The document discusses how to structure a business by exploring different business forms, including sole proprietorships, partnerships, and limited partnerships, while explaining the financial and legal implications of each structure. It provides a case study of 'Lim Coffee Shop' transitioning from a sole proprietorship to a general partnership involving additional partners and considerations for limited partnerships and private limited companies. Key factors to consider for business owners include liability, succession, compliance costs, and the growth potential of their business.

1. How to
structure your
business?
BY: SAMUEL YUEN
MANAGING DIRECTOR

2. Who are we?
 Award winning law firm
that was named “Client’s
Choice for Boutique
Private Client Choice”
and “Fast Emerging Law
Firm” i
 Specialises commercial,
corporate, intellectual
property, and private
client matters

3. Business Structures
Business
Structures
Sole
Proprietorship
Partnership
General
Partnership
Limited
Partnership
Company
Private Limited
Company
Public
Company
limited by
guarantee

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

22. Companies
Private Limited
Companies
Company Limited
by guarantee

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

27. Setting up considerations
How
should
you
structure
your
business?
Size of the business?
Is there an owner-manager
divide?
Would you like the business to
have perpetual succession?
Would you like to be liable for
others’ debts as business owner?

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
articles

30. The EndANY QUESTIONS?