Registering a suitable business entity structure is important for film financing because the structure affects the options in terms of what you can offer to investors.
In theory, there are many options for a business structure: sole proprietorship, general partnership, limited partnership, limited liability partnership (LLP), private limited company.
I’ll just cut straight to the point. If you want to have more options in terms of offering equity / shares to investors, then opt for a private limited company.
Limited liability partnership (LLP)
Unlike a sole proprietorship or general partnership, an LLP which is registered with ACRA is a separate legal entity from that of its partners. As such, it enjoys perpetual succession, can sue and be sued in its own name, and acquire its own property. The partners are also not personally liable for all the debts of the partnership.
However, unlike a company, an LLP does not enjoy the benefit of granting security in the same way as a company does and does not provide similar protection to creditors. For example, LLPs cannot raise funds from selling shares.
Personal income tax of up to 22% is taxable on income earned by partners of the LLP.
General partnership (GP)
A general partnership is formed when there is a minimum of 2 partners (and a maximum of 20 partners) in the business enterprise, and the partners share in the profits and losses of the partnership. For example, two people may decide to come together to co-produce a film and do so by forming a partnership.
A partnership is very much a contractual relationship, and may be created by an express written agreement setting out the terms of the partnership such as management and control, and profit and loss sharing.
A general partnership is not a separate legal entity and each partner is personally liable to an unlimited extent for all the debts of the partnership. Each partner also has the authority to bind the other partners to contracts that are made in the ordinary course of business of the partnership.
A general partnership needs to be registered with the Accounting and Corporate Regulatory Authority (ACRA) under the Business Names Registration Act. Personal income tax of up to 22% is taxable on income earned by partners of the GP.
The focus of this section will be on private companies, i.e. companies that are not listed on the Singapore Exchange (SGX) and have less than 50 members. We will also be focusing on companies limited by shares whereby a member of a company is only liable to contribute the amount which he had agreed to pay in his subscription of shares.
Like LLPs, companies are separate legal entities from its owners (shareholders). It is also generally easier to attract potential investors as companies have various means to raise funds. For example, companies can issue shares, and shareholders who subscribe to shares profit from the company and their liability is limited by their agreed subscription.
A company in Singapore must have at least one director and one member (shareholder).
However, companies are subject to more legal formalities and compliance requirements. Generally, companies will need to hold annual general meetings, file their annual returns, have its accounts audited and maintain a register of its members and directors. Corporate tax of up to 17% is taxable on profits. Newly incorporated companies may benefit from tax exemption up to the first three years. Terms and conditions apply.
Note that generally foreign-sourced income are not taxable in Singapore unless received in Singapore and not subject to exemption.