Incorporating LLP in Singapore

[jade7862]

Hi all! I'm planning to set up an online craft business and have some questions i really hope someone can answer

1) Is setting up an LLP for an online craft business a good idea?

I thought setting up a sole proprietorship may be risky as the products i hand make do have some element of risk (e.g. aromatherapy products that may potentially cause allergies, candles that may potentially cause a fire if the user doesn't exercise caution etc) , and a company may just be too much hassle to maintain for a simple craft business.

If say i have all the necessary cautionary wordings on my product and website, does having an LLP protect me e.g. if someone has an allergic reaction to my products? Would it be different if it was a SP?

2) Can i just open a normal bank account for my business, since the transaction volume is going to be quite low? (ie. not a business bank account)

3) Is it possible for one partner to have 0% share, while the other has 100%? Basically i just need the other person's name to be there so i can set it up as an LLP rather than SP.

Just for clarification: I am a Singaporean so there wouldn't be any issue for me in setting up a SP/LLP.

Thank you in advance.

[Myasis Dragon]

You don't want a partnership. You want to form a private limited (Pte Ltd). This gives you the corporate veil that you are seeking for liability protection.

You can be the sole and single shareholder of a pte ltd. You can be the sole and single director of a pte ltd. The only requirement for a sole director is that you have an outside secretary, and any CPA can perform that task for you.

If your pte ltd were to turn a profit, there are very generous allowances for the first three years and no corporate taxes would be owed. And in general, your pte ltd doesn't make a profit because you take it all as salary and bonuses.

This is the way the vast majority small businesses are organized in Singapore. Drive down any street. What do you see? "Hank Seng Trading Pte Ltd". "Mia's Flowers Pte Ltd".

The tax returns and reports to the ACRA that you must file for a pte ltd are no more onerous than the reports you must file for a partnership.

Edited to add: You really want a separate bank account. You see, over and above keeping your business finances separate from your personal finances, mixing bank accounts will pierce your corporate or partnership shield. Quite a few things can remove your limitations of liability, should you ever be sued, and mixed cash in a bank account is one of them.

[jade7862]

Hi Myasis Dragon,

Thanks for the reply!

I understand that Pte Ltd is definitely the best choice, however considering that i'm just doing this as a hobby aside from my day job and expecting a revenue of not more than 5k yearly, i don't think i would be able to afford the costs required to set up a Pte Ltd.

Is there really no advantage of taking the LLP route? I thought it would provide me liability protection as well. Furthermore, it's much cheaper to incorporate and doesn't have much compliance requirements.

With regards to the bank account, what i meant is that i will set up a separate bank account so that i won't mix my personal and business finances. However, it will be a personal account and not a business account. Would that be ok?

Thank you!

and appreciate opinions from anyone else too

[Myasis Dragon]

Hi Myasis Dragon,

Thanks for the reply!

I understand that Pte Ltd is definitely the best choice, however considering that i'm just doing this as a hobby aside from my day job and expecting a revenue of not more than 5k yearly, i don't think i would be able to afford the costs required to set up a Pte Ltd.

Is there really no advantage of taking the LLP route? I thought it would provide me liability protection as well. Furthermore, it's much cheaper to incorporate and doesn't have much compliance requirements.

With regards to the bank account, what i meant is that i will set up a separate bank account so that i won't mix my personal and business finances. However, it will be a personal account and not a business account. Would that be ok?

Thank you!

and appreciate opinions from anyone else too

First of all, you must have at least TWO partners to form an LLP. If someone is actually willing to become your pretend partner they will need to file their partnership interest on their own income tax returns. Doesn't make much sense to me.

Second, it costs $115 to form a LLP, $315 to form a pte ltd. That's chump change in both cases.

Third, you still have to file annual notice of solvency with ACRA for an LLP. You still need to fill out a partnership tax return with IRAS that shows the distribution of revenues and profits that will be allocated to each partner's tax return. The maintenance of records for a pte ltd is mostly pretty simple.

Fourth, the LLP doesn't give you the kind of protection you think it does. From the ACRA website: The partners of the LLP will not be held personally liable for any business debts incurred by the LLP. A partner may, however, be held personally liable for claims from losses resulting from his own wrongful act or omission, but will not be held personally liable for such wrongful acts or omissions of any other partner of the LLP.

Since you're the only active partner, you can be sued for your own wrongful actions.

Again, realistically, your only choices are a sole proprietorship or a pte ltd. That's my advice. Don't want to follow it? That's OK, too. Good luck.