One of the most accessible business structures that can be created in the world today is the sole proprietorship. Anyone who wants to start a business and run it themselves can use this type of structure. It works for single-employee firms, family businesses, and even some large business structures.
In Singapore, permanent residents and citizens are permitted to register a sole proprietorship. This business structure can be registered by foreign companies or individuals too, but it requires an appointment of a resident manager in Singapore for the business to be officially registered.
As with any type of business structure, there are specific advantages and disadvantages which must be considered before finalizing this process. Here is a look at the key points to consider before creating a sole proprietorship in Singapore.
List of the Advantages of a Sole Proprietorship in Singapore
1. You have full control of this business at all times.
Under the structure of a sole proprietorship in Singapore, the business owner has 100% control of its operations at all times. This advantage applies to individuals and companies who own this type of business. There is never a need to consult with a third party before deciding to implement a change that you deem is necessary. No one can take that control away either without your permission.
2. It is very easy to set up a sole proprietorship in Singapore.
This business structure is one of the cheapest entities available when you want to start a new business in Singapore. According to the ARCA, there are 5 fees which are associated with this business structure. There is a name application fee, a registration fee, a conversion fee, a lodgment of notice of error fee, and a renewal fee. Only the first two fees apply during the initial application, which totals $115. The renewal fee is $30, the conversion fee is $40, and the NOE fee is $60.
3. You can convert the sole proprietorship to an LLP.
You retain the ability to manage the structure of your business in Singapore, even after you register as a sole proprietor. One of the options available to you is a conversion to an LLP. You’ll still need to complete the requirements which are associated with the new structure, but you will not be required to register a new business as part of the process. That conversion option makes registering this type of business advantageous to entrepreneurs who are able to prove that they have a viable concept.
4. There are no profit-sharing concerns to worry about.
When you create a sole proprietorship, all of the income that your business generates is yours to keep. There are no shareholders associated with your company that receive dividends. Although you would be required to pay your employees, anything that is left at the end of the day becomes part of your personal income.
5. It offers minimal compliance requirements which must be followed.
After you create a sole proprietorship in Singapore, the only compliance requirement you have from then on is to ensure that your membership is renewed annually. You accomplish this requirement by paying the renewal fee before your anniversary date each year. Sole proprietors aren’t even obligated to file their tax returns each year in certain circumstances. This flexibility makes it easy to earn an income while pursuing something that you love.
6. This type of business is easy to close.
Because you are the only decision-maker in the sole proprietorship structure in Singapore, you’re not forced to go through a series of procedures to close an unprofitable business. You notify the government that your company has ceased operations. That makes it an inexpensive and time-friendly process when it is time to move on to the next idea.
7. The administrative time to process the application is short.
Compared to the administrative waiting periods for other business structures in Singapore, the wait time for a sole proprietorship is very short. In some situations, the entire registration process may only take a single day to complete. Unlike other incorporation options in the country, the whole process to register a sole proprietorship in Singapore is computerized.
8. A bank account can be opened for a sole proprietorship.
Once you have successfully registered as a sole proprietor in Singapore, you are permitted to open a bank account for the business. You’re allowed to operate accounts in local, foreign, or international banks that are located within the country. This will enable you to open separate accounts in various currencies, or a single multi-currency account, to reduce fees and charges that are associated with business-related money management. You’ll need your account application, a copy of the identity card, a print-out of your sole proprietorship business profile, and the minimum deposit mandated by the institution chosen.
List of the Disadvantages of a Sole Proprietorship in Singapore
1. The owner bears all business risks with this structure.
As in other parts of the world, a sole proprietor in Singapore is assuming all the risks for their business on a personal level. They must bear all debts that are incurred by their company. All losses are associated with their personal finances. The owner of the business is fully liable for all business activities which occur. If a judgment occurs or debts are called, the owner would be required to sell off their personal assets to satisfy the obligation. Creditors are permitted to sue you legally or obtain court orders for your private property based on business activities.
2. There are limited funding options available to this business structure.
As the business begins to grow, the structure of the sole proprietorship becomes a disadvantage for financing or raising capital. To secure any type of funding from a traditional institution, this type of business must be prepared to put up personal assets as collateral. There is no way for a sole proprietor to sell equity from their company as a way to raise funds either because this type of business can only be owned by one person or one company.
3. You are not eligible for certain benefits or incentives.
In Singapore, the government offers several generous incentives to businesses as an effort to promote sustainability and growth within the economy. When you are operating a company under the sole proprietorship structure, then you are not eligible to receive the tax incentives or benefits that are offered. That is because the taxes you pay are not based on your business income. They are based on your personal income. Only private limited companies are able to enjoy the tax incentives at the time of writing this.
4. It is only available to local business owners.
If you form a sole proprietorship in Singapore, then you are legally permitted to conduct business locally. You’ll need to offer your local business address, private a copy of your identification, and what your residential address happens to be. You must also submit a declaration of compliance and file a statement of non-disqualification. If you do not wish to share any of this information, you may be asked to form a private limited company instead. Your application might be rejected outright as well.
5. A sole proprietorship is not considered a legal entity.
When you form a sole proprietorship in Singapore, you are creating a business profile that is associated with your personal profile. Because this type of business is not treated as a legal entity, it is not possible for you to register another company using your sole proprietorship. It must be formed under your name, even if the goal is to establish a private limited enterprise.
6. All communications from the sole proprietorship must comply with business laws.
Although it isn’t treated a legal entity, you must still follow all the business laws which apply to your industry, your products and services, or your communications. After forming the sole proprietorship, all your invoices, documentation, bills, and letterhead must have your registration number listed. You gain the advantage of having profits taxed at a personal tax rate in return for this, but you must still lodge any changes to the specifics of your business with 14 days with the Registrar.
7. The liability you face as a sole proprietor is unlimited.
Some business structures in Singapore receive a favorable status because the limits of their liability are capped. That is not the case if you choose to form a sole proprietorship within the country. You face unlimited liability under this business structure if a claim is filed against your business. Even if there is no merit to the claim, a sole proprietor would be forced to defend themselves against the potential creditor without a guarantee that their legal costs would come back to them after winning the case.
8. There is no perpetual succession allowed with a sole proprietorship.
Under Singapore guidelines, a sole proprietorship will live and die with the individual who applied for the business. Parents are not permitted to hand-down the business to their children. Each person and their company will become the same entity. If there are profits which must be taken from the business, this must be done during the estate process, and another business would need to be formed by the heirs to continue operations.
9. It is a business structure with low public perception.
For serious entrepreneurs, the sole proprietorship may be the least-preferred business structure that is available. It could be difficult to attract employees to this type of business because there are so many risks involved. Senior-level executives prefer an advanced business structure because it protects them from certain liability issues while still being able to earn a strong income. For that reason, most sole proprietorships that experience growth will eventually convert themselves into a different business structure.
10. Properties cannot be owned in the name of the business.
If your business is doing well as a sole proprietor, then you might consider investing in some property for your company. Under Singapore regulations, you are not permitted to own property under the name of the business. The property must be placed in your name. For some sole proprietors, this creates a privacy issue which could be problematic for them. There are no partners to worry about, and you can still work with an incorporation firm, but it also means your personal profile receives more public exposure.
11. You might pay more in taxes from your income.
Since 2010, the corporate tax rate in Singapore has been fixed at 17%. Resident companies are taxed on their profits which are derived in Singapore and on foreign soil. In comparison, the maximum tax rate for personal income taxes is 22% on income that is in excess of $320,000. Any personal income above $160,000 qualifies for a higher tax rate when operating a sole proprietorship, which is another reason why successful companies with this structure convert to something else.
The advantages and disadvantages of forming a sole proprietorship in Singapore make it possible for anyone with an interesting idea to start a business. Entrepreneurs are encouraged to take advantage of the low costs of entry. Because there are personal assets placed at-risk in this business structure, however, it is essential to make sure financial safeguards are in place if something unexpected happens.
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