Investment Law - Structures for Investements

Investments Structures


Thus topic requires students to appreciate the various structures for holding their investments and the reasons ie. the advantages and disadvantages of the various structures. With this, students will understand that there are more than one way to hold an investment and the investor will be able to choose from these structures to one that best suites his objective.

Some of the structures are :-

Personal Name
Sole Proprietorship
Partnership
Limited Liability Partnership (LLP)
Company
Foreign Offshore Companies
(http://en.wikipedia.org/wiki/Offshore_company)
Trust


Some of the factors to consider in each of the structure:-

Cost of Registration
Image
Tax
Registration process
Confidentiality
Liability
Succession
Raising Capital.


Some of the following website offer a good comparison:-

Private Limited Company

The technical term for a private limited liability company in Singapore is Private Company Limited by Shares. Most of us just call it private limited company. Most of the small to mid-size companies in Singapore are incorporated as private limited companies. A private limited company's name in Singapore normally ends with Private Limited or Pte Ltd.

A private limited company is the most advanced, flexible, and scalable type of business incorporation in Singapore. It's also the most preferred type of Singapore business entity for serious entrepreneurs (as opposed to sole proprietorship or limited liability partnership). Detailed information about setting up a private limited company can be found in Singapore Company Registration guide.

Advantages

1. Separate Legal Entity : A private limited company has its own legal identity, separate from its shareholders and its directors. It can acquire assets, go into debt, enter into contracts, sue or be sued in its own name.
2. Limited Liability: The liability of the members to contribute to the debts of the company is limited to the amount that they each agreed to contribute as capital to the company.
3. Perpetual Succession: The company's existence does not depend on the continued membership of any of its members. Ease of transfer of shares or changes in shareholders, ensures that company continues to exist even in the event of death, resignation or insolvency of shareholders or directors.
4. Ease of raising capital: You can raise capital for expansion or other purposes, by bringing in new shareholders or issuing more shares to existing shareholders. Investors are more likely to purchase shares in a company where there usually is a separation between personal and business assets. Also, most banks prefer to lend money to limited companies.
5. Credible Image: As an incorporated business entity, it commands a better image than a sole proprietorship or a partnership firm, and investors will be more willing to become part of the company as it demonstrates a vision to grow and expand. As a Pte Ltd company, your business will be taken more seriously by your potential clients, suppliers, bankers, and other professionals you will be dealing with.
6. Easier transfer of Ownership: Ownership of a company may be transferred, either wholly or partially, without disrupting operations or the need for complex legal documentation. This can be done through the selling of all or part of its total shares, or through the issue of new shares to additional investors.
7. Tax Benefits and Incentives: The effective Singapore income tax rate for companies for profits up to SGD 300,000 is below 9% and capped at 18% for profits above SGD 300,000. Furthermore, there is no capital gains tax. Singapore follows a single-tier tax policy which means once the income has been taxed at the corporate level, dividends can be distributed to shareholders tax free.

Disadvantages

1. More complex to incorporate and maintain than sole proprietorship or LLP.
2. Private limited companies must follow certain ongoing compliance requirements.
3. Closing a company is more complex than other forms of business
   

Singapore Incorporation: Sole Proprietorship

Sole proprietorship is the simplest but the riskiest type of business form in Singapore. From a legal perspective, sole proprietorship is not a separate incorporated entity and therefore the owner and the business are one and the same. The owner personally owns all assets and liabilities of the business. There is no protection of personal assets from business risks and liabilities. As the sole proprietor of a business, you have unlimited liability, meaning that if your business can't pay all its liabilities, the creditors to whom your business owes money can come after your personal assets. Many entrepreneurs are usually unaware of this enormous financial risk. If the business is sued or can't pay its bills, the owner is personally responsible for the business's liabilities. We consider this a serious drawback and hence do not recommend sole proprietorship to inspiring entrepreneurs.

A sole proprietorship can only be owned by one person, usually the individual who has day-to-day responsibility for running the business. All profits of this business structure in Singapore are taxed at the personal income level.

Registering a sole proprietorship business in Singapore takes little effort and details can be found at Sole Proprietorship Registration guide.

Sole Proprietorship Advantages

1. Ease of setting up: It is the easiest and least expensive business structure to set up.
2. Owner Control: As a sole proprietor you are in complete control of all the business affairs including decision making.
3. No profit sharing: You accrue all income generated by the business.
4. Ease of termination: Terminating a sole proprietorship is easier, less time consuming and less expensive than other business entities.
5. Least compliance requirements: You are free of the obligation of filing returns annually and only need to renew your membership every year.

Sole Proprietorship Disadvantages

1. No separate legal entity: You are inseparable from your business. This makes you financially and legally responsible for all debts and legal actions against the business.
2. Unlimited liability: Creditors may sue you for debts incurred and can also obtain a court order to claim against your personal assets, including your property.
3. No corporate tax benefits or incentives: Taxes are determined at your personal income tax rate and you do not enjoy special tax benefits that are available to a private limited company.
4. Limited capital: Capital is limited to your personal finances and the profits generated by the business. Thus, business expansion is limited and difficult.
5. No perpetual succession: The business lives and dies with you as you and the business are one and the same thing.
6. Low public perception: This entity is the least preferred for serious businesses as nobody would be willing to lend you large sums of money. It is also difficult to attract high-caliber employees, or senior level executives who usually look for a more advanced form of business structure such as a private limited company.
7. Sale/transfer of all or part of the business: You can transfer the business only by the sale of business assets.
   

Limited Liability Partnership (LLP)

Among the three types of partnership business entities, LLP is the most recent and most advanced business incorporation structure. It combines the features of partnerships and companies. LLP was introduced in Singapore in 2005 through enactment of Limited Liability Partnership Act. Registering an LLP gives owners the flexibility of operating as a partnership while enjoying many of the benefits that come with a corporate body like a private limited company.

LLP is primarily meant for carrying a profession (accountants, law firms, architects, etc.) where two or more professionals would like to build a joint practice in a common field. The owners must enter into very detailed agreements about how the profits and management responsibilities are divided. It can get very complicated and generally requires the services of a lawyer to draw up the agreement. Partners in a limited liability partnership are usually responsible for cultivating their clients based on the partner's specific area of focus.

A LLP must have at least two partners at all times. An LLP is not suited for a business that carries a trade. For more details on LLP including how to incorporate, refer to Singapore LLP Registration Guide.

LLP Advantages

1. Separate Legal Identity: An LLP has a separate legal identity and can own property, enter into contracts, sue or be sued in its own name.
2. Limited personal liability: The partners of the LLP will not be held personally liable for any business debts incurred by the LLP or the wrongful acts of another partner. A partner may, however, be held personally liable for claims from losses resulting from his own wrongful act or omission.
3. Perpetual succession: Any changes in the LLP (e.g. resignation or death of partners) do not affect its existence, rights or liabilities.
4. Ease of compliance: Compliance requirements are more complex than sole proprietorship but simpler than a private limited company.

LLP Disadvantages

1. Requires a minimum of 2 partners at all times.
2. Individual partners can commit the partnership to formal business agreements without the consent of the other partners.
3. LLPs lack the ease of ownership transfer and investment that a company structure provides.
4. No corporate tax benefits: Tax exemptions available to private limited companies are not available to LLPs. LLP is treated as tax transparent which means an LLP is not taxed as an entity. Instead each partner is taxed on their share of the

Source : http://www.guidemesingapore.com/company-setup/singapore-business-setup-entity-types.htm