What are sole proprietorship? What does it mean when people refer to general partnership, and is it applicable to your business or startup.
Get answers that are specific to your business and concerns and learn from queries and responses given to others based on real life ongoing business challenges.
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Specialises commercial,
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4. Current requirements for
audit exemption
An Exempt Private Company (EPC) which has 20
or fewer shareholders and
Its shares are not held by any corporation
Revenue not more than S$5 million for the
financial year .
Any company, which is dormant for the financial
year after 15 May 2003.
5. New requirements for
audit exemption (2015)
Under the amended Companies Act, expected
to take effect in Q2 2015, a private company has
to fulfill 2 out of 3 of the following conditions to
enjoy this exemption:
Total annual revenue of not more than $10 million
Total assets worth not more than $10 million
Has 50 employees or less
6. How should I structure my
business?
What is so
different about
sole proprietors,
partnerships and
companies?
Isn’t it similar to
choosing
xiaolongbaos
with different
flavors but the
same filling?
Isn’t structuring like
packaging? The
packaging may be
different, but is it
not the same?
7. Case Study
Lim is inspired by the 3rd wave
coffee movement in Singapore
to run his own little coffee joint
selling coffee to young coffee
connoisseurs
He wants to keep it small,
simple, uncomplicated – with
only 1 person running the show:
himself.
How can Lim set up his business?
8. Sole Proprietorship
Only one person owning and
managing the business, known
as the sole proprietor
In this case, Lim is the sole proprietor
One requirement – registration
of the business name under the
Business Registration Act
Lim can register his business name “Lim
Coffee Shop”
9. Sole Proprietorship
Business debt = Personal debt of
sole proprietor
Lim is solely responsible for all business debts
without limit. (ie. He has to fork out his own
money to pay for overheads)
Sole proprietor will have to rely
mainly on himself to finance
business
Only personal income tax on sole
proprietor’s profits
10. Back to case study
Lim’s friend, Khor, sees that
Lim’s business is very popular
and earning a lot
She has some savings and
wants to chip in as partner of
the business.
How should Lim and Khor set
up a business together?
11. General Partnership
2 or more persons carrying out business
and interested in making a profit
Maximum number of partners = 20
“Lim Coffee Shop” can request ACRA to change its
name to “LIM KHOR Coffee”
12. General Partnership
Contractual relationship
Express Agreement e.g. verbal agreement or
partnership agreement
Course of dealings e.g. running of the business
No separate legal personality
Lim and Khor are responsible personally for business’
liabilities.
Lim and Khor carry out business as principal partners
and agents (representatives) on behalf of each other
and the partnership
13. General Partnership
Actions of all partners to 3rd
parties will bind the other
partners and the partnership
If Lim carelessly spills hot coffee
on a young coffee connoisseur
(“Seow Seow Armani”) and
causes 80% burns, Seow Seow
Armani can take legal action for
a claim against (a) Lim, (b) Khor
and (c) Lim Khor Coffee.
14. General Partnership
Partners have unlimited personal liability
to 3rd parties
Partner’s liability is joint and severable
Although Lim & Khor agree that Lim will bear 60%
liability and Khor 40%, 3rd parties (eg Seow Seow
Armani) can take legal action against either AND
both Lim and Khor for 100% of the damages.
If Seow Seow Armani obtains S$5,000 from Lim as
compensation, Lim can turn around and request
that Khor reimburse him 40% of S$5,000 that he paid
out as they were in partnership together.
15. General Partnership
No perpetual succession
No legal existence of its own
If a partner dies, leaves, retires, the partnership
dissolves automatically.
If Lim has a heart attack and dies, the partnership
dissolves automatically. The business can still be
registered under its former name, Lim Khor Coffee,
but it is a sole proprietorship under Khor.
Tax – only personal income tax on each
partner’s profits
16. Back to case study
Pete sees that Lim Khor Coffee is very popular
and is highly ranked on hungrygowhere and
burrple.
He is also a talented barista and can
contribute to the partnership.
However, after hearing about the 80% burn
episode, he is unwilling to full bear all liabilities
of Lim Khor Coffee
How can Pete be involved?
17. Limited Partnership
Essentially a partnership (and its characteristics), but:
Limited Partnership Agreement
Register itself as LP under Limited Partnership Act (“LPA”)
Business Registration Act will not apply
Same partnership principles apply
Compliance with LPA
File changes in particulars of the LP
Publication of the LP’s name, registration no on invoices,
official documents
Keep proper accounts
18. Limited Partnership
General partners – like in general partnership, liable for all
debts, obligations of the firm
A partner may be personally liable for claims from losses
resulting from his own wrongful act or omission
Limited partners
Contribute $ and share in profits
Not liable for LP’s debts, obligations beyond the amount of
his agreed contribution
Cannot be involved in management of LP
Do not have power to bind LP
Pete can be a Limited Partner, while Lim & Khor remain as
General Partners. He cannot be involved in management
and cannot sign contracts with other suppliers, etc. on
behalf of Lim Khor Coffee
19. Limited Partnership
LPs need to notify 3rd parties of
their limited partner status
Or 3rd parties entitled to treat LP
as normal partner, limited
partnership as normal
partnership
Dissolution occurs when limited
partner dies/leaves/retires
Only personal income tax on
each partner’s profits
20. Back to case study
Lim Khor Coffee continues to
grow & thrive
Lim, Khor & Pete are planning to
expand the business but need
additional funds.
More than 20 relatives and friends
want to contribute $$$, and hold
a stake in the company, but
don’t want to be involved in
managing the coffee joint
21. Company
Separate legal personality
The company is recognised under law as a different
legal person from its owners, as opposed SP/partnership
It has the powers, rights, duties of a natural person.
Lim, Khor and Pete can incorporate a Company which
will contract with other parties.
Perpetual succession
Company will continue to exist, despite shareholder-
changes, until it is properly wound up through
liquidation
If any of Lim, Khor and Pete, or their contributing
shareholders pass away, etc. the company will still exist
23. Private Limited Company
Company Limited by Shares
Members/Shareholders subscribe to
shares in the Company
Liability is limited to amount that
remains unpaid on a member’s
shares
Shares confer rights – right to vote,
entitlement to participate in
dividends/profits of the Company
24. Lim, Khor and Pete decide to incorporate a
company with paid-up share capital of S$100, for
themselves and other investors.
In the event that they require more capital, the issue
of fund raising and dilution will be dependent on the
shareholders’ agreement.
Lim
(20%)
LIM KHOR PETE
F&B Pte Ltd
Khor
(20%)
Pete
(20%)
Others
(40%)
Private Limited Company
25. Company limited by
guarantee (CLG)
Usually used for non-profit making
purposes (charities, recreational clubs)
Member (not shareholder)
liable for the Company’s debts when
winding up
Amount is determined by the fixed
guaranteed sum in the memorandum.
26. Society vs Company Limited
by Guarantee (CLG)
Characteristic Society CLG
Registration Registered with the
Registrar of Societies
Registered with
ACRA
Legal Entity Not separate legal
entities
Separate entities
Liabilities Full liability Limited liability
Statutory reporting
requirements
More flexible
(Self-regulating)
Stringent reporting
requirements
Members &
Management
Committee
10 or more persons
with no particular
qualifications
At least 1 director, 1
company secretary
and 1 auditor
AGM Self-regulated Compulsory
28. Main takeaways
How you structure your business will
determine
Your personal/business liabilities and risks
How you “Cash-out” your business
Your compliance costs
Your business succession plans, handover
Your business growth opportunities
29. Checklist for a co-founder’s
agreement
Board composition
Reserved matters
Financing the shareholders’ capital
Obligatory Transfers
Events of default
Non-solicitation and non-competition
Shareholders agreement to prevail company’s
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