BUSINESS STRUCTURES – PART 2

SEMINAR 3

Source: freepik.com
TYPES OF BUSINESS STRUCTURES

 A business can be run using various structures. The

following are the most common:

SP P
LP Co
LLP
 Last week, P and SP were examined, this week, the
other remaining structures will be examined.
 COMPANY - PRELIMINARIES

 (1) Companies have also to be registered with ACRA. Licences

from other authorities may also be required.
 (2) The registration process is slightly more complex and
expensive compared to registering other organisations. You
need a minimum of 1 person (note: same person can be
director and shareholder) to set up a company.
 (3) It is more complex because a “constitution” has to be
lodged. The constitution has to provide basic information
about the company and also contain rules (eg: see next 4
slides) governing the internal management of the company.
 (4) But note: private companies can use model constitutions
provided by ACRA (either in part or in whole) if they want to.
Source: acra.gov.sg
Source: acra.gov.sg
Source: acra.gov.sg
Source: acra.gov.sg
COMPANY – DISSOLUTION

 In relation to dissolution, the

process may also be more
complex and expensive
compared to the dissolution of
other types of organisations.
COMPANY - SEPARATE LEGAL ENTITY

 Though comparatively more complex and

expensive to set up and dissolve, a company may be
attractive because it creates a separate legal entity.

 The separate legal entity concept has various

implications:
CONSEQUENCES (1): SEPARATE LEGAL
ENTITY

 Firstly, a company unlike a partnership can own property in its own name.

(1) Eg: A & B own a business named “C” – can they buy property (eg: shop) in
the name of C?

 However, correspondingly also note: property of the company belongs to

the company and not to the members (ie: shareholders) or directors.

(2) Eg: A runs a business named “C” and takes things out of C for his personal
use; could he face consequences?
CONSEQUENCES (2): SEPARATE LEGAL
ENTITY
 Secondly, debts of the company belong to
the company and not to the members (ie:
shareholders) or directors.

Eg: A & B own a business named “C” and

C has incurred a debt; would A & B be
personally liable?
 CONSEQUENCES (2): SEPARATE LEGAL
ENTITY
 However, there are some narrow exceptions to this rule to prevent
abuses.
- (1) For instance, section 238 of the Insolvency, Restructuring and
Dissolution Act provides that when a company is being wound up
or is being sued, if it appears that the business of the company is
carried out with the intention to defraud creditors, the persons
responsible could be made liable for the debts of the company.

 (2) Also note: because of the limited liability, there is a need to

protect creditors and hence, there is more regulation.
 Eg: may need to have auditors; may have to submit reports/returns
to ACRA; many other formalities (eg: about meetings).
 Breach of some duties may result in criminal liability.
 Thus, a company is also more complex to run.
(1) There are
many more
formalities in
running a
company as
opposed to
running other
business
structures.
(2) Breach of
these formalities
can result in
criminal liabilities.
(3) In the case of
other business
structures – far
less formalities –
eg: in a
partnership – the
law does not
demand any
formality about
meetings.
(a) Director, got
Company (NTUC)
to enter into a
contract with
another company
in which he was a
significant
shareholder
without disclosing
this to NTUC.
(b) Is this a conflict
of interest?
(c) Would it have
been the same if it
was a partnership?
(d) But note: in the
case of a company,
there can be
criminal liability as
well for the
director
concerned.
(a) Directors
were negligent
in approving
unwarranted
payments.
(b) If this was a
partnership –
would the
partners who
were negligent
– answerable to
the other
partners for the
resulting losses?
(c) But note: in
the case of a
company, there
can be criminal
liability as well,
for the
directors
concerned.
CONSEQUENCES (3): SEPARATE LEGAL
ENTITY

 Thirdly, being a separate legal entity, potentially the

company can have perpetual succession, ie, even
after its original members/directors have died, the
company can still carry on operations. This is good
as there will be no disruption.
CONSEQUENCES (4): SEPARATE LEGAL ENTITY

 Fourthly since a company is a separate legal entity – it can

sue and be sued in its own name.
 (1) Eg: if “C” is a company and X has caused it a loss, who
can sue X?
 However, there are exceptions, such as where there is fraud,
whereby members can bring an action on behalf of the
company.
 (2) Eg: A & B are members (ie shareholders) of a company C.
A is also the director of C. If he misappropriates money
from C, whose loss is it? Who can sue A?
 COMPANY - TYPES
 There are several types of companies. However, when commencing
operations, a typical business which wants to set up a company,
would register a “private company” “limited by shares” (abbreviated
as “Pte Ltd”).

 (1) The term “limited by shares” means that the members’ (ie:
shareholders’) liability to company is limited by their shares.

 (2) The term “private company” refers to a company whose

constitution has:
 restrictions on share transfers and
 limit the number of members to 50.
COMPANY - TYPES

 A “public company” unlike a private company would not

have such restrictions/limitations. Thus for instance,
companies listed in the Stock Exchange would be public
companies.

Source: bloomberg.com/singaporeair.com

 Why wouldn’t a typical business which intends to set up

a company, commence by registering a public company
limited instead of, a private company?-
COMPANY -TYPES

 Note: a foreign business which intends to set up a company in

Singapore (or a Singapore business which intends to set up a
company overseas) may set it up either in the form of a
“branch” or a “subsidiary”. Some differences between
branches and subsidiaries are as follows:
Branch Subsidiary
Legal status: Not a separate Separate legal
legal entity from entity from the
the overseas parent overseas parent
company
Liabilities belong to: (1) (2)
Profits/assets (3) (4)
belong to:
 LIMITED LIABILITY PARTNERSHIP –
PRELIMINARIES
 The minimum number of partners
required for this type of organisation
is 2.

 To carry on operations as a LLP, must

also be registered with the
regulatory body. Licensing from other
authorities may also be required.

 Registration process less complex

compared to registering a company
(eg: need not submit the
constitution) but slightly more
complex compared to setting up a
sole proprietorship or partnership.
Source: freepik.com
 LIMITED LIABILITY PARTNERSHIP –
FEATURES
 The LLP combines features of both a partnership and a company.

 Internally – it is like a partnership (eg: unless contract provides

otherwise: every partner has a equal share of profits, equal say in
management, etc).

 Externally – it is like a company (eg: partnership property belongs to the

LLP, there is limited liability, it has perpetual succession, etc). In relation
to dissolution too, it is like a company (ie more complex and expensive).

 Eg: A & B are partners of an LLP named “C”.

C
If C has incurred a debt; can A or B be personally liable for it?
P
LIMITED LIABILITY PARTNERSHIP –
WHEN SUITABLE?
 LLPs are ideal for persons who want to have the informality of
running a business which is characteristic of partnerships but who
at the same time want limited liability which is characteristic of
companies. -

 Some may still prefer setting up a company compared to a LLP

because, for instance, a company would generally be in a better
position to raise finance. Why?

 Some may still prefer setting up a partnership compared to a LLP

because, for instance, the LLP being a limited liability organisation,
there are some statutory duties/liabilities, breach of which can
result in criminal liability.
 LIMITED PARTNERSHIP

 This is a new form of business organization introduced in

2009.

 There must be a minimum of 2 partners (at least one general

partner and one limited partner).

 To carry on operations as a LP, must also be registered with

ACRA. Licensing from other authorities may also be required.
 LIMITED PARTNERSHIP - FEATURES

 A general partner would be liable for the all

debts and obligations of the LP.

 A partner registered as a limited partner would

not be liable to third parties for the debts and
obligations of the LP beyond the amount of his
“agreed contribution”.

 However, in return, the limited partner cannot

take part in the management (note: this does
not include giving general advice) of the LP. If he
does so, he would become liable for all the
debts and obligations of the LP.

 LP does not have separate legal entity. Source: freepik.com

LIMITED PARTNERSHIP – WHEN
SUITABLE?
 A limited partnership is very much like an ordinary partnership with the exception that
the limited partner has limited liability to the extent of his “agreed contribution” and
he cannot take part in management.

 Thus, an LP is especially attractive to an angel investor who just wants to make an

investment without incurring more liability than what he invested or agreed to.

 Eg: A & B are partners; A is negligent in the course of partnership business which
causes a loss to C.
 (1) Can C sue the organisation/B?
 (2) If the organisation/B is liable, can the organisation/B - in turn – sue A?
 (3) Can C directly sue A for his negligence?
 SP COMPARISONS
INTERNATIONAL P LP LLP Co
US Yes Yes Yes Yes Yes
Private and Public:
Corp or Inc

UK Yes Yes Yes Yes Yes

Private: Ltd
Public: Plc

Japan Yes Yes (Go-mei Gaisha) Yes (Go -Shi Gaisha) Yes (Yugen Gaisha) Yes (Kabushihi Kaisha)
Public: Various types

China Yes Yes (普通合伙) Yes (有限合伙) Yes (特殊普通合伙) Yes

Private: 有限公司
Public: 股份有限公司

India Yes Yes No Yes Yes

Private: Pvt Ltd
Public: Plc

Malaysia Yes Yes No Yes Yes

Private: Sdn Bhd
Public: Bhd

South Korea Yes Yes Yes No Yes

Hapmyoung Hoesa Hapja Hoesa Private: Yuhan Hoesa
Public: Jusik Hoesa
SPECIFIC COMPARISON

 US Position (Video) – Tax http://www.youtube.com/watch?v=pPVkG9krOMI

 Singapore Position - Tax
 SP P LP LLP Co

(1) Is owner taxed

individually:
Yes or No?

(2) Generally is owner

personally liable for business
debts:
Yes or No?

(3) Are
there formalities/documenta
tion:
Little or Some or Lots?

(4) Are there criminal -

liabilities for failing to
observe various matters:
Little or Some or Lots?
Singapore man and foreign woman set up a business. It is not absolutely clear from the
article what sort of organisation the they set up (note: silent partner does not mean limited

partner). Then, foreign woman appears to have cheated some client.

(1) Is the
Singapore man
personally
liable to repay
the client,
assuming he is
totally
innocent?

(2) Assuming
it was a LP, the
ticket costs
$1000 and the
limited
partner
agreed to
invest $1000
0, how much
is the limited
partner liable
for if the
profit ratio is
35%?
 SUMMARY/KEY BUSINESS TAKEAWAYS

 When setting up a business organisation, there are five common types of

organisations to choose from. All types of business organisations have to
be registered in one way or another. Licensing may also be required.
 Unincorporated business organisations, namely sole proprietorships and
partnerships, expose the owners to unlimited personal liability. The same
is true of general partners in a limited partnership.
 Incorporated business organisations such as companies and limited liability
partnerships generally do not expose the owners to unlimited personal
liability. But to balance this, the law imposes more duties and liabilities in
relation to the running of these types of organisations, breach of which
may result in criminal liabilities. Further, it is comparatively more complex
and expensive to set up and dissolve such organisations.
 The best type of organisation to choose depends on the
circumstances/needs and choosing the wrong type of organisation may
affect the business and may affect the owner of the business.
 GROUP ASSIGNMENT 1

 Group Assignment 1 (20%) - Each group will do 1 take home assignment which
will involve answering one whole tutorial. Groups can volunteer starting, week
4. Usually, 1 or 2 groups per week.
 Free-riders should be reported to the lecturer.
 No presentations.
 Answers to be in the form of power point slides.
 For each question, maximum 3 slides excluding question slide if needed.
 If needed, can have 1 extra slide for names of group members and 1 extra slide for
appendix – but not necessary.
 Power point slides (in ppt. not pdf.; minimum font size - 12) to be submitted via email
by 5pm - the day before the class.
 Any groups would like to volunteer for Tutorial 2?
REFER TO CANVAS "ANSWERING
QUESTIONS" PPT FOR MORE
INFORMATION/STUDENT SAMPLE
READINGS:
RC CHAPTER 2, INCLUDING COMPARATIVE
TABLE AND JOINT VENTURES.

Source: Freepix.com
TUTORIAL 1 SLIDES
 QUESTION 1

Typically would the following sets of facts amount to a criminal matter or a civil matter or both? In so far as a
particular set of facts amounts to a civil matter, how best can the dispute be resolved? In so far as a particular set of
facts amounts to a criminal matter, you should explain why you think this is so. (Note: while doing this exercise, you
do not have to determine the merits of a case ie: which party will be liable or whether the accused would be found
guilty – as we have not done any substantive law yet). This exercise is important as a business should have a general
understanding of what amounts to a civil matter and what amounts to a criminal matter and the methods of dispute
resolution.
a. T Ltd gets S Pte Ltd to renovate its office for $200, 000. There is some dispute over payment and the renovations.
Meanwhile, S Pte Ltd is also renovating the premises of T Ltd’s subsidiary under another contract. The contract is
silent on dispute resolution.
b. T breaks into a well-known jewellery chain store and steals some jewellery. The chain store is founded and owned
by S.
c. T is an employee of X Pte Ltd, which provides relocation transportation services. On one occasion, T while speeding
in the company vehicle with client’s goods knocks down S.
d. T Pte Ltd enters into a contract with Sazaki in Japan for the import of cars. T Pte Ltd complains that Sazaki has
breached the contract and as a result it has suffered a loss of $250,000.
e. T Pte Ltd runs a series of restaurants in Singapore called Think Luck. On one occasion, S falls sick after consuming
contaminated food provided by one of those restaurants. As a result, S incurs medical expenses of $22. (If you were S
in real life would you commence a civil action in this situation? If your answer is no – why not?)
f. T Pte Ltd employs X, an illegal over-stayer to work in his company.
QUESTION 2

Why would a business mediate at the Singapore Mediation

Centre when it can get mediation services at the court (ie: at the
Centre for Dispute Resolution) as a prelude to litigation? Why
would a business which has not chosen to go to the Singapore
Mediation Centre then go for mediation services offered by the
court (ie: at the Centre for Dispute Resolution)? Is mediation
only for small claims or also for large claims?

Source: Freepik.com
QUESTION 3

 Can you go for arbitration

if both the businesses are
local?
 If there is such a clause in
the contract, can one party
institute litigation instead?
 Are there any
disadvantages with
arbitration?
QUESTION 4

 Is it compulsory for a business

to engage the services of a law
firm?
 If a business engages a law firm
to institute a legal action, and
when the final bill comes, the
business feels that the law firm
has overcharged, what can the
business do?
 Is there anything else the
business could have done before
engaging the law firm?

Source: Freepik.com
 GROUP ASSIGNMENT 1

 Group Assignment 1 (20%) - Each group will do 1 take home assignment which
will involve answering one whole tutorial. Groups can volunteer starting, week
4. Usually, 1 or 2 groups per week.
 Free-riders should be reported to the lecturer.
 No presentations.
 Answers to be in the form of power point slides.
 For each question, maximum 3 slides excluding question slide if needed.
 If needed, can have 1 extra slide for names of group members and 1 extra slide for
appendix – but not necessary.
 Power point slides (in ppt. not pdf.; minimum font size - 12) to be submitted via email
by 5pm - the day before the class.
 Any groups would like to volunteer for Tutorial 2?
REFER TO CANVAS "ANSWERING
QUESTIONS" PPT FOR MORE
INFORMATION/STUDENT SAMPLE
 SAMPLE TUTORIAL QUESTION
Jordan and Estelle are business school
sweethearts and matcha aficionados. Spotting
a niche in the market for premium matcha
lattes, they decided to start a home business
selling small-batch, ceremonial-grade matcha
drinks, brewed and bottled in Jordan’s
kitchen. Jordan and Estelle wish to have equal
stakes in the business, as Jordan is
contributing his matcha-making skills whilst
Estelle is highly proficient at social media
marketing. Both Jordan and Estelle are very
passionate about their full-time job as
commodities traders, and have no plans to
expand the business beyond the current
small-batch production even if the product is
wildly successful.
 Advise Jordan and Estelle on the type of Source: https://getcrafti.sg/
business organisation they should set up
for the matcha business.
 POSSIBLE ANSWER
 Jordan and Estelle both wish to have ownership rights to the business. Sole proprietorship is not a
viable option. This leaves: (i) company, (ii) partnership, (iii) limited liability partnership, and (iv) limited
partnership.
 A significant consideration will be the potential exposure to personal liability. In the event there is a
spoilt batch of matcha which causes food poisoning, the medical claims from consumers can be
substantial. In the circumstances, J and E might want to choose either (i) company or (ii) LLP, which
have the benefit of being separate legal entities.
 As between the two options, LLP is preferable as:
 There are less formalities (e.g. meeting procedures, appointment of company secretary) and
reporting requirements, which may be onerous for a small business.
 Decision making in LLP is more informal, which suit their personal relationship. However, Jordan
and Estelle should still take care to spell out their respective rights and obligations in a written LLP
agreement, and not assume that their romantic relations will last forever, or that love can resolve
all business disagreements.
 The business is unlikely to require much financing since it will be kept small-scale. Therefore, a key
advantage of the company structure (being in a better position to raise finance) is not relevant.
 Since the business is of a small scale, any additional tax incentive available to the company structure
is marginal at best.