Business Law FAQs

Starting a Business:
Types of Business Structures

» How many types of business structures are there?

There are mainly 5 types of business structures you can choose from if you’re starting a new business for profit:

  • Sole proprietorship
  • General Partnership
  • Limited Partnership (LP)
  • Limited Liability Company (LLC)
  • Limited Liability Partnership (LLP)

» How do you choose a business structure for your new business?

There are usually 5 types of business structures you can choose from if you’re starting a new business for profit:

  • Sole proprietorship
  • General Partnership
  • Limited Partnership (LP)
  • Limited Liability Company (LLC)
  • Limited Liability Partnership (LLP)

To choose which business structure is most suitable for you, you’ll need to take into account these factors:

  • How much money you’re prepared to invest?
  • How many other partners and owners there will be in the business?
  • What debts, liabilities and responsibilities you’re prepared to assume?
  • What risks you’re prepared to accept and take on?
  • Whether a company of that structure will be easy to close when you stop operating the business?

» What are the features of each type of business structure?

Some of the main features of the main business structures include these: –

Sole proprietorship:

  • This is business is owned by a single person.
  • You will have complete control in the running of the business because there are no other partners or owners involved.
  • However, a sole-proprietorship is sometimes seen as risky because it doesn’t offer any protection of your personal assets from business risks and liabilities and you will be personally accountable for all the debts and liabilities regarding his business.
  • This means that creditors can claim their debt from your personal assets if the sole proprietorship’s business assets are not enough to pay its liabilities.
  • Still, you can think about using a sole-proprietorship if you’re the sole owner of a small business which doesn’t have many business risks.
  • Sole-proprietorships are easy to set up, maintain, manage and terminate because there are fewer administrative rules and requirements.
  • A sole proprietorship isn’t a separate and distinct legal entity. This means that it isn’t allowed to sue and be sued in its own name or own land in its own name. In addition, it won’t have perpetual succession (i.e. it will close after the death or departure of the owner). This is different from entities with perpetual succession which can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there’s a change of its ownership.

General Partnership:

  • A partnership is a business entity that is started by at least 2 or more persons (e.g. you and another person).
  • A partnership can only have a maximum of 20 partners. A partnership that includes more than 20 partners must be registered as a company under the Companies Act.
  • The partners pay tax on their share of income from the partnership according to their own personal rates of income tax.
  • You can think about using a partnership if you feel that you can save money by paying tax based on your personal rate of income tax because it is lower than the corporate tax rate (e.g. 17%).
  • A partnership isn’t a separate and distinct legal entity. This means that it isn’t allowed to sue and be sued in its own name or own land in its own name. Instead, the partnership is sued in the names of individual partners.
  • In addition, it won’t have perpetual succession (i.e. it will terminate upon the death or departure of the owners or partners). This is different from entities with perpetual succession which can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there’s a change of its ownership.

Limited Partnership (LP):

  • An LP includes at least 2 partners – 1 partner must be the general partner and 1 partner must be the limited partner.
  • A general partner is responsible for all the LP’s debts. He also has control over the management of the entity.
  • A limited partner is only responsible for the LP’s debts up to the amount of his own individual contributions to the business which would have fixed when the entity was first started.
  • A partner can be an individual or a foreign or local company.
  • The partners pay tax on their share of income from the partnership according to their own personal rates of income tax.
  • You can think about using an LP if you want to invest in a business without taking part in its management and you place a larger value on having limited liability protection compared to being involved in the LP’s management.
  • The limited partner must be careful not to carry out any activities that can be seen as “participation in management”.
  • If a limited partner participates in the management of the business, he’ll lose the limited liability protection and he’ll instead become personally responsible for the entity’s’ debts going forward.
  • A list of activities that the limited partner can carry out without being seen as “taking part in management” is contained in the First Schedule to the Limited Partnerships Act.
  • An LP isn’t a separate and distinct legal entity. This means that it isn’t allowed to sue and be sued in its own name or own land in its own name. Instead, the LP is sued in the names of individual partners.
  • In addition, it won’t have perpetual succession (i.e. it will terminate upon the death or departure of the owners or partners). This is different from entities with perpetual succession which can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there’s a change of its ownership.

Limited Liability Partnership (LLP):

  • An LLP gives its owners the flexibility of operating as a partnership while having a separate legal identity like a private limited company. This means that the partners of the LLP won’t be held personally responsible for any business debts incurred by the entity.
  • It also provides its partners with limited personal liability. This means that a partner won’t be held personally responsible for the losses that arise from another partner’s mistakes. A partner will only be personally responsible for the losses that arise from his own mistakes and acts.
  • An LLP must have at least 2 partners at all times.
  • The partners’ own individual profits and management responsibilities are agreed in advance when the entity is first started.
  • An LLP is a separate and distinct legal entity. This means that it can sue and be sued in its own name or own land in its own name.
  • In addition, it has perpetual succession (i.e. it won’t terminate or dissolve upon the death or departure of the owners or partners) and can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there’s a change of its ownership.

Limited Liability Company (LLC):

  • After a partnership has more than 20 partners, it must be registered as a company under the Companies’ Act.
  • An LLP is a separate and distinct legal entity. This means that it can sue and be sued in its own name or own land in its own name.
  • In addition, it has perpetual succession (i.e. it won’t close or dissolve upon the death or departure of the owners) and can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there’s a change of its ownership.
  • A company’s liabilities are limited to the amount of share capital raised.
  • The liabilities of the company’s owners are limited to the amount of their assets in the company and their personal assets are protected from the company’s debts and business liabilities.
  • There are 2 types of LLCs:
    • Private Limited Company
      • Indicated by the “Pte Ltd” or “Ltd” suffix after the company’s name, this is the most common type of LLC.
      • The company’s shares are owned by a maximum of 50 shareholders and the shares are not made available to the general public.
      • This type of business structure is often chosen by business owners because of these advantages:
        • It has a separate and distinct legal identity from its owners or members.
        • It has limited liability up to the amount of its share capital raised.
        • It has perpetual succession which means that it can easily transfer shares and ownership
        • It is often seen as being more stable and qualifies for most, if not all, financial support, grants or incentive schemes given by financial institutions and the authorities.
    • Public Limited Company
      • The company’s shares can be owned by more than 50 shareholders and the shares can be made available to the general public.
      • It is subject to stricter rules because the company can raise funds from the public.
      • This business structure is often used by larger businesses including those listed on the stock exchange.

Starting a Business:
Choosing the Right Business Structure

» Why should you choose a Sole-Proprietorship for your business?

Some of the main features of a Sole-Proprietorship include these: –

  • This is a business that is owned by a single person.
  • The sole-proprietor has absolute say in the running of the business because there are no partners involved.
  • However, a sole-proprietorship is sometimes considered risky because it doesn’t offer any protection of the owner’s personal assets from business risks and liabilities and the owner will be personally accountable for all the debts and liabilities regarding his business.
  • This means that creditors can claim their debt from the owner’s personal assets if the sole proprietorship’s business assets are not enough to pay its liabilities.
  • Nevertheless, you can take into account using a sole-proprietorship if you’re the sole owner of a small business which doesn’t have many business risks.
  • Sole-proprietorships are easy to set up, maintain, manage and terminate because there are fewer administrative requirements.
  • A sole proprietorship isn’t a separate and distinct legal entity. This means that it isn’t allowed to sue and be sued in its own name or own land in its own name. In addition, it won’t have perpetual succession (i.e. it will terminate upon the death or departure of the owner). This is different from entities with perpetual succession which can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there’s a change of its ownership.

» Why should you choose a General Partnership for your business?

Some of the main features of a General Partnership include these: –

  • A partnership is a business entity that is started by at least 2 or more persons.
  • A partnership can only have a maximum of 20 partners. A partnership that includes more than 20 partners must be registered as a company under the Companies Act.
  • The partners pay tax on their share of income from the partnership according to their own personal rates of income tax.
  • You can take into account using a partnership if you feel that you can save money by paying tax based on your personal rate of income tax because it is lower than the corporate tax rate (e.g. 17%).
  • A partnership isn’t a separate and distinct legal entity. This means that it isn’t allowed to sue and be sued in its own name or own land in its own name. Instead, the partnership is sued in the names of individual partners.
  • In addition, it won’t have perpetual succession (i.e. it will terminate upon the death or departure of the owners or partners). This is because entities with perpetual succession can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there’s a change of its ownership.

» Why should you choose a Limited Partnership for your business?

Some of the main features of a Limited Partnership include these: –

  • An LP includes at least 2 partners of which 1 partner must be the general partner and 1 partner must be the limited partner.
  • A general partner is responsible for all the LP’s debts. He also has control over the management of the entity.
  • A limited partner is only responsible for the LP’s debts up to the amount of his own individual contributions to the business which would have fixed when the entity was first started.
  • A partner is an individual or a foreign or local company.
  • The partners pay tax on their share of income from the partnership according to their own personal rates of income tax.
  • You can take into account using an LP if you want to invest in a business without taking part in its management and you place a larger value on having limited liability protection compared to being involved in the LP’s management.
  • The limited partner must be careful not to carry out any activities that can be considered as “participation in management”.
  • This is because a limited partner participates in the management of the business, he’ll lose the limited liability protection and he’ll instead become personally responsible for the entity’s’ debts going forward.
  • A list of activities that the limited partner can carry out without being considered as “taking part in management” can be found in the First Schedule to the Limited Partnerships Act.
  • An LP isn’t a separate and distinct legal entity. This means that it isn’t allowed to sue and be sued in its own name or own land in its own name. Instead, the LP is sued in the names of individual partners.
  • In addition, it won’t have perpetual succession (i.e. it will terminate upon the death or departure of the owners or partners). This is because entities with perpetual succession can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there’s a change of its ownership.

» Why should you choose a Limited Liability Partnership for your business?

Some of the main features of a Limited Liability Partnership include these: –

  • An LLP gives its owners the flexibility of operating as a partnership while having a separate legal identity like a private limited company. This means that the partners of the LLP won’t be held personally responsible for any business debts incurred by the entity.
  • It also provides its partners with limited personal liability. This means that a partner won’t be held personally responsible for the losses that arise from another partner’s mistakes. A partner will only be personally responsible for the losses that arise from his own mistakes and acts.
  • It must have at least 2 partners at all times.
  • The partners’ own individual profits and management responsibilities are agreed in advance when the entity is first started.
  • An LLP is a separate and distinct legal entity. This means that it can sue and be sued in its own name or own land in its own name.
  • In addition, it has perpetual succession (i.e. it won’t terminate or dissolve upon the death or departure of the owners or partners) and can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there’s a change of its ownership.

» Why should you choose a Limited Liability Company for your business?

Some of the main features of a Limited Liability Company include these: –

  • After a partnership includes more than 20 partners, it must be registered as a company under the Companies’ Act.
  • An LLP is a separate and distinct legal entity. This means that it can sue and be sued in its own name or own land in its own name.
  • In addition, it has perpetual succession (i.e. it won’t terminate or dissolve upon the death or departure of the owners) and can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there’s a change of its ownership.
  • A company’s liabilities are limited to the amount of share capital raised.
  • The liabilities of the company’s owners are limited to the amount of their assets in the company and their personal assets are protected from the company’s debts and business liabilities.
  • There are 2 types of LLCs:
    • Private Limited Company
    • Public Limited Company

» Why should you choose a Private Limited Company for your business?

Some of the main features of a Private Limited Company include these: –

  • Denoted by the “Pte Ltd” or “Ltd” suffix after the company’s name, this is the most common type of LLC.
  • The company’s shares are held by a maximum of 50 shareholders and the shares are not made available to the general public.
  • This type of business structure is often chosen by business owners because of these advantages:
    • It has a separate and distinct legal identity from that of its owners or members.
    • It has limited liability up to the amount of its share capital raised.
    • It has perpetual succession which allows it to easily transfer shares and ownership
    • It is usually regarded as being more stable and qualifies for most, if not all, financial support, grants or incentive schemes given by financial institutions and the authorities.

» Why should you choose a Public Limited Company for your business?

Some of the main features of a Public Limited Company include these: –

  • The company’s shares can be owned by more than 50 shareholders and the shares can be made available to the general public.
  • It is subject to stricter rules because the company can raise funds from the public.
  • This business structure is often used by larger businesses including those listed on the stock exchange.

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