Whether you’re running the business on your own or with partners, choose the structure that best suits you. The most common are sole proprietorship, partnership and company. Each structure has its own benefits and considerations.
Here are the five different types of business structures:
Sole Proprietorship
A sole proprietorship is run by only one business owner and it is the simplest type of business structure. While a sole proprietor has complete control over the business and its operations, he is also personally responsible for all debts and legal actions against the business.
Partnership
A Partnership is similar to a sole proprietorship, except it is formed by two or more partners (capped at 20).
Limited Partnership (LP)
An LP is a partnership between a minimum of two partners, with at least one general partner and one limited partner and does not have a separate legal entity from the partners. A general partner is responsible for the actions of the LP and is liable for all its debts and
obligations. A limited partner is not liable for the LP’s debts and obligations beyond his agreed contribution, provided he does not take part in the management of the business.
Limited Liability Partnership (LLP)
An LLP is a type of business structure in which two or more partners incorporate an entity separate from themselves. A partner of the LLP cannot be held personally liable for the actions of any other partners. Thus, every partner is
personally responsible for any liabilities that arise from their own actions.
Local Company
A local company is a business entity incorporated in Singapore. A company has the right to own property, has perpetual succession and can sue or be sued in its own name. There are 4 different types of companies:
Private company limited by shares
Exempt private company
Public company limited by shares
Public company
limited by guarantee
The most commonly chosen type in Singapore is the Private Limited Company. Click here to understand more about the different types of companies.
How to choose your business structure
Here are some questions to help you decide:
What is the
nature of my business?
How many owners will there be?
How much capital will I invest?
What risks am I prepared to take?
What is my long-term plan for the business?
What are the pros and cons of the different structures?
What are my business needs?
Is the business structure easy to set up, manage and close?
Filing Obligations
There will be different filing obligations depending on your business
structure. Find out more about Annual Filing with ACRA and Tax Returns Filing with IRAS.
Not sure which business structure to choose?
There are 2 ways to find out which business structure suits you best:
Use our e-Adviser for Business Structure to
get recommendations on the suitable business structure based on your business preferences.
Go to e-Adviser for Business Structure
Download a Business Structure Comparison Table to find out the differences amongst
the different business structures.
Watch this video to learn more about the different business structures.
There are many ways to form a business, each with its own distinct advantages and drawbacks. In fact, there are four main types of business entities: a partnership, a sole proprietorship, a corporation and a limited liability company.
A partnership business, by definition, consists of two or more people who combine their resources to form a business and agree to share risks, profits and losses. Common partnership
business examples include law firms, physician groups, real estate investment firms and accounting groups.
By comparison, a sole proprietorship puts all of those responsibilities on one person, while a corporation operates as its own legal entity, separate from the individuals who own it. A limited liability company, or LLC, is a hybrid of a partnership and a corporation, allowing owners to take on profits and losses without any personal liability or taxes on the business itself.
For
many individuals, going into business with a partner is a chance to forge experience, expertise and endeavors with others. To maximize some of these benefits, it helps to understand exactly what a partnership business is.
Advantages and disadvantages of a partnership business
Understanding the pros and cons of
forming a partnership business can better inform you about how a business partnership works and help you decide whether this is the most beneficial structure for your organization.
Advantages
Stronger financial position. The ability to pool resources can provide your business with more capital and access to new investors, while better positioning the company to borrow money. Sharing business expenses with your partners can help you save more than
you might have on your own.
Brain trust. Being able to share skills and institutional knowledge is a key benefit of a business partnership. This can help broaden your expertise and the versatility of your business.
A broader network. By sharing contacts and connections with your business partners, you can develop new relationships and expand your professional network.
Fresh eyes. Bringing in partners can provide new perspectives on how
you do business by seeing things from a different angle. Partners can offer fresh ideas, market strategies and inspiration to grow your business.
Tax savings. If your business is set up as a general partnership, your company may not need to pay income taxes. In Canada, a partnership by itself does not pay income tax on its operating results and does not file a tax return. Instead each partner includes a share of the partnership income or loss on a personal, corporate or trust
income tax return.1
Disadvantages
Liability. The primary drawback of a partnership is that all partners share losses, debt and risk, and are fully liable for the financial obligations of the business. This means creditors can seize any partner's personal assets if these obligations are not met.
Loss of full control. Sole proprietors who are used to doing everything their own way might be in for a bit of an adjustment when
switching to a partnership business. Partners share decision-making and may need to compromise when they can't agree.
Potential for conflict. Having more than one person making business decisions creates the potential for differences of opinion that can lead to conflict. Partners may also become bitter if they feel like one person isn't contributing his or her fair share.
Difficult to sell. A partner cannot sell a business without the consent of all of the
other partners, potentially creating a stalemate when one of the owners is ready to leave.
Risk of instability. Without a plan in place, one partner's death, illness or withdrawal from the business may put the future of the company in jeopardy.
How to create a partnership business
Working with one or more partners can add complexity to setting up a business. Following certain steps can help simplify the process.
Select a partnership
structure. There are three different kinds of business partnerships:
General partnerships. The most common partnership type. By definition, this consists of two or more individuals who share the business' profits and losses, as well as day-to-day decisions.
Limited partnerships: Include both general and “silent" partners who are not involved in day-to-day decision making and have limited liabilities based on their financial
contributions.
Limited liability partnership (LLP): All general partners can receive liability protection.
Choose partners and their roles. Find partners whom you trust, as this decision will set the tone and terms of your business. Decide how much it will cost to join the partnership, what percentage of the profits each partner will receive and which roles and responsibilities each partner will have. Some partners may contribute equity, or
ownership share in the business, while others might be salaried partners who are paid as employees.
Name your business. Your partnership's name will offer a first impression of your business. You may consider a name that accurately represents the purpose of your partnership business, or one that incorporates the names of your partners and any designations such as LLP. Remember to do some research to make sure the name you choose is unique so you don't fall prey to copyright
violation.
Register your partnership. In most parts of Canada, partnership businesses must register their names with the province in which they plan to operate. Registering will help make sure you are not using the same name as an existing business. You will also need proof of this registration to open a business bank account.
Obtain a business identification number. Commercial partnerships in Canada need to obtain a nine-digit Business Number from the Canada Revenue Agency; this number also serves as the business Tax Identification Number (TIN). If you plan to do any business in the United States, you will also need to obtain an Employer Identification Number from the U.S. Internal Revenue Service (IRS).
Create a partnership agreement. After you and
your partners agree to their roles and responsibilities, get everything in writing. An attorney can help you draft a business partnership agreement form to detail provisions such as each partner's rights and duties, financial obligations, profit distribution, ownership, dispute resolution, confidentiality and an exit strategy.
Secure necessary licenses and permits. Partnerships must comply with federal, provincial and municipal business laws and regulations. Local governments
may require you to obtain a business permit or license to operate. You may also need specialty licenses to sell goods, such as alcohol, food or cigarettes, or to operate a specialized business such as an amusement park or transportation service. If your business will collect retail sales tax in Canada, you must register with your province to obtain a vendor's permit and follow the provincial tax remittance schedule. You may also need to register to collect the Goods and Services/Harmonized Sales
Tax as a partnership and obtain a GST/HST number from the Canada Revenue Agency.
Business partnership agreement
A business partnership agreement is a written contract between partners that specifies their obligations and contributions to the business, as well as other conditions of their relationship. Every business partnership agreement form should detail these clauses:
Who makes decisions Determine how you will make important decisions and what
to do when partners disagree.
Percentage of ownership. It's important to calculate and make clear how much of the business each partner owns. Also indicate how much money each contributed to join the business, and what should happen if the business needs more money to operate.
Profits and losses. Set a formula for how partners will share earnings as well as losses.
Exit strategies. Come up with contingency plans for what should happen
if a partner dies, becomes disabled or wants to leave the company.
Does a partnership business make sense for your company?
Before you decide whether a partnership is the ideal business type for your organization, consult with an outside expert and carefully consider the following:
Legal liability. How much liability is ownership willing to take on? If you are adequately insured and can afford to put your personal assets at risk, then the
financial gains that a partnership can offer might be worth it.
Taxes. Choosing a business type can depend on where you want the tax burden to fall. A partnership business itself does not pay taxes, meaning profits and deductions pass through to the individual partners, who then report these items on their personal income taxes.
Long-term plans. Look ahead to what might happen to the business in the future. In a partnership business, it's important to
consider who will take over the business after the founding partners are no longer involved.
Costs. Although corporations offer strong liability protection, they require more extensive record-keeping and reporting, thus incurring higher administrative costs than other business entities. They are also the most expensive business type to form, making partnerships a more attractive option.
Freedom. The business structure you choose can dictate how much
flexibility, administrative responsibilities and decision-making power you will have. Corporations tend to be the most constricting in these areas. If you're looking for more freedom, less bureaucracy and the authority to call the shots, then a sole proprietorship might be the right choice for you.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or
a substitute for professional advice.
What type of business is owned by two or more persons who agree to contribute resources such as money property and skills needed to operate the business?
In fact, there are four main types of business entities: a partnership, a sole proprietorship, a corporation and a limited liability company. A partnership business, by definition, consists of two or more people who combine their resources to form a business and agree to share risks, profits and losses.
What is it called when a business is owned by two or more persons?
Partnerships. A partnership is like a sole proprietorship in that it is simply a business that is owned by two or more people.
Which refers to a business owned by two or more persons who contribute resources into the entity it divides the profits of the business among themselves?
A general partnership is a business owned jointly by two or more people. Advantages include: more resources and talents come with an increase in partners, and the business can continue even after the death of a partner. Disadvantages include: partnership disputes, unlimited liability, and shared profits.
What type of business is operated by two or more people who share costs and responsibilities?
Partnership. Partnerships are a form of business ownership where two or more people act as co-owners.
