A Brief Look At Different Types Of Vehicles Used To Carry Out Businesses In Singapore

By Lee Seow Ser

Introduction

In recent years, it has been generally easier to set up or carry out business in Singapore. Interested entrepreneurs also have increasingly more options as to the type of vehicle they wish to use for their business ventures.

The traditional ways of doing business include (a) a sole proprietorship, (b) a partnership, and (c) a company. In April 2005 and May 2009 respectively, more types of business vehicles, such as that of the limited liability partnership and the limited partnership were introduced.

With so many options, how should one go about deciding which is the most suitable vehicle that suits his or its business needs?

This article seeks to examine the different characteristics and requirements of using the different vehicles to conduct business in Singapore.

(a) Sole Proprietorship

This is the simplest form a business may take. For illustration purposes, if a Mr Tan Ah Bee wishes to set up a lighting business as the sole proprietor or single owner, he may choose to conduct his business under the trade name of “Tan Ah Bee Lights & Bulbs”. By doing so, he will first have to register his business under the Business Registration Act. He will be personally responsible for the running of the business and its liabilities.

Traders operating on their own (eg. a provision shop) often carry out business as a sole proprietorship as it is relatively cheap to register and maintain the registration of the business. Payment of an annual registration fee is required for registration under the Business Registration Act. Certain businesses, however, such as hawkers and taxi drivers, are exempt from registration under the Business Registration Act.

(b) Partnership

This is a business formed by an association or 2 or more (up to a maximum of 20) persons. The partnership itself does not have a separate legal entity from its partners, and therefore cannot sue or be sued and cannot own property in the name of the partnership itself.

Unless otherwise provided in a partnership agreement (if any) entered into between the partners, the provisions of the Partnership Act will apply to govern the relationship between the partners.

(c) Company

There are various types of companies such as (a) private companies limited by shares (not more than 50 shareholders), (b) public companies limited by guarantee (usually established as a charity or not-for-profit entity), and (c) public-listed companies whose shares are listed and traded on the relevant stock exchanges.

A foreign-incorporated company may also register a branch or set up a representative office in Singapore.

The Companies Act will apply to companies and bodies corporate registered under it.

A company may have a minimum of one shareholder (who may be an individual or another body corporate). The board of directors (minimum one director; minimum age: 18 years old) of the company manage the affairs of the company, whilst the shareholders own shares in the company.

A company is distinct from a sole proprietorship and partnership in that the body corporate is a separate legal entity from that of its shareholders. A company or body corporate can thus sue or be sued in its own name and has perpetual succession (until such time it has its name struck off the register or wound up).

For incorporation purposes, the company has to file the Articles of Association and Memorandum of Association with the Registry. These are the constitutive documents of the company. If the shareholders amongst themselves, wish them to be bound by terms different from those appearing in the Articles of Association, a separate shareholders’ agreement may be drawn up to regulate their relationship with one another.

Compared with a sole proprietorship, partnership or limited liability partnership business, a company generally is required to comply with more formalities post-incorporation. These include, the appointment of officers such as the company secretary and auditor, and the requirement to hold annual general meetings for its shareholders within stipulated time periods after incorporation. The companies are also required to notify the Registry of changes that occur from time to time eg. particulars of appointment of the office-bearers or shareholding in the company.

(d) Limited Liability Partnership (“LLP”)

The Limited Liability Partnership Act was operative in April 2009 and provides for the registration of an entity comprising 2 or more partners (be it individual, a body corporate or another LLP).

This vehicle is essentially a hybrid between a partnership and a body corporate. It has the advantage of the partners being separate and distinct from the LLP itself, and enjoys the features of the flexibility of a partnership in its business operations.

Like a company, the LLP itself may sue or be sued or own property in its own name and the partners in a LLP are not personally liable for the liabilities of the LLP unless they are caused by certain wrongdoings on their part.

The LLP is required (amongst other things) to (i) appoint a manager to manage the affairs and operations of the LLP, and (ii) file an annual declaration of solvency to state its ability to pay its debts (or otherwise), and (iii) to keep and maintain accounting and other records including profit and loss statements and balance sheets.

The partners may enter into a written limited liability partnership agreement which sets out their mutual rights, duties and obligations in relation to the LLP.

Akin to a company, the LLP may have its name struck off the register or wound up by the partners, creditors or by way of a court order.

(e) Limited Partnership (“LP”)

This business vehicle was introduced in May 2009. It entails having (i) a general partner who is responsible for managing the affairs of the LP and also for the debts and obligations of the LP, and (ii) a limited partner who is not liable for the debts and obligations of the LP beyond the amount of what he had agreed to contribute, provided that the limited partner does not participate in the management of the affairs of the LP.

Akin to the make-up of the partnership discussed above, the LP does not have a separate legal entity from the partners and cannot sue, or be sued or own property under its own name.

If a LP is registered with only a general partner, its status as a LP will effectively be suspended until such time a limited partner is included and the particulars thereof registered. Pending restoration of the status as a LP, ACRA will regard the LP has having been registered under the Business Registration Act.

This article seeks to briefly highlight the main features of the various types of vehicles available in Singapore for doing business and is not intended in any way to be relied upon as constituting any form of legal advice.

If you wish to seek professional legal advice on the above, please feel free to contact the undersigned.

LEE, Seow Ser (Ms)
Email: lee_seow_ser@ramdwong.com.sg
DID: (65)-63249150
Fax: 65-62246707

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