Choosing an Entity Type in Singapore: Comparing Sole Proprietorships, Partnerships, LLPs and Companies

Setting up a business in Singapore involves more than just choosing a name and starting operations. One of the first important decisions is selecting the right entity type.

The main options for many small and growing businesses include:

• Sole proprietorship
• Partnership
• Limited Liability Partnership (LLP)
• Private limited company (Pte. Ltd.)

Each structure has different implications for personal liability, tax, governance, ownership and compliance. This article provides a practical comparison to help business owners think through which structure may be more appropriate for their situation.

Note: This is a general overview and does not replace formal legal or tax advice for specific circumstances.

1. Key factors to consider when choosing an entity

Before looking at each structure, it is useful to consider:

• Liability – How much personal risk are the owners prepared to take?
• Taxation – How will business profits be taxed (personal vs corporate)?
• Ownership & funding – How many owners? Are investors expected later?
• Governance & control – How formal should decision-making and documentation be?
• Compliance costs – What level of annual reporting and filing is manageable?
• Scalability – Will the structure still be appropriate if the business grows significantly?

Different combinations of these factors will suit different businesses.

2. Sole proprietorship – simplest, but highest personal risk

A sole proprietorship is the simplest form of business. Legally, the business and the owner are not separate.

Key features:

• Owned by one individual
• Profits are taxed as personal income of the owner
• The owner has unlimited personal liability – business debts are effectively the owner’s debts
• Lower setup and maintenance costs
• Minimal formal governance requirements

Suitable when:

• The business is small, low-risk and owned/operated by one person
• There is no immediate plan to add partners or external investors
• The owner is comfortable with taking on full personal liability

Points to consider:

• Personal assets may be at risk if the business faces claims or insolvency
• Some clients, banks and suppliers may prefer dealing with companies rather than sole proprietors
• Transitioning later into a company may involve restructuring, contracts and tax considerations

3. Partnership – shared ownership, shared liability

A partnership involves two or more persons carrying on business in common with a view to profit. In a general partnership, partners are usually jointly and severally liable for the debts and obligations of the business.

Key features:

• Owned by two or more partners
• Profits are taxed as personal income in the hands of each partner
• Partners generally have unlimited personal liability (including for certain actions of other partners)
• Lower setup and maintenance costs than companies
• Partnership agreement is strongly recommended to govern profit-sharing, roles and decision-making

Suitable when:

• A small group of individuals wish to run a professional or trading business together
• The risk profile is understood and manageable
• The partners are comfortable with the personal liability exposure

Points to consider:

• Disputes between partners can directly impact the business
• Changes in partners may require re-registration or significant adjustments
• For many professional or higher-risk businesses, an LLP or company may provide more appropriate liability protection

4. Limited Liability Partnership (LLP) – hybrid for professionals

A Limited Liability Partnership (LLP) combines elements of a partnership with some features of a company. It is often used by professional practices and joint ventures.

Key features:

• Partners have limited liability for the LLP’s debts, similar in some ways to shareholders of a company
• Individual partners may still be personally liable for their own wrongful acts or omissions
• The LLP is treated as a separate legal entity
• Profits are typically taxed as personal income in the hands of the partners (subject to prevailing rules)
• More flexibility in internal arrangements compared to a company

Suitable when:

• Professionals or businesses want to work together under a common brand while limiting certain liabilities
• There is a desire for partnership-style flexibility but with some protection at the entity level

Points to consider:

• Governance and decision-making should be clearly documented in an LLP agreement
• The tax treatment and compliance obligations differ from a company and should be understood upfront
• Some counterparties may still prefer dealing with private limited companies

5. Private limited company – separate legal entity, corporate tax rate

A private limited company (Pte. Ltd.) is a separate legal entity from its shareholders. This is the most common structure for SMEs that plan to grow, bring in investors or build a stronger corporate profile.

Key features:

• The company is a separate legal person
• Shareholders enjoy limited liability – typically limited to the amount they have invested
• Profits are taxed at corporate tax rates (with various exemptions and incentives)
• Ownership is represented by shares, which can be transferred (subject to constitution/shareholder agreements)
• More formal requirements: directors’ duties, financial statements, ACRA filings, possible audit/assurance depending on size

Suitable when:

• The business plans to grow, seek financing or build a long-term corporate structure
• There are multiple owners, or potential investors in future
• Limited liability and clearer separation between personal and business assets are important
• The business wants a more established and professional profile

Points to consider:

• Incorporation and annual compliance costs are higher than for sole proprietorships or partnerships
• Directors have formal duties under the Companies Act
• Certain companies may be required to have audited or assured financial statements, subject to size and other criteria
• Proper governance, documentation and record-keeping are important from an early stage

6. Tax, governance and perception – comparing the options at a glance

Tax treatment (general, high-level):

• Sole proprietorship / partnership – business profits taxed as personal income of the owner(s)
• LLP – generally taxed at partner level (subject to detailed rules)
• Company – profits taxed at corporate tax rate, with potential use of start-up and partial tax exemptions, and tax-exempt dividends to shareholders (under the one-tier system)

Liability:

• Sole proprietorship / partnership – unlimited personal liability
• LLP – limited liability at entity level, but personal liability for own wrongful acts
• Company – shareholders generally enjoy limited liability, subject to personal guarantees and specific situations

Governance and formality:

• Sole proprietorship – minimal formality
• Partnership / LLP – partnership or LLP agreement strongly recommended
• Company – board of directors, shareholder resolutions, statutory registers and annual filings

External perception:

Companies often present a more established and scalable image, especially where dealing with larger customers, government agencies, banks or investors.

7. Changing structures as the business evolves

It is possible to change entity type as the business grows (for example, moving from sole proprietorship to company), but this can involve:

• Transferring business assets and contracts to the new entity
• Considering tax implications on transfers or restructuring
• Informing customers, suppliers, banks and other stakeholders
• Reviewing licences, leases and agreements that may be tied to the old entity

Planning the structure early, with a view to the medium term, can reduce the need for disruptive changes later.

8. How Ascern can help

At Ascern, we assist founders and business owners to:

• understand the practical implications of different entity types
• assess structures in light of their business plans, risk appetite and funding needs
• plan transitions (e.g. from sole proprietorship/partnership to company)
• set up basic financial reporting, compliance and governance processes from the beginning

We work with SMEs, family-owned businesses and professional practices to build sustainable and compliant structures that support long-term growth.

If you are evaluating how best to structure your new or existing business, we would be pleased to have a discussion.