Advantages of Running Your Business as a Limited Company
Credible Image:
Besides the perpetuity implied by the legal structure, a commitment to long-term business as well as governance and responsible business management is demonstrated by a limited company. This contributes to the credibility of the company among the suppliers, customers and even among its employees and potential employees. It also improves its access to credit and opens up new opportunities.
While small businesses and ad hoc traders opt for sole proprietorship and partnership structure that convey an attempt at sustenance, they are generally perceived as lacking vision and long-term commitment, hence lack credibility.
Ease of Raising Capital for a Limited Company:
Limited companies have the option of raising additional capital by issuing new shares and attracting new investors whereas the owners of sole proprietorship and partnership firms must rely on their personal assets for raising capital and often pay a higher cost in the case of debt capital.
The structure of a limited company allows the owner/owners to transfer some of his or her equity in a company in exchange for investment or issue new shares. Though the existing shareholders may fear dilution of rights, it is always possible to protect their interest by including pre-emption rights and by creating share classes that effectively control the rights to vote, as well as the rights to receive dividend and capital if the company is wound up.
Tax Exemptions for a Limited Company:
The corporate tax rate is very competitive in Singapore. With tax exemptions available for newly setup company and partial tax exemption for all companies, which effectively results in only 9% tax on the chargeable income of up to S$300,000, it is prudent to set up a limited company. The chargeable incomes of a sole proprietorship and partnerships firms will be treated as personal incomes of the owner/partners that could potentially result in high tax expenditure for the firms.
Additionally, as Singapore follows a single-tier taxation regime, incomes once taxed at the corporate level will not be taxed again in the hands of the shareholders. Hence, the dividends received by the shareholders of a limited company will not be charged again, resulting in tax-free income for the shareholders.
Ease of Transfer of Ownership
Ownership of a company may be transferred, either wholly or partially, by simply selling off all or part of its total shares, or through the issue of new shares to additional investors. This is helpful when there is a dispute among the owners/shareholders; if one or few of the shareholders choose to exit the business due to irreconcilable differences, they can do so by simply selling their shares to existing or new shareholders. Thus no complex documentation is needed, and it also does not disrupt the course of the business. This ease of transferability of shares is also helpful in attracting investors, thus aiding access to capital.
Learn more why you should set up a Singapore Private Limited Company at Rikvin.com.
