Why You Should Set Your Business Up Using Pte. Ltd. Over An LLP
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There are two main types of companies business owners choose in Singapore: Limited Liability Partnerships (LLP) and Private Limited Company (Pte. Ltd.). You may find that big organisations have an LLP structure and assume that this is the best solution for your new business, however, the most common structure in Singapore is actually Pte. Ltd.
Let’s break down the differences and take a look at what’s best for you and your business.
What is an LLP?
An LLP is often used by large professional firms, for example, accountants and lawyers. This is because these businesses are largely made up of a group of skilled professionals performing work that is governed by a professional body, who are heavily involved in daily operations. A partner in a business is automatically both a stakeholder and entitled to be involved in the business.
In a partnership, there is limited liability – if a partner fails, creditors cannot go after their personal assets, only those of the business. However, in an LLP, a partner may be held personally liable because of their association with a professional body for claims from losses resulting from their own wrongful act or omission.
What is a Pte. Ltd.?
Unless you’re planning to start a professional accounting, law firm or wealth fund, starting a Pte. Ltd. is the best structure. Let’s take a closer look at the major differences between the two types of companies:
In an LLP, each individual partner is taxed at a personal tax rate on their income – with a maximum tax rate of 22%. In a Pte. Ltd., the income is taxed at a corporate tax rate, which will be lower, with a maximum rate of 17%.
In addition, the government offers great tax-exemptions for the first 3 years of operations for a Pte. Ltd. LLPs are not eligible for these tax exemptions.
With a Pte. Ltd., you can easily issue new shares to anyone that wants to invest in your company, even if they won’t be involved in the running of the business. You can attach special rights to the shares which will make them more desirable to new shareholders; this means it will be a lot easier for you to raise funds if needed in the future. In addition, banks are more willing to give out loans to Pte. Ltd. companies.
Shareholders are absolutely not personally liable for debts and losses of the company in a Pte. Ltd. In an LLP, whilst the same is true, a partner may be held personally liable for claims from losses resulting from their own wrongful act or omission.
An LLP is less expensive to set-up at S$315 vs S$115, and there are less compliance costs for the year, yet when you compare the tax relief, a Pte. Ltd.’s running costs are lower in the long run.
While there are greater regulatory requirements for Pte. Ltd. entities, this provides maximum transparency, which can be appealing to clients and investors alike.
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Aside from following Singapore’s compulsory regulations when setting up, Accela Finance & Corporate Secretary can also take care of the bookkeeping and regulatory requirements of your business.
If you’re from overseas, we offer local director support to help you start your company, and we can also manage Employment Pass applications through Accela Talent.
Contact us to see how we can help with your business: [email protected].
