity, so there is no risk on the personal assets of the shareholders. The best thing about it is that it can raise capital with ease. Its shares are available in the stock exchange, so it can get buyers and raise the capital. There are very strict rules and regulations, and it’s expensive to set up a company in Singapore.
This structure of the business is ideal for large businesses. Most well-established businesses go for it.
Public Limited Company by Guarantee
Public Limited Company by Guarantee is usually for non-profit organizations and public welfare. It can be for the promotion of sports or arts. There are no shareholders; instead, there are members that have a limited liability, which is their investment.
In Summary
Before you start on your process of company formation in Singapore, you will need to determine what type of business entity is most suitable for your business. Be sure to do your research on the industry, and understand the needs and goals of your business here. This way, you can ensure that your newly set up company in Singapore will not suffer from any poor business decisions in the future due to the wrong choice of entity.
Singapore skyline -DepositPhotos
