Sole Proprietorship vs. Private Limited (Pte. Ltd.) Company: The Differences

What is a Sole Proprietorship?

A sole proprietorship is a business entity that is owned by only one person. The owner can be an individual, a company or a limited liability partnership, known as the sole proprietor. Only local citizens, permanent residents of Singapore, or EntrePass holders can register a sole proprietorship in Singapore.

The defining feature of a sole proprietorship is that it does not create a separate legal entity from the business owner. This means that the sole proprietor is completely liable for the business activities and its liabilities. In other words, the sole proprietor will be held personally liable for all debts that the company owes. Moreover, as a sole proprietor, you can also sue or be sued on behalf of the company. 

What is a Private Limited Company?

A private limited company, also called a Pte Ltd company or Pvt Ltd company is a business structure that has multiple shareholders. It is set up as a business entity whose shareholders could be individuals, corporate entities or both. The liabilities of a Pte Ltd company in Singapore are limited to the number of shares that stakeholders have in the company. 

For instance, if 100 shareholders have 1,000 shares each in the company, their liabilities will be limited to the shares they own. A shareholder’s personal assets cannot be taken over in case of failure or losses of the company. A Pte Ltd structure is one of the most popular and common types of business structure in Singapore. 

What are the Differences Between a Sole Proprietorship and a Private Limited Company?

Before you decide on which company structure to adopt, you need to understand sole proprietorship vs Pte Ltd in Singapore. Below, we outline the most common differences between a sole proprietorship and a private limited company. 

Ease of Setting Up

Setting up a sole proprietorship in Singapore is a rather straightforward and relatively cheap process. You will need to identify a business name, register it on BizFile+, and wait for the approval. Once you have received approval, you can register your business and start operations. 

Setting up a private limited company is a more complicated process. You will need to appoint at least one shareholder and a director. You will also need a company secretary to draft a company constitution and declare the financial year. After finalizing these details, you can register the company on BizFile+. The fee involved in setting up a Pte Ltd company is also higher compared to a sole proprietorship. 

Ownership

A sole proprietorship is run by one person and one person alone and has no separate legal entity of its own. If the current business owner wants to run the business with at least two or more people, their business structure may fall under a partnership.

On the other hand, a Private Limited Company is a separate legal entity altogether and has a clear distinction between its directors and shareholders. Typically, the number of shareholders in private companies ranges anywhere from 1 to 50 and can either be individuals or corporate identities or even both.

Liability

Since a sole proprietorship has no separate legal identity, the owner has unlimited liability. What this essentially means is that owners will be held legally responsible for any debts and losses that the business may incur. This will not just affect the finances of your business but could be accounted for through your personal assets as well.

Conversely, a shareholder’s liability in a private limited company is limited to their investment in the business. In unforeseen circumstances, this can be a great advantage as it ensures that you are protected financially and your personal assets will not be affected whatsoever.

Funding

In general, sole proprietorships have lower public perceptions, which may lead to difficulties in acquiring bank loans and other forms of financial support or funding. Small businesses that wish to apply for government grants need to be registered as a Public Limited Company (PLC) in order to be eligible.

For private companies, obtaining funding through bank loans or from external investors is generally much easier as it is legally seen as a corporate body, which makes them appear more credible in the corporate world.

Business Succession 

Since a sole proprietorship is owned by a single person, if this individual were to die, the business would cease to exist unless he/she has appointed a successor. 

A private limited entity has perpetual succession. It is stable and continuous since it is a separate legal entity. Even if a shareholder were to die, it would not affect the regular course of business. 

Tax Filing Requirements

For potential business owners who are seeking minimal filing requirements, a sole proprietorship is the way to go. For this specific business entity, you don’t have to audit accounts or file returns annually, as your tax will only be assessed in the owner’s individual tax return.

Unfortunately, business owners of Private Limited Companies don’t have the same fate and have more requirements to comply with under the Singapore Companies Act. You will need to hold annual general meetings, file corporate tax and annual returns, and hire an auditor and corporate secretary for the company.

Ease of Closing the Business

Closing down a sole proprietorship is easier compared to closing a Private Limited (Pvt Ltd) company. All you have to do is not renew your business permit. This will automatically lead to the closure of the sole proprietorship. You can also go to the BizFile+ portal and file for a “cessation of business”. Once the application is filed, your business will shut down. 

To close a company, you must first apply to ACRA to strike off the company from its register. ACRA has to consider the reason relevant. If your business does not meet the criteria for striking off, ACRA will reject the application. You can then resort to a member’s voluntary winding up the process or a compulsory winding process. This is usually a long and tedious process that can sometimes take more than 12 months. 

How to Choose Between Sole Proprietorship vs Pte Ltd in Singapore? 

When it comes to starting your own business, there is no one size fits all. What you must do is compare the advantages and disadvantages of sole proprietorship vs Pte Ltd and then make a decision.

For starters, setting up and closing a sole proprietorship in Singapore is relatively easy. There are fewer regulatory obligations to comply with. On the flip side, since you and the business are considered a single entity, in case of losses, you may end up losing your personal assets. Some of the other disadvantages of a sole proprietorship are informal decision-making and the difficulty of getting funding. 

On the other hand, a Pte Ltd company in Singapore has advantages such as ease of funding, a separate legal entity, and higher level of checks and balances because of the higher number of owners and directors. However, it is much harder to set up and requires adherence to more legal compliances. 

Clearly, both have their own advantages and disadvantages. However, apart from these, you also need to consider your residential status in Singapore. To register a sole proprietorship in Singapore, you must be at least 18 years old. Additionally, you must be a Singapore citizen, a Singapore Permanent Resident or an eligible FIN holder. As a FIN holder, you must check with the relevant pass issuing authority (e.g. MOM/ICA) on your eligibility  before registering the business. 

Foreigners who live overseas and want to register either a sole proprietorship have to appoint at least one local resident authorised representative (e.g. Singapore citizens, Permanent residents or holders of EntrePass/Employment Pass).  You must also engage a registered filing agent (e.g. a law firm, accounting firm, or corporate secretarial form) to submit the application via BizFile⁺.

On the other hand, a Pte Ltd company in Singapore may be a better structure for foreigners as it limits the extent of liabilities, availability of funds, taxation, and other aspects.

What Are the Tax Considerations?

The government of Singapore has put in place a progressive tax system for enterprises. This means that whether you are a sole proprietorship in Singapore or a Pte Ltd company in Singapore, your taxes will depend on your total earnings.

For sole proprietorships in Singapore, the tax rate is between 2 per cent and 22 per cent.  There are no exemptions for sole proprietor income tax in Singapore.

A Pte Ltd company in Singapore has to pay a corporate tax at the rate of 17 per cent. Additionally, you will be eligible for two partial exemptions: 

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

Are There Any Other Business Structure in Singapore? 

Apart from sole proprietorship and Pte Ltd in Singapore, you can also choose to set up a partnership. A partnership structure occurs when two or more people co-own a business. Like a sole proprietorship, a partnership does not have a separate legal entity from its owners. However, you can eliminate the risk of liabilities in this form of business. 

You can also increase your chances of funding because of the support received from more owners. Once again, a partnership may cease to exist with a partner’s death, bankruptcy, incapacity, or retirement.

Some of the other business structures in Singapore you can choose from are limited liability company, subsidiary company, branch office, representative office and variable capital company. 

Ready to register your business?

Aspire Kickstart offers the first same-day online incorporation and business account opening in Singapore from anywhere in the world. Say goodbye to long waits and hefty paperwork. Aspire Kickstart cuts through the stress and confusion that comes with incorporating a company and opening a business account in Singapore.

You can save money and incorporate and open a business account on the same day with Aspire Kickstart - packages start as low as S$280! That’s 11% cheaper than if you incorporated by yourself!

‍