Which business structure should I select? This is the big question running through the mind of all aspiring entrepreneurs, who are on the way to register their company in Singapore.

The configuration of the business structure governs the taxes attached to it, its account and finance provisions, specifics of business expansion and individual accountability of directors.

A lot of research leading to a decision on the ideal structure of your business is followed by getting your Singapore business registered with the Accounting and Corporate Regulatory Authority (ACRA).

Singapore offers several business entities – in particular, sole-proprietorships, partnerships, limited partnerships (LP), limited liability partnerships (LLP), and companies. Here we discuss the most popular company structures from an entrepreneur’s point of view.

Private Limited Company

A PLC (Private Limited Company)is the most widely preferred type of business entity in Singapore. Most companies find this business structure most feasible because, in addition to being an individual legal identity, it also adds a professional and formal flavor to a business. A PLC has a different take in terms of its shares, i.e., its shareholders do not share the liability of its debts and liabilities beyond their own share capital.

It is Corporate and Beneficial

A PLC incorporated in accordance with the Companies Act (Cap. 50) has a separate legal existence from its owners/shareholders. This separate legal character has its own set of repercussions.  In legal terminology, these are collectively known as a corporate veil.

The corporate veil pays off in the following ways:

·         A company can sue and be sued on its own behalf

·         Can buy property under its own name

·         In general, the owners of the company cannot be held accountable for the debts and liabilities of the company.

·         The company continues to exist even after the shareholders’ death or transfer of shareholders/ownership.

 Basic Provisions of PLC

·         A minimum of one shareholder, who can be a person or a corporate entity. Foreigners can hold 100% shares of the PLC.

·         A minimum of one director who is a proper Singapore resident. The same person can be the director as well as the shareholder, or it can be two different people.

·         There must be a minimum of one company secretary, who should be a natural person and an ordinary Singapore resident.

·         A minimal initial paid-up share capital of at least S$1.

·         A physical Singapore address that will serve as a registered address.

·         If not exempted, an auditor has to be designated not later than three months after the company has been incorporated. Companies having not more than 20 shareholders fall under the exemption category, such that not a single shareholder is a corporate and the yearly turnover does not exceed S$5 million

Singapore Branch Office

Different from a subsidiary, a branch office is an extension of the foreign firm. The branch office necessitates registration with ACRA. However, it is not a separate legal entity. The foreign company has to bear the entire responsibility of the liabilities of the branch office.

The functional name of the branch office must be identical to that of the foreign company’s head office. Another requisite is to get the name approved before registering it in Singapore. The branch office is able to conduct all business operations that are within the scope of the foreign head office.

To operate and manage its business operations in Singapore, the branch office simply needs authorization. This does not make it a resident company, as a result of which it loses out on the local tax reliefs or allowances (the bright spot is that it might still be eligible for partial tax exemption).

The branch office can, however, send its profits to the home country. The part of its revenue that has been sourced from its Singapore operations alone falls within the ambit of Singapore corporate tax. Income, the source of which is outside Singapore is not eligible to be taxed. It is mandatory for the branch office to file its own accounts and also the accounts of its parent company, every year.

It is for the head office to appoint one agent, who is a common resident in Singapore, to ensure that the branch office complies with the appropriate rules and regulations and deals with all notices directed to the branch office. A Singapore branch must have a registered office address of Singapore. All its business documents should display the name and place of incorporation.

Irrespective of the simplicity of compliance, foreign companies do not prefer this corporate structure. The reasons for this are that without the corporate veil, the liabilities are directed at the parent company and coveted local tax benefits and concessions are unavailable. Generally, foreign companies opt for the subsidiary company format.

Singapore Subsidiary Company

A company that owns more than half of the shares of another company is known as the parent company and the company, the shares of which are being held, is regarded as a subsidiary. Majority of the foreign companies being established in Singapore prefer this type of pattern.

Foreign companies may own the entire Singapore company, i.e., 100% of its shares. The subsidiary has separate legal existence and the parent company is only accountable for the subscribed share capital. The corporate veil serves as a safety mechanism for the assets and interests of the parent company, safeguarding it from the liabilities and debts of the subsidiary.

The taxes applied to a subsidiary are the same as those applied to a local company. This type of tax regime benefits the foreign company with Singapore’s business-friendly tax rates and other applicable waivers and support.

Apart from what is essentially needed for a PLC, it is also necessary to appoint an auditor for the subsidiary, not later than three months after it has been incorporated. Audited accounts have to be submitted to the IRAS every year.

Foreign entrepreneurs and companies, setting up companies in Singapore, must hire the services of a corporate service agency. It is not possible for them to incorporate a company on their own. An experienced corporate services provider in Singapore can provide the best of services, beginning with incorporation till getting the company in running state.

Conclusion

This article cites the Singapore company structures, available to an entrepreneur.

It aligns how entities differ from each other, their ups and downs and all factors to consider while deciding on the most suitable business for you.

For advice, information and support on the type of business structure to opt for, contact us for more details.

Detailed analysis on all that is required to register a company, estimate your business needs and finalizing the best company structure for you spells a successful start for your business in the island estate.