Sole proprietorship versus a private limited company in Singapore
4 minute read
When starting a business in Singapore, you want to be 100% sure that you choose the correct type of legal structure. Your decision will affect variety of things including the amount of tax you pay, liability and more. Here’s a quick guide to explain the 2 main business structures for small business owners in Singapore – A private limited company and sole proprietorship.
What is a private limited company?
A private limited company is the most scalable, advanced and flexible business structure in Singapore. It is the most common type of business structure in Singapore compared to a sole proprietorship. The shareholders of a private limited company can either be individuals or corporate entities or both.
When you create a private limited company, you are creating a separate legal entity from yourself. It limits your liabilities as an individual – meaning that if your company has a huge downfall (eg. debts or losses) in your business, it will not impact any personal assets that you own.
A private limited company can be 100% foreign or locally owned. There are no foreign shareholding restrictions. A private limited company has to appoint at least one resident director. He/she can either be a Singapore citizen, a Singaporean permanent resident or an EntrePass holder – with a residential address in Singapore. They have to be at least 18 years of age. If you do not qualify to be a local director and do not have anyone else you can use, we can provide you with nominee services. Click here to find out more.
Owning a private limited company can be worthwhile for one, in terms of tax benefits. Here are a few advantages:
For some, a private limited company might not be the best option. Below we have listed a few disadvantages:
What is a sole proprietorship?
A sole proprietorship is the simplest way of doing business in Singapore if you’re a local (foreigners cannot operate sole proprietorships in Singapore). It does not constitute a separate legal entity, which makes the business owner accountable for all liabilities that occur during the course of the business.
This means that the personal assets of the owner are not protected from the liabilities and business risks of the company. In a case where the business is unable to pay its debts, the creditors can go after the owner’s assets as well as those of the company.
In terms of requirements, a sole proprietorship needs to be renewed annually through ACRA – click here to find out the steps. Only Singapore citizens, Singapore permanent residents or EntrePass holders can apply for a sole proprietorship. The owner has to be at least 18 years of age.
A foreigner who is not residing in Singapore can also register for a sole proprietorship but he/she has to appoint an authorised representative who is residing in Singapore. This authorised representative will then have full legal capacity to ensure the company is staying compliant with regulatory requirements.
Depending on your circumstances, a sole proprietorship could be a solid option when you’re starting out, but could also be a stepping stone you can skip over in order to start a company instead. Here are some advantages of choosing the path of sole proprietorship:
Even where you do qualify for a sole proprietorship, sometimes choosing a sole prop isn’t the right option for you. Here are the disadvantages of running a sole proprietorship instead of a company:
If you need any more help on choosing a business structure that works for you, or you’re interested in making the leap to incorporating a company, contact us to learn more.