Any new business in Singapore has to register as a certain type of company to be deemed legal for running their operations. Therefore, they will have to register their company under a certain provision. The most popular types in Singapore are sole proprietorship and private limited companies. The business type that a company chooses will impact different aspects like payable tax, liability, etc.
It is better to understand the pros and cons of both business models. That will help you in deciding on which type of business registration would be ideal for your company formation.
What Is A Sole Proprietorship?
Most small and local businesses prefer registering for the sole proprietorship model. If you are unsure of the process, you will need to hire reliable company incorporation like us to get it done perfectly. We have an excellent track record of offering the best accounting, tax, litigation, and GST-related services in Singapore. A sole proprietorship is a business model owned by a single entity. It can be a company, a person, or a limited liability company.
There is no separate legal entity, so the business owner is responsible for every liability while running the business. In the nutshell, the company’s risks and liabilities will be attached to the assets owned outside of the business (personal) by the proprietors. So, if the business faces losses, the lenders can claim for recovery from the company assets, as well as from the assets that are personally owned by the proprietors.
Singapore citizenship holders of 18 years and more can apply for a sole proprietorship. It doesn’t mean a foreigner cannot apply. Foreigners can register for the sole proprietorship business model but will need to appoint a representative residing in Singapore.
The authorized representative will offer solutions that fully adhere to the Singapore rules and regulations for running businesses. Sole proprietorship registration is valid for 1 year, so the owner will have to renew on an annual basis.
For a low investment startup, the best option is to go for a sole proprietorship. Some perks of choosing sole proprietorship include –
- Uncomplicated to set up.
- Cheapest registration fees.
- Compliance needs are minimal [no need for external auditing of accounts for filing your annual returns].
- No shareholders, so need to share the profits.
- The owner can end the sole proprietorship firm without many complications.
Your business venture might be eligible for sole proprietorship but it may be not the right alternative at times. Some cons of a sole proprietorship are –
- Limited capital
- Unlimited liability.
- No detached legal entity.
- Is not eligible for benefits on corporate tax.
- Profits fall under the owner’s income, so it is exposed to a 22% tax bracket.
- Public opinion is low but the credibility can be improved with proactive customer relationships.
What is A Private Limited Company In Singapore?
In Singapore, a private limited company is preferred as it adds to the credibility of a business. It is more advanced and offers limits the risks of business losses. These businesses can have stakeholders, investors, directors and hired employees.
In a private limited entity, a distinct legal entity is created. Your personal liabilities get limited, which means if the company experiences losses or declines, it does not affect the assets that you own in a personal capacity.
A company can be 100% locally or foreign-owned. It is unlike a sole proprietorship, where no foreign partners are allowed. Just a single Singapore citizen must be present among the group of directors. The director must reside in Singapore and must be 18 years and above.
Private Limited registration makes way for tax benefits and several other advantages –
- Personally not held responsible for losses incurred in the business, on the business debts..
- The company is a detached legal entity from its directors and shareholders.
- The profits are taxed at 17% of corporate tax rates.
- Ownership can be reassigned.
- New companies receive tax exemptions and incentives.
- Raising capital is easy.
- Foreign investors feel interested.
Sometimes, a private limited company is not a good alternative.
- The compliance requirements are more, enforced by IRAS & ACRA in Singapore.
- Business operation costs are high.
- Directors must release the company’s information.
Sole proprietorship Business Vs Private Limited Company
Ease of registration
The steps to complete in registering sole proprietorship includes –
- Registration of a business name that cost $15.
- Approval of business name gives you 120 days window to set sole proprietorship.
- Submit $100 as a registration fee for a sole proprietorship. The approval can happen in just about 50 minutes.
For a private limited company, the process is a little more complicated. To build a company you must –
- Appoint one shareholder at least.
- Appoint one director at least.
- Appoint company secretary.
- Prepare the company constitution.
- Declare financial year-end.
After all this preparation, you can register a private limited company just like the sole proprietorship. Registration fees is just $15 for sole propriety and $300 for the company.
A sole proprietorship means solo – a single person can run the business with no distinct legal entity. If will become a partnership firm if there is1 or more partners.
A private limited company has a distinct legal entity. The number of stakeholders ranges from 1 to 50. They can be individuals, other companies, or a mix of both.
Now, you know what the difference between a sole proprietorship and a private limited company is. Weigh the pros and cons of both business models and choose the one that suits your needs.