chapter 5

Business Structures

Structures

Your Options

(i) Sole Proprietorship
(ii) Partnership
(iii) Company

Whether you're just starting out or deciding on the right structure for your existing company, understanding the law around business organization is important. You'll have to assess the nature of your business to figure out which option will afford you the most benefits.

Sole Proprietorship

This is the most common structure for online store owners, and also the easiest to run and set up. In order to become a sole proprietorship, you must be over 18 years of age and a citizen, permanent resident or a pass holder of Singapore. You must also register your business with the ACRA, which involves a fast process with minimal fees. Although it’s simple to open and run, being a sole proprietor does have disadvantages. Your business is not a separate entity from you and although you receive all profits, you are personally liable for all debts or legal action taken against the business. This common and simple structure is ideal for a shop with little risk of liability.

Pros

(i) Easy to set up and run.

(ii) Control of all business
decisions and profits.

(iii) Easy to administrate.

 

Cons

(i) Not a separate business entity.

(ii) You are responsible for all debts or actions against the company.

(iii) Limited borrowing power.

Partnership

Agreements

Considerations

A well-drafted and balanced agreement includes:

(i) Names of partners and how new partners can be added.
(ii) Outline of the business.
(iii) Investment, liability and profit share of each partner.
(iv) What if partnership is dissolved.

A partnership is another common structure for small businesses. These are formed when two or more individuals are co-owners of a business venture. This structure allows individuals to pool their assets and skills to increase their chances of success.

Like a sole proprietorship, a partnership is not a separate legal entity from its owners. This means the partners are personally liable for all debts and obligations of the business. An additional consideration is that all partners are liable for the actions of the others in relation to the business. One partner may be responsible for the debt of another if their assets are insufficient to cover an obligation.

Pros

(i) Allows for the division of labor.

(ii) Partner brings more
capital investment.

 

Cons

(i) Not a separate entity.

(ii) Jointly liable.

(iii) Business relationship can sour.

With this form of organization, remember to focus on the human element. There’s always a chance that a friendly partnership can change in the future. For this reason, make sure to have a lawyer assist you when drawing up a partnership agreement. Selecting the right partner is important because you’re liable for the debts and actions that they incur on behalf of the business.

Company

Running a company has many benefits and increases the credibility of your business. The process is more complicated but does have many potential benefits for your online shop.

2 Steps to Incorporation

Reserve Company Name

(i) Your company name must be approved before registration.

(ii) Reserve the name of your company with the Company Register.

(iii) This process is often approved within one hour, and the name is held for 60 days.

 

Register the Company

(i) Register your company with the Singapore Registrar of Companies.

(ii) This process is fairly simple and speedy if all shareholders are from Singapore.

(iii) It's advisable to seek legal counsel at this stage.

One of the most notable differences about this business structure is that the corporation becomes a separate entity from you as the owner. You’re not personally financially liable for what happens to the corporation. This is a good business structure if your company is growing and there is a greater potential for liabilities.

Pros

(i) Separate entity.

(ii) Limits your financial liability.

(iii) Charged corporate tax rates.

(iv) Improves your credibility.

 

Cons

(i) Heavily regulated.

(ii) Extensive record keeping.

(iii) More expensive than
the others to form.

Choosing a business structure

It's important to consider the unique aspects of your business when deciding which organizational structure to choose. Although some options have benefits on paper, they may not be a worthwhile choice for you. There are detailed and helpful resources available from the Government of Singapore.

Before finalizing your decision, consult a lawyer to make sure you’ve made a sound choice and that the process is completed properly.

Conclusion

Share the Legal Guide if you think that it may be helpful information for your friends and followers.

 

Being aware of and obeying the rules that apply to you as an online business owner is an important aspect of running your shop.

Protecting your brand, your assets, and maintaining a positive customer relations are all affected by your ability to understand and obey the law.

The law is fluid and can always change! The resources provided to you in this book will allow you to stay up to date and make sure you are aware of requirements placed on you.

Ready to start your online business?

Try Shopify for free for 14 days.

Start your free 14-day trial today!