Is It Better To Set Up A Private Limited Company or Limited Liability Partnership In Singapore?

Clients often asked me if they should set up a private limited company (Pte Ltd) or limited liability partnership (LLP) for their business. While I will not say 1 corporate structure is better than the other, a private limited company structure may fit better for most people. If you are undecided and seek to understand the differences between the two, let me break it down into the following points.

• Ease of Set-Up and Maintenance
• Scope of Liability
• Tax Rates
• Ownership Structure

Ease of Set-Up and Maintenance

You can set up both corporate structures with relative ease and low cost. You need to pay a set-up fee of $315 for a Pte Ltd company and $165 for an LLP.

Both corporate structures allow for 100% foreign ownership. For a limited liability partnership, you will still need to appoint a local manager if the entity is of entirely foreign ownership. Foreigners can also 100% wholly own a private limited company, the only requirement is that the company must have at least 1 local resident director.

You will require at least 2 partners to set up a limited liability partnership. For private limited companies, you require at least 1 secretary, shareholder and director.

In terms of annual compliance, the limited liability partnership must submit an annual declaration of solvency or insolvency to the authorities. On the other hand, there is more work when it comes to a private limited company. There is a need to hold and file annual general meetings with ACRA, annual accounts and tax returns. For many companies, these task is outsourced to a competent corporate secretary and accounting firm in Singapore.

In terms of perpetuity, both corporate structures do not suffer from the demise or departure of any particular partner or shareholders. The business will be able to continue to function as usual.

Scope of Liability

Just as the term suggests, both the limited liability partnership and private limited company have limited exposure to business risk. This liability/risk exposure is according to the partners’/shareholders’ investment in the entity. You will not compromise your personal assets from any adverse impact on your business.

Tax Rates

This is where you see major differences between limited liability partnerships and private limited companies. In a limited liability partnership, the partners partake in the profits of the business as per their partnership agreement. This profit is then taxed as personal income. In Singapore, the personal income tax rate is up to a cap of 22%. A private limited company will be subjected to a flat corporate tax rate of 17%. However, companies in Singapore get to enjoy many tax rebates which can significantly reduce the tax payable. You can then distribute this after-tax profit as dividends to the shareholders. Dividends in Singapore are generally non-taxable.

On another note, companies in Singapore are eligible for many government grants and initiatives. These grants help companies thrive and remain competitive. These grants range from helping companies adopt technology to improve their business workflow to reimbursing the hiring cost of workers. Limited liability partnerships may not get to enjoy such grants and benefits.

Ownership Structure And Scaling

Ownership structure will determine the ability to scale your business in the future and also the ease of selling off the business. As a company’s equity is equivalent to the shares rather than an individual, you can transfer the rights and ownership of the company wholly or partially. Whereas for LLP, assets in the entity belong to the individual and he or she can transfer them privately to another individual. Depending on the partnership agreement, this transfer may also need approval from all the partners.

To fund future expansion, a company can easily issue extra equity or take on business financing. This means an easier means to getting external investor funding as well as credit line from banks. Partnerships are often only limited to the financial contributions of the involved partners.

Conclusion

Unless you have a specific need to run a partnership, e.g law firms, audit firms etc, you will be better off having a private limited company. Both entities offer you the veil of limited liability but having a company gives you a lot more financial advantages in terms of taxes, government grants and funding.

If you would still like to find out more, do feel free to connect with us!

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