Legal Entity Types in Singapore

Nora Setiawan

August 24, 2020


Legal Entity Types in Singapore

Nora Setiawan

August 24, 2020

Business expansion in foreign countries is the main strategy for many companies with a view to create a business network as well as allow faster growth for the business. Not only that, with the expansion, but we can also find good talents in those countries. It is well known for foreign investors that Singapore has a huge potential for foreign businesses, and has been a favourite destination for all these years. In order to set up the business in Singapore, understanding the legal entity types is needed. Thus, this article provides you with information about the legal entity types in Singapore!

What is a Legal Entity?

Before choosing which one is the best for your business, you should know the concept of a Legal Entity. According to Cambridge Dictionary, Legal Entity is “a company or organization that has legal rights and responsibilities”, for instance, the right to make contracts and the responsibility to pay debts. Hence, all companies whose affairs are regulated by the Corporation Act are legal entities.

Meanwhile, based on Business Dictionary, Legal Entity is “an association, corporation, partnership, proprietorship, trust, or individual that has legal standing in the eyes of law”. Additionally, a Legal Entity has the legal capacity to enter into agreements or contracts, assume obligations, incur and pay debts, sue and be sued in its own right, and to be held responsible for its actions.

Legal Entity Types in Singapore

The various types of business entities in Singapore that most business owners want to set up. However, the most common one is the Private Limited Company (Pte. Ltd), followed by Branch Office and Representative Office.

1. The Private Limited Company (Pte. Ltd)

The most common strategy for entrepreneurs to establish a business is setting up a Private Limited Company, which is abbreviated as Pte. Ltd. This company type is functionally equivalent to the LLC in other jurisdictions, with shareholders’ liability being limited to the amount unpaid on their shares.

When entering the Singaporean market, its requirements are at least one shareholder, one resident director, a company secretary, a registered address and no minimum share capital, and foreign investors. This entity can engage in any type of commercial or industrial activity, and there are no restrictions on foreign investment.

Singaporean Private limited companies may have up to 50 shareholders. If there are likely to be either more than 50 shareholders or regular share transfers, then choose an unlisted public limited company.

This entity can be incorporated within one week without the need for business owners to visit Singapore or contribute any share capital. However, at least one of the company’s directors must be resident in Singapore.

Local government is supporting new entrepreneurs to start a business in Singapore, and new startups will enjoy significant tax relief at the first 3 years of tax assessment and subsequently can be qualified for partial tax relief.

2. Branch Office

Foreign companies may do business in Singapore without setting up a separate legal entity, even though they must register with the Accounting and Corporate Regulatory Authority (ACRA) to do so, and it is known as establishing a branch office in Singapore.

A branch office can conduct business only within the scope set by the parent company. A Singapore-based branch can invoice local customers, sign sales contracts, and receive income from customers.

However, a branch office does not have limited liability. Any liabilities incurred by the branch are attributed to the parent company. Branch office may only be registered by foreign corporations, as stipulated by Singapore’s Companies Act.

Branch office is treated as a non-resident for tax purposes. It means that the branch office does not benefit from Singapore’s double taxation avoidance treaties, nor the tax incentives for new companies.

3. Representative Office

A representative office can be used if a foreign company does not intend to carry on revenue-generating business activities in Singapore. Annual filing for taxes does not need to be filed, because it’s a lack of revenue.

This entity cannot make direct sales, but they may only carry out the activities, such as promoting the business of the parent company, market research, after-sales support, and research and development.

The scale of a representative office operation is limited by fewer than 5 members of staff. It also has a limited duration, as they may only operate for up to 3 years before being required to convert a branch office.

New foreign businesses generally do not set up representative offices in Singapore, as the law requires that the foreign entity should have annual sales of more than US$250,000 and have existed for at least three years.

4. Free Zone Company

Foreign companies have another option of setting up a free zone company in one of the nine available free zones. For doing this, foreign companies must obtain an operating permit from the free zone authority.

The free zones provide some advantages, such as storage facilities to both local and foreign companies, no permit requirement for the transshipment of non-controlled goods, and no custom duties and GST on products imported in a free zone.

5. Limited Liability Partnership

There is an alternative to the Limited Liability Company is the Limited Liability Partnership (LLP). It’s like the LLC, this entity offers limited liability benefit to its partners. Furthermore, this entity can issue contracts, lease property and sign legal documents in its own name.

An LLP can be established by 2 partners with a minimum capital of US$1. However, the LLP will be required to appoint at least 1 manager who is a resident in Singapore. 

An LLP will also not be subject to annual corporate income tax. The income will be taxed in the hands of the partners. If the partners are individuals, personal income tax will be payable or if they are corporate entities, corporate income tax will be payable.

6. Partnership

Some foreign companies may wish to set up a General Partnership (GP) in Singapore. Unlike LLP, the partners of a GP are liable for all losses and debts of a partnership.

Another alternative option to the GP and LLP will be limited partnership (LP). An LP involved at least 1 general partner, who is personally liable for all losses and debts, and 1 limited partner, whose liability is limited to the extent of his or her capital contribution.

7. Investment Company

An investment company will allow foreign companies to merge their investors’ capital and invest the amount of money on their behalf. This business activity will require the owners of the company to file an application with the Monetary Authority of Singapore (MAS).

For fund management, the application will take one of the 2 forms, firstly is an application for a registered fund management company, and the second one is application for a Capital Markets Services license. 

To register fund management companies are limited to 30 accredited or institutional investors, while 15 of them may be other funds invested in by accredited individuals. Investors who are qualified as accredited under Singapore’s Securities and Future Act, if they have net assets of more than S$2 million, or have an annual income greater than S$300.000.

All registered and licensed fund management companies must have 2 directors resident in Singapore with at least 5 years of experience with financial services to establish a track record.

For this entity, you also need two local employees, one of them must be the CEO, and the other an Executive Director, with each of these employees must have at least 5 years of experience. 

READ MORE: Viettonkin Legal Service

Deciding on the right legal entity types for your business may take a long time, but it is better to prepare everything in the first place. These are 7 legal entity types in Singapore that you need to pay attention to when establishing your business, however, your choice depends on your particular situation and plans. Hopefully, this article will help you to decide what is best for you in the future!

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