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How Do I Choose Between Sole Proprietorship and Private Limited Company in Singapore?

Author Nataliya DzharianiNataliya Dzhariani

6 min read
Better Business

Business structure should help your purpose. Choosing Sole Proprietorship or Pte Ltd will define the taxes you pay, the liability, and your obligations to the government bodies.

How Do I Choose Between Sole Proprietorship and Private Limited Company in Singapore?

If you are planning to set up a company or sole proprietorship, Singapore is one of the best places to do business in the world. According to the 2021 Index of Economic Freedom, Singapore has the freest economy and ranks top among 40 countries in the Asia-Pacific region with a score of 89.7.

The decision of choosing a certain type of structure (whether Sole-Proprietorship or Partnership, Limited Partnership (LP), or Limited Liability Partnership (LLP) Company) is likely to determine the taxes, liabilities, mandatory paperwork, availability of loans, and the possibilities of expanding in the future.

This article will go through the factors that you’ll need to consider while setting up a company in Singapore. However, if you know you need more personalized advice, and would like to let an experienced professional set up your company or proprietorship for you, we would be more than happy to help you with the paperwork while you continue your business operations.

In this post, we will mainly focus on choosing between a sole proprietorship and a private limited company while doing business in Singapore.

What Is a Private Limited Company?

A private limited company (Pte Ltd company) in Singapore is the most popular business structure. This type of company is also called Pte Ltd company in its short form. The term “Pte” in “private company” means “private” and “ltd” in “limited company” means its liabilities are limited to its stakeholders’ shares.

Private Limited Company

A Pte Ltd is the most flexible and scalable company structure in the country. For such a legal entity, the shareholders could either be corporate entities, individuals or both.

Since the liabilities of a private limited company are limited to members’ shares, if the company encounters a difficult financial situation or downfall, such as losses or debts, it will not affect the personal assets of shareholders.

There is no restriction in 100 percent local or foreign ownership of a limited liability company. It must appoint a minimum of one resident director.The appointed director should be at least 18 years of age. If an individual does not qualify for a local director and there is no one else, Osome can help you to get a Nominee Director in Singapore.

What Is a Sole Proprietorship?

A sole proprietorship business has a single owner. Only the local citizens, permanent residents, or EntrePass holders can register sole proprietorship in Singapore.

This sole proprietorship type of company structure does not have a separate legal entity, and the owner is responsible for all the liabilities (such as sole proprietorship tax) that will come along while running it in Singapore.

Sole Proprietorship

Also, a sole proprietorship means that the personal assets of the owner are not protected from the possible risks and liabilities of the business. If it runs into a lean patch and cannot pay its debts, the personal assets of the owner may get liquidated.

When it comes to regulations, a sole proprietorship Singapore needs to do annual renewal through Accounting and Corporate Regulatory Authority (ACRA).

Which Company Structure Is Better for a Foreigner?

There are 3 types of company structures you can choose from.

Limited Liability Company (Pte Ltd or LLC), Sole Proprietorship, and Partnership. They vary in terms of liability, the number of owners, and relationships between them.

It is easy for foreigners to set up a company in Singapore, including the registration process. However, the main question is which type of structure is suitable for foreigners?

A foreigner who is not residing in the country can also register for a sole tradership but he/she has to appoint an authorised representative who is a local resident.

On the other hand, a Pte Ltd company is a better structure for foreigners to do business in this country as it affects the extent of their liabilities, availability of funds, taxation, and other aspects.

The following features of a Pte Ltd will be more favourable for foreigners:

  • It may have 1-50 shareholders or owners.
  • They need to appoint at least one local resident as director.
  • It will have a separate identity. It means owners will have liabilities limited to their amount of shares.
  • They will pay corporate tax between 0% and 17%.

The banks and lending institutions are more open to give loans to a Pte Ltd as it has more credibility than a single ownership or partnership business. Also, owners of these companies will find it easier to raise funds for business expansion.

Types of Company Structures To Choose From

You can choose from the following three types of company structures:

  1. Sole Proprietorship

Forming this type of business is the easiest way to do business in Singapore, but it is also the riskiest one since there is no separate legal entity than the owner.

The owner of this type of company is personally responsible for the liabilities and does not get any protection of personal assets from potential risks. It means if the company cannot pay its debts, the creditors can recover their money by going after his/her personal assets.

This is a major drawback of this type of enterprise structure and is not usually recommended.

  1. Private Limited Company, Pte Ltd, or LLC

A Pte Ltd is a limited liability company (LLC) where less than 50 members can hold the shares, which are not available to the general public.

A majority of the privately formed businesses in the country fall in this category. The shareholders or owners of this type of organisation can be individuals, corporate entities, or both.

Private limited companies are the most scalable and flexible businesses in Singapore, and also the most preferred type of corporate entity for entrepreneurs.

To register this type of business, you can get professional services relating to Company Incorporation in Singapore from Osome.

  1. Partnership

The partnership structure can happen when two or more people co-own the business. This type of company can eliminate the limitation of expansion of a single ownership business.

A partnership business does not have any separate legal entity from its owners. It may cease to exist with a partner’s death, bankruptcy, incapacity, or retirement.

Also, any dispute among partners may lead to the dissolution of the partnership. This type of company structure only makes sense in exceptional situations. This is also not a recommended business structure for ambitious entrepreneurs.

What Taxes Will I Pay With Sole Proprietorship and Pte Ltd?

The government has rolled out a progressive tax system for enterprises, where taxes depend on total earnings, including the sole proprietorship taxes in Singapore.

Typically, the rate for sole proprietor taxes in Singapore is between 2 percent and 22 percent, which has been in place since 2017. There are no exemptions for sole proprietor income tax in Singapore.

On the other hand, the Pte Ltd has to pay a corporate tax at the rate of 17 percent.

SG Incorporation

What Tax Exemptions Are Available to Pte Ltd Owners?

There are two partial exemptions available from the assessment year 2020 and onwards.

The tax exempt private company Singapore is below:

  • 75% tax exemption on the first S$100,000  of regular income;
  • 50% tax exemption on the next S$100,000 of regular income.

What Are My Duties And Official Requirements With Sole Proprietorship and With Pte Ltd?

You can register sole proprietorship Singapore online through the BizFile+ portal using SingPass. If there is no SingPass, you need to appoint a registered filing agent like a corporate services firm.

The owner needs to register sole proprietorship, and thereafter they will have very few compliances or reporting needs. These companies do not have to get their accounts audited or file for annual returns since the tax assessment happens based on the owner’s tax return.

The owners of a Pte Ltd need to fulfill more duties and official requirements in terms of administration.

The shareholders of a Pte Ltd have to appoint a Company Secretary in Singapore and submit their annual returns with ACRA.

What Other Differences Can I Experience?

According to the types of businesses in Singapore, here is a comparison below:

Feature Sole Proprietorship Pte Ltd
Legal Entity No separate legal entity. Same as the owner. It has a separate legal entity.
Ownership Single owner Minimum 1 Director and 1-50 shareholders. Ownership is transferable.
Liabilities Unlimited liabilities Liabilities are limited to the amount of shares members are holding.
Taxes Pays corporate taxes between 2 percent and 22 percent Pays corporate taxes at the rate of 17 percent. Receive tax exemption.
Capital Funding Hard to get capital funding due to less credibility. Easier to get capital funding from banks and financial institutions.
Compliance Register online on the BizFile+ portal. No separate auditing and tax filing requirements. Needs to appoint a Company Secretary. Have to submit annual returns to ACRA.

Some More Facts

  • Funding is often easier for Pte Ltd both with bank loans or attracting investors
  • A Private Limited company can be inherited, passed on to another owner, or sold. A Sole Proprietorship can't be separated form the owner
  • A foreigner that has registered Pte Ltd can apply for Employment Pass and relocate to Singapore
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