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LLC vs LLP vs Sole Proprietorship in Singapore

When it comes to incorporation in Singapore, entrepreneurs have many options for business types to aim for. Some can easily finalize their choices in no time before starting the registration process. And statistically, the three most common picks in Singapore are Limited Liability Company (LLC), Limited Liability Partnership (LLP) and Sole Proprietorship.

For those who are still confused and have not yet made up their mind, do not worry, BBCIncorp got your back! We put the three options in comparison in respect of their crucial aspects so that you can understand them clearly and subsequently choose the most suitable type for your business.

1. Definition

Limited liability company (LLC), in general, is the most chosen type of business entity in Singapore. LLC comprises many different specific sub types. They are private and public limited liability companies:

  • Private limited liability company (Pte.Ltd) is a company privately owned by no more than 50 shareholders.
  • Public limited liability company is a company owned by more than 50 shareholders and it can be listed on stock exchanges. There are public company limited by share and public company limited by guarantee.

Limited liability partnership (LLP), on the other hand, is owned by at least 2 partners and it can be considered as a mix of partnership and limited liability company.

For better understanding of LLP, please visit our article on A Guide To Limited Liability Partnership In Singapore.

Sole Proprietorship, lastly, is the simplest yet riskiest entity type to incorporate in Singapore as it is registered with one owner only.

For better understanding, please visit our article on The Go-to Guide to Sole Proprietorship in Singapore.

2. LLC vs LLP vs Sole Proprietorship in Singapore

Below is the comparison of the three registration options in regard to legal status, liability, taxation, maintenance requirements, ownership transfer, perpetual succession, public perception, ability to raise capital, and dissolution.

2.1. Legal Status

LLC LLP Sole Proprietorship
Separate legal entity Separate legal entity No separate legal entity

With separate legal status, LLC and LLP are capable of:

  • Suing and being sued under its name;
  • Acquiring, owning, holding, developing and disposing of property; and
  • Entering contracts under its name.

Sole proprietorship has no distinctive status from its owner.

2.2. Liability

Both LLC and LLP follow a limited liability structure. It means that business owners of the two entities are shielded from the businesses’ debts.

In particular, shareholders in an LLC have liabilities limited only to their share value. However, an LLP is both owned and run by its partners. Therefore, a partner in an LLP may hold personal liability for their own wrongful act or negligence as well (but not for other partners).

By contrast, owner of any sole proprietorship has unlimited liabilities for any business’s debts incurred in the course of its operation due to the fact that the entity has no separate legal status from its owner.

LLC LLP Sole Proprietorship
Liabilities of shareholders are limited only to their shares Liabilities of partners are limited only to their investment Liabilities of owner are unlimited

2.3. Taxation

The corporate tax rate imposed on an LLC is currently at 17%.

As for an LLP, different taxes are imposed on different types of partners:

  • If partners are individual persons, they are taxed with personal income tax
  • If partners are body corporate, they are taxed with corporate income tax

Meanwhile, income of a sole proprietorship is taxed on the basis of the owner. For example, if the owner is an individual person, then the income of that sole proprietorship is taxed progressively from 0% to 22%.

LLC LLP Sole Proprietorship
17% flat rate Personal income tax on individual partners

Corporate income tax on corporate partners

Same as owner

2.4. Maintenance Requirements

There are many compliance requirements that an LLC must comply. The main obligations are to file annual returns to ACRA and annual tax returns to IRAS.

Prior to that, an Annual General Meeting must be held before a regulated deadline and many more else compliance work needs to be done. Due to the complexity of the requirements, an LLC is legally required to appoint at least one secretary to handle these tasks.

Regarding LLP, the requirements are much fewer. The main obligations for an LLP are to declare its solvency annually and to maintain all financial records.

Sole proprietorship has very minimal requirements. Nearly no obligations to comply except renewing and submitting tax returns with IRAS.

LLC LLP Sole Proprietorship
Heavy burden from maintenance requirements Moderate burden from maintenance requirements Very light burden from maintenance requirements

2.5. Other Aspects

Ownership transfer, perpetual succession, public perception and ability to raise capital are described as following table:

LLC LLP Sole Proprietorship
Ownership Easy for shares to be partly or wholly transferred Assets, licenses and permits must be transferred individually Cannot directly transferred
Perpetual succession Change of the members not affecting the existence, rights or liabilities Change of the partners does not affect the existence, rights or liabilities No perpetual succession
Public perception High Moderate Low
Capital raising Easiest among the three types Difficult due to private finance contribution from partners Difficult due to owner’s private finance contribution

Due to the clear regulations on ownership transfer and stable structure, LLC has a strong credibility, which helps this business type receive good perception from public and also from banks. Thus, an LLC has higher chances to take out loans from banks or financial institutions, hence be able to raise its capital.

2.6. Dissolution

LLC LLP Sole Proprietorship
Striking off or winding up Striking off or winding up Filling “Cessation of Business” online via BizFile

3. In Summary

See the summary table below to go over the crucial aspects of an LLC, LLP and Sole Proprietorship in Singapore:

LLC LLP Sole Proprietorship
Legal status Separate legal entity Separate legal entity No separate legal entity
Liability Liabilities of shareholders are limited only to their shares Liabilities of partners are limited only to their investment Liabilities of owner are unlimited
Taxation 17% Personal income tax on individual partners

Corporate income tax on corporate partners

Same as owner
Maintenance requirements Heavy Moderate Very light
Ownership Easy for shares to be partly or wholly transferred Assets, licenses and permits must be transferred individually Cannot directly transferred
Perpetual succession Change of the members not affecting the existence, rights or liabilities Change of the partners does not affect the existence, rights or liabilities No perpetual succession
Public perception High Moderate Low
Capital raising Easiest among the three Difficult due to private finance contribution from partners Difficult due to owner’s private finance contribution
Dissolution Striking off or winding up Striking off or winding up Filling “Cessation of Business” online via BizFile

So, if you have a long-term plan to start a company and to expand it over time, then a limited liability company is the option to go for, since it follows clear regulations, having stable structure, and it is also easier to raise capital for expansion.

If you want to do business with other partners while being shielded from business’s debts and complying only few compliance requirements, then you should consider limited liability partnership.

Or if you want to have absolute power over the business, sole proprietorship can be a reasonable choice. However, please be aware of its limitations.

Should you have any related questions, or should you want to open your own company in Singapore, contact us now! BBCIncorp is your trusted company formation service provider in Singapore!

 

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