The first and most critical step in starting a business is deciding what type of business to start. You can convert a sole proprietorship to a private limited company in fact, but it will cost you money and effort, so choosing carefully from the beginning is not a bad idea.
If you’re wondering whether to start a business in Singapore as a sole proprietorship or as a private limited company, here’s a comparison of the two.
What is a Pte Ltd?
Definition
Pte Ltd is a legal entity that stands for a private limited company whose liabilities are limited to stakeholders’ shares. In other words, if the company goes bankrupt, the shareholders’ personal assets are unaffected.
Types of Pte Ltd
The town types of Pte Ltd include Exempt private companies with a maximum of 20 members and Limited by shares companies with a maximum of 50 shareholders.
Key features
- A resident/nominee director
In a private limited company, you must appoint at least one permanent resident director, according to the Singapore Companies Act.
If you do not meet the requirements to be a resident director and no other shareholders are eligible, choosing a nominee director is a good solution.
BBCIncorp can assist you in getting a nominee director in Singapore, chat with one of our friendly consultants for practical advice.
- Capital-raising
Pte Ltd allows you to raise additional capital by issuing new shares and transferring some of your company’s equity to new investors. If you want to grow your business, this will help you in the long term.
- Taxation
If your corporate income is not from a Singapore territorial source, you can be eligible for corporate payable tax exemptions.
- Public fundraising
A private limited firm cannot raise funds by selling shares to the general public.
Setup procedure
Understanding the steps to do and documents you’ll need to prepare for starting a Singapore Pte makes everything run smoothly.
Check out our blog Setting Up a Private Limited Company in Singapore (A-Z Guide).
What is a sole proprietorship?
Definition
A sole proprietorship is a form of business in which the company is owned by only one individual, a company, or a limited liability partnership. Only local citizens, permanent residents, and EntrePass holders are allowed to register as a sole proprietorship.
Key features
- 100% control
If you don’t want to share profits and want complete control over your business, a single proprietorship is the way to go.
- Unlimited liability
In contrast to a private limited company, a sole proprietorship is not a legal entity in its own right; the owner is fully liable for all liabilities, which means that the firm’s risks affect their assets.
- No permanent succession
The company will be legally dissolved if the proprietor has troubles and is unable to handle the business.
- Fundraising
Because this type of business has a short lifespan, it lacks credibility, making it difficult to attract funding from banks or venture capitalists.
Setup procedure
Setting up a sole proprietorship is easier than setting up a private limited company, but you must carefully follow the process to launch a business successfully.
Further reading: The Go-to Guide to Sole Proprietorship in Singapore.
What is the main difference between a sole proprietorship and a private limited company?
| Features | Private limited company | Sole proprietorship |
|---|---|---|
| Legal status | Separate legal entity | No distinct legal entity |
| Liability | The shareholders’ personal assets are unaffected by any debts or losses | The owner must be individually responsible for any debts or losses |
| Perpetual succession | This company continues to exist even if members die or retire | The business is dissolved if the proprietor is unable to manage it |
| Capital raising | Easy to get capital funding from banks, financial institutions, and investors | Hard to get capital funding due to a lack of credibility |
| Compliance | Appointing a company secretary and filing annual returns with the ACRA | No separate auditing or tax filing requirements but you must register for the BizFile+ portal online |
| Audit of Accounts | You can get an audit exemption if you meet the small company requirement | No requirement |
| Ownership transfer | Easily transfer 50% or full ownership according to the provisions of the company’s constitution | Difficult ownership transfer |
Do I get a tax break if I start a private limited company or sole proprietorship in Singapore?
There are no tax exemptions for sole proprietorships, and you, the owner, must pay personal income taxes ranging from 0% to 22%. You may be eligible for personal tax advantages if you fulfill the requirements of Singapore’s Inland Revenue Authority’s tax relief policy.
Contrary to sole proprietorship, if you own a private limited company and your corporate income is derived from Singapore, you pay a corporation tax rate of 17%.
Which one is better?
To wrap everything up, a sole proprietorship is suitable for those who want complete control of the company and do not want to share profits, while a private limited company is ideal for those who want to raise capital quickly in order to develop and expand in the long run.
Whatever type of business you pick, a sole proprietorship or a private limited company, each has its own set of pros and cons. Foreigners prefer to form a private limited company over a sole proprietorship in Singapore since it allows them to build their business over time and protects their personal assets.
Finally, if you’re still uncertain about which one to go for, contact one of our experts using the chatbox on your right or send an email to service@bbcincorp.com.
Disclaimer
While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. BBCIncorp would like to inform readers that we make no representation or warranty, express or implied. Feel free to contact BCCIncorp’s customer services for advice on specific cases.
Get helpful tips and info from our newsletter!
Stay in the know and be empowered with our strategic how-tos, resources, and guidelines.
