Let’s start a company and do things we love, without any bossy supervision. That’s definitely one thing we entrepreneurs have in common. Sadly, before you get there, there’s a whole tedious process of setting up to go through. Just, “Which type of company is right for me?”, “What in the world is a Private Limited Company?”. Well, stay with me for 10 minutes and I’ll try my best to explain it to you.
Sole Proprietorship, Limited Liability Partnership, Private Limited Company. What are they?
Basically, Sole Proprietorship is that your business is attached to you (yeah, that’s right). Limited Liability Partnership, or LLP, is when you run a business with your friend(s) while Private Limited Company, or Pte Ltd, is formed when there are multiple shareholders owning unequal shares of the business.
1. Private Limited Company vs Sole Proprietorship
The most significant thing to note is that a Private Limited Company (Pte Ltd) has a separate entity from its owners while a Sole Proprietorship is attached to its founder. What it means is you, the owner, won’t be sued or chased after if your Private Limited Company is in trouble. I personally know a Sole Proprietor who had to declare personal bankruptcy when his business went south. Don’t let that happen to you!
Let’s talk the most boring topic, tax. Since a Sole Proprietorship business is attached to you, your business has to pay the same amount you do (0-17%). On the other hand, you can save a ton of cash if you have a Private Limited Company instead. For the first 3 years of the company’s life, you don’t have to pay tax if the company generates less than $100,000 in profit. With the next $200,000 in profit, the company receive a further 50% tax exemption. What it means is if your Pte Ltd Company has $300,000 in profit, the company only has to pay tax for the last $100,000. Great deal, huh?
There’s one advantage Sole Proprietorship has over Private Limited Company is that it’s so easy to set up. A company incorporation process is a challenge, but it’s worth it considering the legal and financial upsides. Plus, you can always let the professionals handle the incorporation process for you.
2. Private Limited Company vs Limited Liability Partnership
There’s a similarity between Private Limited Company and Limited Liability Partnership (LLP) is that the business entity is separated from the owners. So no matter what happens to your business, you’ll always be legally protected.
Tax wise, any LLP is taxed according to its shareholders’ personal tax bracket. So it’s like Sole Proprietorship. Needless to say, Private Limited Company wins at this criteria.
One significant deal breaker in this comparison is that LLP owners will have the equal shares of the business. In a LLP with 2 founders, each will own 50% while if there are 3, each will then own a third of the business and so on. So in the cases you want to raise money, have minority partner or give some equity to an advisor (in other words, register for a startup), it’s best to go with a Private Limited Company.
3. Private Limited Company’s Other Perks!
- Ease of transferring ownership / receiving grants.
- Tax-free dividend.
- The company/entity lives forever compared to other types of business.
If you’re convinced why Private Limited is the best fit for your soon-to-be-incorporated company, scroll down and let’s get to the how!
Setting Up Your Very Own Private Limited Company
As mentioned, it’s ideal to leave this up to the professionals to avoid any costly, irreversible mistakes. That said, you still must know the basics and I’ll walk you through that.
1. Minimum Requirements to Register Your Private Limited Company
While it looks complicated, the legal process is actually quite simple:
Shareholder: This can be an individual/corporate entity. Startup founders can put their names as shareholders.
Director: Any company will require a director. The person in this position must be either Singaporean, Permanent Resident or someone possessing an EntrePass. For those with Employment Pass, you’ll need the Letter of Consent (LOC) from Ministry of Manpower. And then, there’s always a Nominee Service to have someone as the director for the business.
Secretary: A position that must be appointed within 6 months of the incorporation. There is a service for this criteria as well.
Capital: Your initial capital in the company, as the shareholder, has to be at least $1.
Address: Any company requires an address. Your residential address can be used as a company address.
Those above are the 5 must-haves. Unfortunately, it doesn’t end there. Stay with me, we’re almost there.
2. More Important Requirements
Shareholders Agreement: This is a legal advantage of Private Limited Company to avoid disputes in the future. You can decide the portion of the business other founders, advisors or investors own. I strongly recommend hiring a lawyer or approaching incorporation service for this. In the case you prefer the latter, check out the community reviews.
Auditor Appointment: Another legal procedure (yeah, I feel you). Unless your company has more than $5 millions or a corporate shareholder or more than 20 shareholders, there’s no need for auditing.
Bank Account: Now that the company is a separate from you, it doesn’t make any sense for you to use your own bank account.
License and Permit: This depends on the industry/what type of business you run. Check out what license your company needs to operate.
That’s all the must-haves to start operating. However, there are some additions, while not legally required, can be absolutely critical for your business.
3. Necessary Items Checklist
Business Grants: Many startups apply for government grants or competition awards. While the chance of getting grant is low, it is so worth the application. The money granted can help your business thrive ahead of the intense competition today.
Digital Properties: No matter what industry your company is in, even B2B today needs digital marketing in order to exist. Grab all the online names for your business, from web domain names to social media accounts. Even if you don’t have any plan or strategy in near future to acquire online customers (which you should), registering all the digital properties prevent anyone from sabotaging the image of the brand.