This article is written in collaboration with OCBC Business Banking. Views expressed in the article is the independent opinion of DollarsAndSense.sg.
When you first have the idea to start a business, what comes to mind first are probably things like finding the right partners, picking the right business model, figuring out who your customers are and securing financing for your new venture.
Thinking about the legal structure of the business isn’t something that most of us would be concerned with, but this can have critical repercussions months or years down the road, with financial impact in the thousands (or even millions) of dollars.
Your Business Entity: Invisible But Integral
Selecting the right legal structure for your business is akin to choosing the right type of vehicle.
A motorcycle is a cost-effective and fast way to get from Point A to Point B, but doesn’t offer much in the way of protection, and it can’t carry more than a rider and a pillion.
A 4-door car is a good all-rounded vehicle, capable of carrying people comfortably in the cabin with storage space in the boot.
However, if ferrying goods is your primary use for the vehicle, then you might be better off buying a van. It is not the most comfortable, but it can carry items that the above vehicles can’t.
Just as you want to pick the right type of vehicle based on your needs, you want to choose the right business organisation based on what your business requires today – with room to grow tomorrow. Changing your vehicle or form of business halfway because you made the wrong choice can be unnecessarily troublesome.
Registering Your Business Is Compulsory
In Singapore, all businesses need to be registered with the Accounting and Corporate Regulatory Authority (ACRA). Once your business is registered, it gives you access to a whole range of resources like business bank accounts, government grants, and business loans.
At the same time, from now on, you will also be responsible for declaring revenue and other information as dictated by law.
To help you choose the right legal business structure for your venture, we will discuss some of the most common types available in Singapore and what purposes they are suitable for.
Sole Proprietorship
The simplest business entity is the Sole Proprietorship, which has a single business owner.
The main advantages of sole-proprietorships is absolute control over the business and low compliance burden and costs.
Unlike other entities, business owners just need to renew their business registration annually, as well as declare and pay tax based on the business owner’s personal income tax rates. There is no need to hold Annual General Meetings, prepare financial statements or perform mandatory audits.
For sole proprietorships, the business and the business owner are considered a single legal entity. This means that the business owner is personally liable for any business debts or legal consequences as a result of business operations.
On the flip side, all business assets, such as cash in bank, property or fully paid up equipment, belongs to the owner, are treated as personal assets and can be distributed in a will to surviving beneficiaries, though the business would cease to exist.
Since sole-proprietorships do not have the option to sell shares in the business, such a structure might not conducive for getting investors or external funding on board.
It costs $115 ($15 name application fee and $100 registration fee) for 1-year registration and $175($15 name application fee and $160 registration fee) for 3-year registration of a Sole Proprietorship.
Read Also: The Gig Economy – Do You Have A Job Or A Career?
Limited Liability Partnerships (LLP)
Limited Liability Partnerships require a minimum of 2 partners and there is no limit on the maximum number of partners.
As its name suggests, LLPs shield individual owners of the LLP from being personally liable for business losses or debts of the LLP or legal actions against the LLP , since the LLP is a separate legal entity .
As a distinct entity in its own right, a LLP can also buy and own property in its name, and a LLP will survive the demise of individual partners. Shares in a LLP can also be sold or transferred to other individuals.
It costs $115 ($15 name application fee and $100 registration fee) for 1-year registration and $175 ($15 name application fee and $160 registration fee) for 3-year registration of a Limited Liability Partnership.
Private Limited Companies
A Private Limited Company is a bigger, more robust entity compared to a Limited Liability Partnership, and can have between 1 and 50 business owners.
Private Limited companies are subject to more corporate governance requirements, such as the need to appoint a qualified company secretary, appointing at least 1 Singapore resident as a company director, and needing to file annual returns and minutes of Annual General Meetings. Companies are also required to retain documents of financial transactions for at least the past 5 years.
The benefits that you gain from going through this additional administrative overhead is the greater ease of issuing shares, transferring ownership, and raising money for the business. The greater regulatory requirements also make Private Limited entities inherently more trustworthy in the eyes of many investors, vendors, clients and customers.
It costs $315 ($15 name application fee and $300 incorporation fee) to set up a Private Limited Company.
Read Also: Business Banking In Singapore: Then And Now
How To Incorporate or Register Your New Business
If you have a SingPass login and the necessary documents, you can register to incorporate your business entity on the ACRA website.
Depending on the type of business organisation you choose, there might be additional steps that would be tricky for those who are not familiar with the process, such as appointing a qualified company secretary, drafting a constitution, complying with the relevant laws and regulations, having a registered address and ensuring your financial statements will be properly kept.
To help you take care of these legal and procedural tasks easily, OCBC Bank has collaborated with Osome to help you get everything done online including opening your business account online. The whole process is hassle-free with no documents required, no meet-ups required and you can do this anywhere and anytime.
Users who want to open a new OCBC business banking account online can also incorporate your business at the same time. If you wish, you can also enjoy more discounts on your company incorporation, corporate secretarial needs, accounting and bookkeeping services along with your OCBC business account.
Read Also: Guide To Opening A Business Account For Your Start-Up In Singapore
Getting Support For Your New Business
Once you’ve decided on the right business organisation to support your business vision, the next step would be to register for a business banking account, which allows your business to start collecting revenue from your customers and to make payments to your suppliers and staff.
Banks such as OCBC offer a range of different business banking accounts to cater to every business type and size, which you can choose based on the services you need.
For example, if you’re running a small business on your own, the OCBC Business Growth Account might be suitable. With a fee of just $38 per year and low initial deposit of just $500, it is designed to help you get your business up and running as quickly as possible, while you focus on business growth.
If you’re expecting to hire a large number of employees, make regular payments to vendors, and issue cheques often, then OCBC’s Business Entrepreneur Account would give the additional features you need, including free transactions of up to 200 GIRO transactions, 20 FAST payment transfers, two outward telegraphic transfers and 30 cheque payments each month.
Once you’re all set from a legal and accounting standpoint, you can look at how you can work smarter using various digital tools, such as the OCBC Digital Dashboard, which gives entrepreneurs real-time information on key metrics on the health of their business.
As you makes bold plans to take your business forward, putting in place the right support infrastructure, such as the right business entity type and a suitable business banking account, will go a long way in enabling you to fulfil your vision for your business.
Need Financing Support During This Period?
Enjoy fast access to funds and receive your loan approval status instantly when you apply online with OCBC.
For SMEs that are just six months into operations, secure up to S$100,000 with the
OCBC Business First Loan
.
If your SME is above two years old, secure up to S$700,000 with the
OCBC Business Term Loan
– good for funding business operations or expansion.
Terms and conditions apply.
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