A Private Limited Company or Sole Proprietorship?

In my last article, I blogged about the pros and cons of having a private limited company versus a limited liability partnership in Singapore. Recently I received an enquiry about whether it is better to set up a sole proprietorship or a private limited company.

So in this article, I shall dissect the pros and cons of having a sole proprietorship versus a private limited company in Singapore. And again, I shall be looking at this comparison via the following 4 areas:

• Ease of Set-Up and Maintenance
• Scope of Liability
• Tax Rates
• Ownership Structure

Ease of Set-Up and Maintenance

Without a doubt, setting up and maintaining a sole proprietorship is so much easier in comparison. The government fee payable for a sole proprietorship is SGD65 versus SGD315 for setting up a private limited company exempted by shares.

Sole proprietor as the name suggests requires just 1 person to set up. Annual renewal of the business entity is just a simple act of applying and paying renewal fees to ACRA. On the other hand, a private limited company will require the shareholders to appoint directors and a corporate secretary to run the company. There are also annual obligations that the company will need to perform to the authorities such as filing annual returns. This means more cost to the company when it comes to yearly renewals with ACRA.

Scope of Liability

In a sole proprietorship, the individual is fully liable for any issues arising in his conduct of the business. In the event of a debt default, the creditors can lay claim on the individual’s personal assets. For a private limited company, the risks rest on the company and the shareholders’ exposure is their investment in the company.

Tax Rates

Just like a partnership, the business owner of a sole proprietorship pays tax on a personal level. The personal income tax rate in Singapore is up to a maximum of 22%. The profits of the private limited company are subjected to the corporate tax rate. This currently stands at a flat rate of 17%. While this 17% may seem high, companies in Singapore enjoy various tax exemptions offered. For example, a new start up get to have tax on 75% of their first S$100,000 profits waived for the first 3 years.

Ownership Structure

The nature of a private limited company allows the allocation of new shares to new shareholders. This means the owner of the company can seek extra funding by the partial sale of the company. It is up to the existing shareholders to decide how much controlling stake they wish to dilute. Whereas for a sole proprietorship, you have to wholly pass on the ownership of the business in the event of a sale.

Conclusion

My personal opinion is that if you are in the business for the long haul, there are more pros to having a company. You get to enjoy tax exemptions, limit your liabilities and also have the flexibility to seek extra funding when required.

And not forgetting, as a company, you can also be eligible for the many government grants that are available to help boost your business. These grants are typically not eligible for a sole proprietorship.

If you are a foreigner, your only choice between a private limited company and a sole proprietorship in Singapore is the former. As a foreigner, you can be the sole shareholder and have 100% control of the company. The only requirement is to appoint a local director in the company.

With a private limited company in Singapore, you can also have the opportunity to apply for an employment pass for yourself and your family members in order to work in Singapore. This is not possible with a sole proprietorship.

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