If you have yet to determine which business entity is most suitable for your needs, this comprehensive guide takes an in-depth look into the key concerns of entrepreneurs and business owners and explores the comparative factors to assess the different types of corporate entities in Singapore.

Read Also: Different Types of Business Entities in Singapore

---

Funding Opportunities

“On average, more than 50,000 new businesses are set up every year… Yet many of them find it challenging to obtain funding during their start-up years as their level of operations or business activity may be too low,” commented Mr. Eric Ong, OCBC Bank’s Head of Emerging Business.

Securing funding for your business entity can be a challenge depending on your legal designation.

Funding Opportunities for	Details
Limited Liability Partnership Private Limited Company	Considered separate legal entities Can benefit from fixed interest rates, collateral free Carefully scrutinised by banks and financial institutions when extending banking/credit facilities
Sole Proprietorships Partnership Limited Partnership	Typically excluded by banks and financial institutions (harder to get loans) Exceptions: term loans with guarantors and contractual documents proving that the loan can be repaid

More importantly, it is only the private limited companies that can benefit from government funded microloans, which are offered by local banks such as DBS, OCBC and UOB. These loans are supported by the Standards, Productivity & Innovation Board (SPRING Singapore) and International Enterprise Singapore (IE Singapore), aimed at providing affordable funding schemes for small and medium-sized businesses.

A snapshot of the business loan schemes offered by the three banks is pictured in the table below:

	DBS	OCBC	UOB
Eligibility Requirements	Business is registered and operating in Singapore for less than 3 years	Business is registered in Singapore and operating for at least 6 months but less than 3 years	Business is registered and operating in Singapore
	30% of shares owned by a Singaporean or Singapore Permanent Resident (“PR”)	30% of shares owned by a Singaporean or Singapore Permanent Resident (“PR”)	30% of shares owned by a Singaporean or Singapore Permanent Resident (“PR”)
	Less than 10 employees or annual turnover not exceeding S$1 million	Less than 10 employees or annual turnover not exceeding S$1 million	Less than 10 employees or annual turnover not exceeding S$1 million
	One guarantor must be a Singaporean or PR aged between 21 and 62		Company’s Group Annual Sales of not more than S$100 million or company’s Group Employment Size of not more than 200
Maximum loan amount (depending on loan type*)	Up to $8million for Venture Debt Loans and more	Up to S$8million for Business Venture Loans and more	Up to S$3million for Temporary Bridging Loans and more

*Subject to individual bank’s eligibility criteria
Sources:
;
https://www.uob.com.sg/business/finance/government-assistance-scheme.page;
https://www.ocbc.com/business-banking/smes/loans/government-assisted

Flexibility of Succession

Types of Business Entity	Continuity in Law
Sole Proprietorship	Exists as long as the owner is alive
Partnership	Exists subject to partnership agreement
Limited Partnership	Exists subject to partnership agreement
Limited Liability Partnership	Perpetual succession until wound up or struck off
Private Limited Company	Perpetual succession until wound up or struck off

As evident from the table above, there is little flexibility of succession for sole proprietorship, partnership and limited partnership. Particularly for a sole proprietorship, there is no option for others to continue the business on behalf of the sole proprietor.

For partnerships, it is essential that the partnership continues to be harmonious as it will be not be possible to carry on the business if one partner chooses to terminate the partnership, and the actions are dependent on the clauses set out in the partnership agreement.

Depending on your business needs and the future plans, it may be wise to consider a business entity that has more flexibility, particularly if one plans to stay or maintain the business in the long run. Alternatively, if your business is currently a sole proprietorship or partnership, rest assured that there is the option to convert your business into a private limited company. A professional services provider like Rikvin will be able to assist you with all the steps required.

Tax Implications

The tax rates imposed for sole proprietorships, partnerships, limited partnerships, and limited liability partnership are on an individual basis, where the sole proprietor or partner is taxed based on his or her income tax levels. Conversely, companies will be taxed based on the corporate tax rate. For Singapore’s corporate tax, there is a one-tier tax system, which charges a flat corporate tax rate of 17%. For personal tax, however, Singapore utilises a progressive tax system. Hence, beyond a certain income level, sole proprietorships and partnerships, limited partnerships and limited liability partnerships may end up paying a higher rate of tax.

A comparative table setting out the taxable incomes and tax rates is set out below:

Note: From the year of assessment 2017, the government has announced that the personal income tax rates will be adjusted upwards. This will mean higher taxes for partners and sole proprietors.

w.e.f. Year of Assessment 2017
Chargeable Income ($)	Income Tax Rate (%)	Gross Tax Payable ($)
On the First 20,000 On the Next 10,000	0 2	0 200
On the First 30,000 On the Next 10,000	– 3.5	200 350
On the First 40,000 On the Next 40,000	– 7	550 2,800
On the First 80,000 On the Next 40,000	– 11.5	3,350 4,600
On the First 120,000 On the Next 40,000	– 15	7,950 6000
On the First 160,000 On the Next 40,000	– 18	13,950 7,200
On the First 200,000 On the Next 40,000	– 19.5	21,150 7,600
On the First 240,000 On the Next 40,000	– 20	36,550 8,000
On the First 320,000 In excess of $320,000	– 22	44,550

In addition, only companies can qualify for the attractive tax incentives provided by the Singapore government. For multi-national corporations who set up their regional headquarters in Singapore, they can benefit from the Regional Headquarters Award, which offers a concessionary tax rate of 15% for companies that satisfy the minimum requirements by Year 3 of the incentive period for the following two years on incremental qualifying income from abroad.

Another popular tax incentive scheme is the Productivity and Innovation Credit scheme, which encourages companies to invest in innovation and productivity improvements. Under this scheme, businesses can enjoy up to 400% in tax deductions and allowances; or a 60% cash payout. Moreover, Singapore has established many double taxation agreements (“DTAs”) with various economies throughout the world, ensuring that companies will not be taxed twice.

Read also: Other Singapore Corporate Tax Incentives

Shareholder liability

As mentioned earlier, sole proprietorships, partnerships, and limited partnerships are not considered to be separate legal entities from their business owners. The implication of this is that the sole proprietor and partners are considered wholly responsible and personally liable for the debts and losses of their business. Financially speaking, this can be devastating when a business fails or becomes victim to a bad situation.

Moreover, with an awareness of the risks associated, sole proprietors and partners may be more reluctant to take risks with their own business. This could adversely impact the growth potential of the business.

Particularly in the case of partnerships, all partners are personally liable for the partnership’s debts and losses, even if the debts and losses are incurred by other partners, even if they are not aware of the other person’s actions. A limited liability partnership lessens this risk somewhat, as only the general partner has unlimited liability.

Read also: More on Limited Liability Partnerships

Compliance Obligations

In terms of compliance obligations, the simpler business structures would naturally have fewer compliance obligations to abide by:

Business Entity	Obligations
Sole Proprietorship	No statutory requirement for general meetings, directors, company secretary, share allotments, etc. Renewal of registration annually
Partnership	No statutory requirement for general meetings, directors, company secretary, share allotments, etc. Renewal of registration annually
Limited Partnership	No statutory requirement for general meetings, directors, company secretary, share allotments, etc. Renewal of registration annually
Limited Liability Partnership	No statutory requirement for general meetings, directors, company secretary, share allotments, etc. Annual declaration of solvency lodged by manager
Private Limited Company	Appoint a company secretary within 6 months of incorporation Appoint an auditor within three months after incorporation unless exempt Annual returns must be filed annually with a set of the company’s audited or unaudited accounts

Certainly, with more compliance obligations, it may be more time-consuming and costly to comply with the statutory obligations of a company. However, with careful time management and regular bookkeeping, these requirements will not be unmanageable.

Understandably, dependent on one’s business requirements, the decision as to which business entity to choose may be a difficult one. Given that the bulk of the government’s grants and incentives do apply specifically to companies only, this is usually the entity of choice for many entrepreneurs and foreign investors.

Established in 1998, Rikvin has provided guidance to thousands of investors, entrepreneurs, and professionals who want to work or do business in Singapore. For a personalised consultation to analyse your business needs, contact us now for a free consultation.

---