Pros and Cons of Different Business Entities in Singapore

Singapore is one of the most business-friendly destinations in the world. With its low tax rates, transparent regulations, and strategic location in Asia, it’s no surprise that entrepreneurs around the globe look to Singapore to start or expand their businesses.

But before you can hit the ground running, there’s one important decision you’ll need to make: what type of business entity should you register?

In this guide, we’ll walk you through the major business structures available in Singapore—Sole Proprietorship, Partnership, Limited Liability Partnership (LLP), and Private Limited Company (Pte Ltd). We’ll explore their pros and cons to help you decide which one fits your goals best.

1. Sole Proprietorship

A sole proprietorship is the simplest and most common type of business entity in Singapore. It is owned and operated by a single individual and is often used by freelancers, consultants, or very small businesses.

Pros:

• Simple setup: Fast and cost-effective to register.

• Full control: You’re the sole decision-maker.

• Minimal compliance: Few ongoing regulatory obligations compared to other business structures.

Cons:

• Unlimited liability: You’re personally liable for all business debts and legal issues. Your personal assets could be at risk.

• Less credibility: Clients, suppliers, and investors may view sole proprietorships as less reliable or scalable.

• Taxed as personal income: Your profits are taxed under personal income tax rates, which may be higher as the business grows.

2. Partnership

A partnership involves two or more individuals running a business together. There are two main types in Singapore: General Partnership and Limited Partnership (LP).

Pros:

• Easy formation: Like sole proprietorships, partnerships are quick and inexpensive to register.

• Shared responsibility: Partners share the workload, resources, and risks.

• Simple taxation: Profits are taxed at the individual partner level, avoiding corporate taxes.

Cons:

• Unlimited liability (for general partners): General partners are personally liable for business debts.

• Disagreements: Differences in management styles or financial expectations can lead to disputes.

• No separate legal identity: The partnership isn’t a separate legal entity, so it can’t own assets or enter contracts on its own.

3. Limited Liability Partnership (LLP)

An LLP offers a hybrid structure—it combines the flexibility of a partnership with the limited liability of a company. This is ideal for professionals like lawyers, architects, or consultants who want to go into business together.

Pros:

• Limited liability: Each partner’s personal assets are protected from business debts or liabilities arising from other partners’ actions.

• Separate legal entity: The LLP can own property, sue, and be sued in its own name.

• Tax transparency: Profits are taxed at the partners’ personal tax rates.

Cons:

• Compliance requirements: While lighter than a private limited company, LLPs must still file annual declarations and maintain financial records.

• Perceived as less stable: LLPs are not always viewed as strongly as private limited companies when it comes to securing funding or attracting corporate clients.

• Shared responsibility: Disagreements can arise over management, especially if roles aren’t clearly defined.

4. Private Limited Company (Pte Ltd)

A Private Limited Company is the most common and preferred structure for growth-oriented businesses in Singapore. It is a separate legal entity from its owners (known as shareholders) and can have one or more directors.

Pros:

• Limited liability: Shareholders are only liable up to the amount they invest in the company.

• Separate legal identity: The company can enter contracts, sue, be sued, and own assets independently of its shareholders.

• Tax efficiency: Companies benefit from Singapore’s low corporate tax rate (currently capped at 17%) and various tax incentives.

• Credibility: A Pte Ltd structure enhances your brand’s credibility with investors, partners, and clients.

• Scalability: This is the most scalable structure, ideal for raising capital, bringing on new partners, or expanding internationally.

Cons:

• More compliance requirements: You’ll need to appoint a local director, file annual returns, maintain proper accounting records, and appoint a company secretary within six months of incorporation.

• Ongoing costs: While setup isn’t expensive, maintaining compliance (e.g., accounting, audits, secretarial services) incurs recurring costs.

• Not as simple to close: Winding down a company takes time and must be done in accordance with ACRA regulations.

Which Business Entity Should You Choose?

Here’s a quick breakdown based on your needs:

If you’re planning to attract investors, expand regionally, or create a long-term business, the Private Limited Company is usually your best bet due to the liability protection and credibility it offers.

Conclusion

Choosing the right structure before setting up a company in Singapore is more than just a legal step—it’s a strategic decision that affects your risk, taxes, credibility, and ability to grow.

Singapore offers flexible options to accommodate everything from solo ventures to international startups. Whether you’re just getting started or ready to scale, understanding the pros and cons of each entity type helps you lay the right foundation for your business journey.

Still unsure? Consulting with a corporate services firm or legal advisor can help you navigate the registration and compliance processes smoothly.

FAQs

1. Can foreigners start a company in Singapore?
Yes, foreigners can fully own a Private Limited Company in Singapore. However, at least one local director must be appointed (a Singaporean or permanent resident).

2. What’s the minimum capital required to start a Private Limited Company?
The minimum paid-up capital is just SGD 1. You can increase this later based on your business needs or investor contributions.

3. Can I change my business entity type later?
Yes, it’s possible to switch entities (e.g., from Sole Proprietorship to Private Limited Company), but it involves closing the original business and registering a new one.