You do not need a partner to launch. One person registers a sole proprietorship or a company alone. Add a partner only when this person brings money, skills or customers you lack. Your real decision is the structure, because the structure sets your personal risk and your tax.
The four structures
– Sole proprietorship. One owner. The business is not a separate legal entity, so you carry unlimited liability. Profit is taxed at your personal rates. Registration costs S$115 for one year or S$175 for three.
– Partnership. From 2 to 20 owners, although professional partnerships exceed 20 in some cases. The partnership is not a separate entity, and each partner has unlimited liability, including for the acts of other partners. Partners are taxed at personal or corporate rates. Registration costs S$115 or S$175, the same as a sole proprietorship.
– Limited liability partnership (LLP). A separate legal entity. Partners have limited liability, though each partner stays liable for his or her own wrongful acts. Partners are taxed at personal or corporate rates.
– Private limited company. A separate legal entity. Shareholders are not liable for company debts, and the company pays tax at corporate rates. You need at least one director, a company secretary, an auditor unless exempt, statutory registers, an annual general meeting and an annual return. Up to 50 shareholders are allowed. Incorporation costs S$315.
Liability in numbers
Your business owes a supplier S$80,000 and holds only S$30,000 in assets. The shortfall is S$50,000.
– Sole proprietor: you owe the S$50,000 from your personal assets.
– Partnership: the creditor claims against the partners, and one partner’s acts leave the other partner liable.
– LLP or company: the shortfall stays with the business. You lose the money you put in. Any debt you guaranteed in your own name remains yours.
Tax in numbers
A company pays 17% tax. For its first 3 years of assessment a qualifying start-up gets 75% off the first S$100,000 of chargeable income. A company with S$100,000 of profit then pays S$4,250 (S$100,000 less S$75,000 exempt is S$25,000, times 17%). After the start-up years, the partial exemption applies. Exempt income is S$7,500 plus S$45,000, so S$52,500 is exempt, S$47,500 is taxable and tax is S$8,075. Compare these figures with your own personal rates on the same profit. Profit in a company reaches you as salary or dividends, which our article on salary or dividends explains.
A private company meeting at least 2 of 3 tests in two consecutive years is exempt from audit: revenue of S$10 million or less, total assets of S$10 million or less, and 50 or fewer full-time employees.
Which one suits you
– Choose a sole proprietorship to test a small idea with low risk. If your revenue is S$200,000 or less in each of the past 2 years, your assets are under S$100,000 and you are not GST-registered, simplified record keeping applies.
– Choose a company when you sign leases, hire staff or take large contracts, since your personal assets then stay out of reach of business debts.
– Choose an LLP if you are a group of professionals who want limited liability.
– Choose a partnership only with a written agreement and a partner you trust with your savings.
Review the choice every year. When the business outgrows a sole proprietorship, you form a new company.
Send your latest profit figure or your question by WhatsApp to +65 9876 3553 or by email to henry@cschow.com.sg.
Henry Chow
Public Accountant, C S Chow & Co