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Expats revere Singapore as the best place to start a business. It is even renowned as a startup hub. More than 10,000 companies were incorporated in Singapore from January 2019 to March 2019. This data proves how Singapore's atmosphere had encouraged thousands of entrepreneurs to set up their business here.
People sometimes get confused between a Limited Liability Partnership and a Limited Liability Company. This guide will ensure that you understand the difference between a Limited Liability Partnership & a Limited Liability Company, two of the most common entity types that you can register in Singapore. However, keep in mind that if you are a foreigner, then the Limited Liability Partnership entity type is not generally available to you for registration.
When two or more partners incorporate a partnership business entity, this business structure is called an LLP or a Limited Liability Partnership. Co-partners in an LLP are shielded from liabilities due to negligence or misconduct of other partners.
Around 1,710 LLPs were registered in Singapore in 2019, which amounts to 2.78% of the total companies registered in Singapore in 2019.
An LLP possesses several characteristics of both an LLC and a sole proprietorship. Therefore, most of the LLPs are an ideal business model for SMEs.
An LLP has the potential to dominate a specific niche area in its industry. It is a great entry-level business model that works for SMEs, especially those that are more niche-specific with a small customer base.
A limited liability company, or a private limited company, is the most preferred business structure in Singapore. Often, it is also referred to as Private Limited (Pte Ltd) company. Out of 61, 573 companies registered in Singapore in 2019, there were 43,920 LLCs. It is more than 71% of the total companies registered.
An LLC business model is generally the most preferred business model in Singapore due to Singapore's business-friendly policies.
An LLC is also a separate legal entity from its owners, just like an LLP. There are multiple owners as shareholders in an LLC. They are only liable for their invested amount in the company. Any misconduct or dishonest behavior from any of the shareholders or directors does not affect the other owners.
In order to find which of these two models is best for you, you must understand their differences and characteristics in a detailed manner.
Both business structures have the following characteristics of a separate legal identity:
There are some critical differences between a Limited Liability Partnership and a Limited Liability Company. These differences are based on several factors that you must consider before incorporating a Singapore LLP or a Singapore LLC.
The most crucial thing for a business to expand is capital, especially when the business is new. The ease of acquiring funds for your company is also somewhat directly proportional to your company type.
LLP |
Generally, LLPs struggle with raising funds; for capital, they are dependent on private finances or the partners' contributions to the company. |
LLC |
LLCs can acquire funds easily from banks and other financial institutions. A limited liability company is viewed as being credible due to the legal separation between personal and business assets. The different funding options available to an LLC are equity partners, venture capitalists, private funds, and angel investors. |
Both business entities get different tax treatments.
Profits in an LLP are distributed among partners as per their partnership agreements. These profits are treated as the LLP members' personal income and are taxed at individual income tax rates in Singapore.
However, an LLC in Singapore is taxed at Singapore's corporate tax rate. The city-state follows a single-tier tax system. It means that once the tax is imposed on the company's chargeable income, shareholders' dividends become tax-free.
LLP |
Personal tax rate capped at 22% |
LLC |
Corporate tax rate, up to 9% if profits do not exceed S$300,000 and capped at 17% if profits exceed S%300,000, dividends are tax-free |
A private limited company (LLC) in Singapore enjoys tax exemption benefits for the first three years after its incorporation. For eligible companies, there is zero tax or 75% tax exemption for the first S$100,000 of chargeable income.
There are no tax exemptions applicable in an LLP.
Here is a table to understand the difference between payable tax for an LLP and an LLC:
Net Chargeable Income |
Tax Payable LLP |
Tax Payable LLC |
S$100,000 | S$300,000 | S$600,000 |
S$5,650 | S$40,550 | S$106,100 |
S$4,250 | S$29,750 | S$80,750 |
These calculations are rough estimations. Tax calculated for the LLC includes the tax exemption granted under the tax exemption scheme
It is not easy to transfer the ownership of an LLP. The assets, permits, and licenses must be transferred individually and cannot be sold as a whole.
However, partial or full ownership of an LLC can be easily transferred by selling its stocks without disrupting its operations.
LLP |
Ownership transfer is difficult |
LLC |
Partial or full ownership transfer is easy |
The maintenance cost of an LLP is relatively low as compared to an LLC.
The maintenance cost of a limited liability partnership
The registration fee is relatively low for an LLP. However, you will need professional assistance while drafting a partnership agreement.
The cost required for annual compliance requirements is also relatively low. A limited liability partnership is only required to submit an annual declaration to the authorities about the company's solvency or insolvency status.
The maintenance cost of a limited liability company
The registration fee is higher as compared to LLP. The incorporation procedure is a little more complicated as compared to an LLP. Annual filing requirements are also complex.
An LLC must comply with the following annual filing requirements of ACRA (Accounting & Corporate Regulatory Authority):
It isn't easy to fulfill all these compliances while conducting business. Therefore, it becomes imperative for an LLC to hire a CSP (Corporate Service Provider) for the registration procedure and handle the annual compliance requirements. You can say that a private limited company's benefits, power, and flexibility come at a price.
LLP |
Moderate setup, hence registration, maintenance, annual compliance, and paperwork cost is not too high |
LLC |
Complex setup, hence registration, maintenance, annual compliance, and paperwork cost is high |
Public perception is also an essential part of your business. The feeling of your customers, employees, bankers, and vendors toward your business can alter its destiny. This is why most companies spend hundreds of thousands on marketing every month to create credibility for their brands.
The public point of view regarding an LLP is moderate. It holds lesser credibility as compared to an LLC.
An LLC has the most potent public perception among all business types. It holds higher credibility than an LLP or other business model.
LLP |
Lesser credibility and lower public perception compared to LLC |
LLC |
Highest credibility and most robust public perception |
A limited liability partnership is a more appropriate business model for professions like accountants, lawyers, and consultants. The professionals from these fields come together under a partnership agreement. This helps them leverage each individual's experience, skills, and networks to grow the business and maximize profits.
A private limited company or an LLC is a more feasible company type for entrepreneurs who want to scale their business. It is best suited for conducting long-term business.
LLP |
More apt for professionals like lawyer, consultants, and accountants |
LLC |
More apt for entrepreneurs who want to conduct long-term business |
Both LLPs and LLCs offer two different dissolution procedures:
Winding up is a more intricate procedure than striking off. However, there are a few statutory requirements you must fulfill before applying for a strike off.
However, the procedure to strike off an LLP is less complicated than an LLC due to lesser paperwork and lesser compliances involved. It takes 4-5 months for ACRA to strike off a company. It depends on the complexities and compliances involved in the termination procedure.
LLP |
Strike off procedure required, less complex and lesser compliances requirements |
LLC |
Strike off procedure required, intricate process with many legal compliances |
An LLC is far better than an LLP for aspiring entrepreneurs in Singapore. It is the most commonly found company type in Singapore. There are many reasons why entrepreneurs should pick LLC over LLP.
The maintenance cost of an LLC is relatively higher than an LLP. However, it is also more profitable. Once the profit starts to roll in, the maintenance cost would seem like a tiny fragment of it.
If you want consistent growth and long-term business, go with a limited liability company. To learn more about registering different company models in Singapore, go through our Singapore company registration guide.
It is also advised to hire a company service provider for Singapore company incorporation and to fulfill the annual ongoing compliances. Epica provides Singapore company registration services and assists you with all the ongoing compliances after registration, such as accounting, annual tax filing, nominee director services, corporate secretarial services, and annual returns filing. Our team of experts deeply cares about serving clients' needs by providing them complete support and consultancy.
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