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Table of Contents
An LLC , an LLP, and a Sole Proprietorship differ mainly in liability, taxation, and compliance load: an LLC caps owner liability and pays a flat 17% corporate tax, an LLP shields partners from the business’s debts but taxes each partner individually, and a Sole Proprietorship carries unlimited personal liability with the lightest compliance.
Singapore does not have a legal entity type officially called “LLC.” The term is used in this article to refer to the closest local equivalent, a Private or Public company limited by shares, since that is how many foreign readers search for this comparison.
Key Takeaways
- An LLC (Private/Public company limited by shares) and an LLP are separate legal entities from their owners; a Sole Proprietorship is not.
- LLC shareholders’ liability is capped at their share value; LLP partners are shielded from the firm’s debts but remain liable for their own wrongful acts; Sole Proprietorship owners carry unlimited personal liability.
- LLCs pay a flat 17% corporate tax rate; Sole Proprietorship profits are taxed at the owner’s personal income tax rate, which is progressive from 0% to 24% as of Year of Assessment 2024 onward(1) .
- LLCs carry the heaviest compliance load (annual return, tax filing, company secretary), LLPs file an annual solvency declaration, and Sole Proprietorships mainly renew their ACRA business registration and file personal tax.
- Private companies (a common LLC subtype) may dispense with holding an Annual General Meeting under Section 175A of the Companies Act if conditions are met.
Common business structures in Singapore when incorporating
Limited liability company (LLC), in general, is the most chosen type of business entity in Singapore. LLC comprises many different specific subtypes. They are private and public limited liability companies:
- Private limited liability company (Pte. Ltd) is a company privately owned by no more than 50 shareholders.
- A public limited liability company is not subject to the 50-shareholder cap that applies to private companies, and it may offer shares to the public and be listed on a stock exchange. There is a public company limited by shares and a public company limited by guarantee.
Limited liability partnership (LLP), on the other hand, is owned by at least 2 partners and it can be considered as a mix of partnership and limited liability companies.
Sole Proprietorship, lastly, is the simplest yet riskiest entity type to incorporate in Singapore as it is registered with one owner only.
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LLC vs. LLP vs. Sole Proprietorship in Singapore
Below is the comparison of the three registration options regarding legal status, liability, taxation, maintenance requirements, ownership transfer, perpetual succession, public perception, ability to raise capital, and dissolution.
Legal status
A sole proprietorship is not a separate legal entity, but an extension of the business owner.
On the other hand, an LLC and an LLP are separate legal entities from its owner, which means they are capable of:
- Suing and being sued under its name;
- Acquiring, owning, holding, developing, and disposing of property; and
- Entering contracts under its name.
Sole proprietorship has no distinctive status from its owner.
Liability
Both LLC and LLP follow a limited liability structure. It means that business owners of the two entities are shielded from the businesses’ debts.
In particular, shareholders in an LLC have liabilities limited only to their share value. However, an LLP is both owned and run by its partners. Therefore, a partner in an LLP may hold personal liability for their own wrongful act or negligence as well (but not for other partners).
By contrast, the owner of any sole proprietorship has unlimited liabilities for any business’s debts incurred in the course of its operation due to the fact that the entity has no separate legal status from its owner.
Summarise
- LLC: owners’ liability is limited to the amount of their shares.
- LLP: partners’ liability is limited to the amount of their investment.
- Sole proprietorship: owners’ liability is unlimited.
Taxation
The corporate tax rate imposed on an LLC is currently at 17%.
As for an LLP, different taxes are imposed on different types of partners:
- If partners are individual persons, they are taxed with personal income tax
- If partners are body corporate, they are taxed with corporate income tax
Meanwhile, the income of a sole proprietorship is taxed based on the owner. For example, if the owner is a person, then the income of that sole proprietorship is taxed progressively from 0% to 24%, with the top rate applying to chargeable income above S$1,000,000 as of Year of Assessment 2024 onward.
Summarise
- LLC: the company is subject to a 17% flat tax rate.
- LLP: the individual partner pays tax on personal income while the corporate partner pays tax on shares of corporate income.
- Sole proprietorship: the profits are taxed at the owner’s personal income tax rates, progressive from 0% to 24% (from YA2024).
Maintenance requirements
There are many compliance requirements that an LLC must comply with. The main obligations are to file annual returns to ACRA and annual tax returns to IRAS.
Prior to that, a private company is generally expected to hold an Annual General Meeting (AGM) within 6 months after its financial year end, but it may dispense with the AGM under Section 175A of the Companies Act if all members pass a resolution to do so, or if it sends financial statements to members within 5 months after the financial year.
Due to the complexity of the requirements, an LLC is legally required to appoint at least one secretary to handle these tasks.
Regarding LLP, the requirements are much fewer. The main obligations of an LLP are to declare its solvency annually and to maintain all financial records.
Sole proprietorship has very minimal requirements. The owner mainly needs to renew the business registration with ACRA every 1 or 3 years and file a personal income tax return with IRAS.
Summarise
- LLC: Heavy burden from maintenance requirements.
- LLP: Moderate burden from maintenance requirements.
- Sole proprietorship: Very light burden from maintenance requirements.
Registration cost and processing time
Setting up a Sole Proprietorship is generally the fastest and least expensive option, since there is no minimum capital requirement and only one owner needs to be registered. Incorporating an LLC or an LLP involves more paperwork (constitution or partnership agreement, appointment of officers) and is comparatively slower and costlier to set up and maintain.
Other aspects
Ownership transfer, perpetual succession, public perception, and ability to raise capital are described in the following table:
| LLC | LLP | Sole Proprietorship | |
|---|---|---|---|
| Ownership | Share ownership can be partly or wholly transferred | Assets, licenses, and permits ownership are transferred individually | Ownership cannot be directly transferred |
| Perpetual succession | Changing members does not affect the existence, rights, or liabilities | Changing partners does not affect the existence, rights, or liabilities | No perpetual succession |
| Public perception | High | Moderate | Low |
| Capital raising | Easy capital raising due to credible identity | Difficult due to private finance contributions from partners | Difficult due to the owner’s private finance contribution |
Due to the clear regulations on ownership transfer and stable structure, LLC has a strong credibility, which helps this business type receive a good perception from the public and also from banks. Thus, an LLC has a higher chance to take out loans from banks or financial institutions, hence being able to raise its capital.
Dissolution
To declare dissolution, the three types of entities need to do the following:
- For LLC and LLP, conducting a striking-off or winding-up process.
- For sole proprietorship, filling the “Cessation of Business” online via Bizfile.
In summary
See the summary table below to go over the crucial aspects of an LLC, LLP, and a Sole Proprietorship in Singapore:
| LLC | LLP | Sole Proprietorship | |
|---|---|---|---|
| Legal status | Separate legal entity | Separate legal entity | No separate legal entity |
| Liability | Owners’ liability is limited to the amount of their shares. | Partners’ liability is limited to the amount of their investment. | Owners’ liability is unlimited. |
| Taxation | 17% | Personal and corporate tax income | Progressive personal income tax, 0% to 24% (from YA2024) |
| Maintenance requirements | Heavy | Moderate | Very light |
| Ownership | Shares ownership can be partly or wholly transferred | Assets, licenses, and permits ownership are transferred individually | Ownership cannot be directly transferred |
| Perpetual succession | Changing members does not affect the existence, rights, or liabilities | Changing partners does not affect the existence, rights, or liabilities | No perpetual succession |
| Public perception | High | Moderate | Low |
| Capital raising | Easy capital raising due to credible identity | Difficult due to private finance contributions from partners | Difficult due to the owner’s private finance contribution |
| Dissolution | Striking off or winding up | Striking off or winding up | Filling “Cessation of Business” online via BizFile |
So, if you have a long-term plan to start a company and to expand it over time, then a limited liability company is the option to go for, since it follows clear regulations, has a stable structure, and it is also easier to raise capital for expansion.
If you want to do business with other partners while being shielded from the business’s debts and complying with only a few compliance requirements, then you should consider a limited liability partnership.
Or if you want to have absolute power over the business, a sole proprietorship can be a reasonable choice. However, please be aware of its limitations.
Should you have any related questions, or should you want to open your own company in Singapore, chat with us. BBCIncorp is your trusted company formation service provider in Singapore.
References:
- (1) Inland Revenue Authority of Singapore – Individual Income Tax rates: https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/tax-residency-and-tax-rates/individual-income-tax-rates
Frequently Asked Questions
Is an LLC the same as a Pte Ltd company in Singapore?
Not officially. Singapore’s Companies Act does not define an entity called “LLC.” What most guides call an LLC is the Private limited company (Pte. Ltd.), the closest local equivalent, which caps shareholder liability at their share value and is a separate legal entity from its owners.
Which is cheaper to set up, an LLC, an LLP, or a Sole Proprietorship?
A Sole Proprietorship is generally the cheapest and fastest to register since it involves only one owner and no constitution to draft. An LLC or an LLP requires more setup documents and is typically costlier, though exact government fees should be confirmed on ACRA’s official fee schedule before you register.
Do all three business types need to file annual returns with ACRA?
No. An LLC must file annual returns and hold or formally dispense with an AGM. An LLP only needs to declare its solvency annually. A Sole Proprietorship does not file annual returns, but its owner must renew the business registration with ACRA every 1 or 3 years.
Can a Sole Proprietorship be converted into a Private limited company later?
Yes, many Sole Proprietorships convert to a Private limited company as the business grows, mainly to gain limited liability and better credibility with banks and investors. The conversion involves incorporating a new company and transferring the business’s assets, licences, and contracts, since a Sole Proprietorship has no separate legal identity to carry over.
Is a partner in an LLP personally liable for the LLP's debts?
No, not for the LLP’s general debts. An LLP partner is shielded from the business’s debts the same way an LLC shareholder is, but remains personally liable for their own wrongful act or negligence, not for the wrongful acts of other partners.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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