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Types of business entity: Guide to different business entity types


This guide outlines the common types of business entity and how they differ from each other. When an entrepreneur decides to start a new business, he or she must choose from the types of business entity.

The most common types of business entity include a sole proprietorship, partnership, corporation and limited liability company. They range from the easiest to the most difficult to start and maintain. Each of the types of business entity has a specific method of taxation, management organization and responsibility structure. Among business entities, owners and partnership types of business entity typically have the least protection, while corporations and limited liability company types of business entity have the most protection. We explain the types below, including the difference between a limited vs unlimited company.

Types of business entity

If, for example, you are looking to incorporate a company in Singapore, it is important to note that the types of business entity are broadly divided into four categories. The Accounting and Corporate Regulatory Authority (ACRA) is the governing board for the registration of business entities. Setting up a local company is a straightforward process where each business entity is required to register with ACRA. Below the details are discussed in regards to the four types of business entity that operate.

1. Sole proprietorship

A sole proprietorship is the easiest form of business entity for those considering business registration, as it requires the least amount of documentation to set up. The entity does not have a separate legal identity from its owners which have unlimited liability on their debts and obligations. This makes it the riskiest form of business entity, due to lack of protection legally and financially. However, it is most favored by small businesses setting up a local company because of its hassle-free setup procedures. The registration with ACRA must be renewed annually.

In a sole proprietorship, the owner keeps the entire profit to themselves without the need to share those profits with anyone. It is best suited for solo entrepreneurs who are seeking to incorporate a company without any partners.

2. Partnership

A partnership is owned by a minimum of two people with the maximum number of partners limited to twenty. During the process of business registration, the legal documents are signed between the partners which include their share capital, profit, and loss percentage, and their roles in business.

Like sole proprietorship, partnerships need to be registered and renewed annually with ACRA. Dissolution of a partnership occurs with the death, insolvency, incapacity or the retirement of any of the partners. If a partner is discontent, they may give notice for the dissolution of the partnership. There are 2 types of partnership business that entrepreneurs choose when they incorporate a company:

1. General partnership

Setting up a local company in the form of a general partnership is suitable for partners that range between 2 -20 persons. The partners pay their taxes like personal income tax, based on their share of income from the partnership. Liabilities between partners are unlimited

2. Limited liability partnership (LLP)

This establishment is an alternative to the general partnership type of business form in Singapore. This type of business entity has a limited partner in addition to a general partner. The limited partners enjoy a limited liability, which is their investment consisting of capital or property in the partnership.

3. Limited liability company:

A limited liability company (LLC) or also known as a private limited company) is one of the most common types of business entities in Singapore. A LLC has its own legal identity, separate from its shareholders (who own the company) and its directors (who manage the company). This is the most commonly found business structure as a large proportion of company incorporation are in the form of private limited companies. If you are looking for an easy incorporation procedure, lower tax rates, the ability to raise funds, and better credibility, choosing LLC as a business structure would be a good choice. Visit limited vs unlimited company guide to learn more.

4. Public company

The public companies are divided into two subcategories of types of business entity:

Public company limited by shares

The limited liability company which has more than 50 shareholders is known as a public limited company. These entities issue shares to the general public and the suffix at the end of their names always ends with ‘Ltd’ or ‘Limited’. Their names are listed on the stock exchange and have a basic requirement to submit a prospectus to the Monetary Authority of Singapore (MAS) before they are allowed to issue shares to the general public.

The liabilities of shareholders are limited to their ownership and the directors are protected under the veil of incorporation since companies have separate legal identities to their shareholders and directors. Generally speaking, these entities hold the highest levels of prestige because of their sheer size and magnitude. This form of business is well suited for big corporations looking to incorporate a company. However, it is important to note that these companies face a high quantum of scrutiny and accountability directly to the shareholders. Dissolution of these giant entities is also a cumbersome process with a lot of documentation and legal requirements.

Public company limited by guarantee

These entities are created for public good and nonprofit purposes. These structures promote charitable causes or arts. the liability of the members is limited to their contribution. These entities are different from public companies limited by shares in the sense that their names do not end with ‘Limited’ or ‘Ltd’. There is no involvement of share capital in these nonprofit structures. The operations must not be used for trading purposes and shall be restricted to nonprofit activities such as sports, religion, charities, or clubs.

In summary

There are many fantastic opportunities being provided to businessmen and entrepreneurs to complete their business registration and take advantage of the benefits it brings.

The process to incorporate a company can be complex and confusing to first-time entrepreneurs, hence it is highly advised to employ an agency offering company registration services to assist you. Not only do they possess the expertise and experience with the procedure, but they can offer you great advice on what type of business entity your company should register for. Be sure to consult with your agency, and do some research into your agency before you start the process of business registration.

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