In the recent World Competitiveness Ranking, Singapore is recognized as the most competitive economy among Asian countries. Not only that, but Singapore is also ranked as the 5th most competitive economy in the world by the Institute for Management Development (IMD). This goes to show that setting up a company in Singapore will offer a lot of advantages for entrepreneurs or start-up companies that wish to expand their business.
In Singapore, there are 5 types of business entities that you can choose to set up. In this article, we will only discuss the differences between a sole proprietorship and a private limited company in Singapore. Whether you are a local Singaporean or a foreigner who is interested in opening up a sole proprietorship or a company in Singapore, then this article is for you.
SOLE PROPRIETORSHIP VS PTE LTD IN SINGAPORE
WHAT IS A SOLE PROPRIETORSHIP IN SINGAPORE?
According to Accounting and Corporate Regulatory Authority (ACRA) in Singapore, a sole proprietorship is a business owned and managed by one individual only. The sole proprietor or the sole owner will have absolute power in running the business as it handles all the affairs without any partner.
WHAT IS PTE LTD IN SINGAPORE?
Pte Ltd is a suffix used for a company in Singapore that refers to a Private Limited Company. A Private Limited Company is also defined as a business entity that is owned by limited shareholders. The maximum number of shareholders for Pte Ltd can go up to 50 members (owners) only, and it does not have any publicly traded shares.
DIFFERENCES BETWEEN SOLE PROPRIETORSHIP AND PTE LTD IN SINGAPORE
It is crucial to identify the differences in business entity forms before you decide to set up your desired business in Singapore. By doing this, you will have a deeper understanding and familiarity with your company. Although both sole proprietorship and private limited company are popular forms of business setup, they differ greatly from one another. Below, we list all the differences in several areas:
1. Setting Up Fees
The application filing can be made through the BizFle+ portal administered by ACRA, and the charges are as follows:
Sole Proprietorship
Application for a New Business Name: SGD 15
Application to Register Person and Business Name: SGD 100
Private Limited Company
Application for a New Business Name: SGD 15
Application to Incorporate the Company: SGD 300
2. Ownership Rights
Sole Proprietorship
As suggested by its name, a sole proprietorship is owned by a sole person/individual only. The individual can be a local Singaporean citizen, permanent resident, or foreigner who holds an eligible EntrePass/Employment Pass Holder.
For foreigners who reside overseas and want to register a sole proprietorship, they must engage at least one local resident authorized representative. Regarding business affairs, the owner has the sole right to manage and change any part of their business without having to discuss it with any partner.
Private Limited Company
A private limited company can have a maximum 50 shareholders who own the company and have voting power. The owner can either be a local or foreign individual, corporate entity, or both.
3. Legal Identity
Sole Proprietorship
This business entity does not have a separate legal identity from the business owner. The business owner can be exposed to unlimited liability incurred by the sole proprietorship business. Vise versa, the owner, can sue or charge others on behalf of the sole proprietorship.
Private Limited Company
A private limited company has a separate legal identity from all of its owners. This result in a different treatment for legal issues for the company and the shareholders of the company. If there are any liabilities such as sue or charges made by others to the company, the shareholders will not be held personally for all the issues incurred by the company. The owner/shareholders will not be greatly affected due to a separate legal identity.
4. Liability/Debt
Sole Proprietorship
As the business for sole proprietorship does not have a separate legal identity, the business owner will have unlimited liability. The business owner is personally liable for all the debts and losses of the sole proprietorship business. Consequences of being personally liable for the business debts can impose the owner a bankruptcy risk.
For example, the owner must pay all of his/her debts regardless of the amount incurred, and their assets might be the collateral for the creditors.
Private Limited Company
With a separate legal identity, a private limited company can benefit from limited liability. This is because the liability of its shareholders is limited to the amount of paid-up capital or shares invested in the company. Legally, a creditor cannot access the shareholders’/directors’ wealth to repay the company’s debt. Nonetheless, a few exceptions can allow creditors to go for the director to be liable for the debts incurred by the company. The situations are:
- The court “pierces the corporate veil” and holds a controlling director accountable for the debts made by the firm
- The director is a co-borrower or co-guarantor for the company loan
- The provisions of the Companies Act have not been followed.
5. Raising Capital
Sole Proprietorship
Capital for a sole proprietorship business may come from personal expenses. Capital can be obtained through the profits that the business has earned. The owner can also obtain loans from banks, but in return, they have to put their personal assets, such as houses or cars, as collateral to secure the loans.
Private Limited Company
On the other hand, a Private Limited Company can generate capital for the company from various means. The company capital is generated from investors who are willing to buy the company shares and pay the paid-up capital. Additionally, banks also tend to give out loans to the company as they can secure a higher collateral asset for the loans.
6. Business Succession
Sole Proprietorship
If the owner of the sole proprietorship passed, the business succession would stop. This is because the business activities for a sole proprietorship are solely up to the owner.
Private Limited Company
One of the significant characteristics of a private limited company is the fact that it has a perpetual, stable, and continuous succession of the company’s name. For instance, if one or many shareholders who own the company withdraw or die, the business activities can continue to run with no harm. The succession of a private limited company can be continuous unless the company ends up being wound up or struck off.
OBLIGATORY REQUIREMENT BETWEEN SOLE PROPRIETORSHIP & PTE LTD
The Singaporean government has rolled out the obligatory requirements befitting the types of business entities you choose from. The main requirements that both a sole proprietorship and a private limited company must oblige to are as follows:
OBLIGATORY REQUIREMENT FOR SOLE PROPRIETORSHIP
If you decide to open a sole proprietorship business in Singapore, you must comply with the obligatory requirements set out by the Singaporean government. For a sole proprietorship business, the requirements are quite straightforward to maintain. Below we cover all the mandatory requirements for a sole proprietorship business.
1) Annual renewal of sole-proprietorships business registration
It is worth noting that a sole proprietorship business registration can be valid for up to three years only. Once the business registration expires, you must renew the registration before the stipulated date. The renewal application can be made around 60 days before the registration expires through BizFile+. It is advised to be aware of the expiration date and make haste on the renewal process to avoid any penalties.
The renewal fee is SGD 30 per year. You can renew the registration for up to three years with the required fee of SGD 90. However, you will only be allowed to do renewal for three years if the following conditions are met:
- You have completed the CPF Board’s Medisave payment in full
- You are contributing to Medisave on a regular payment plan (i.e., GIRO) with a solid record of timely Medisave contributions for up to 24 months before the business registration renewal
- You did not register as self-employed with the CPF Board.
2) Annual Tax Filing:
Personal Income Tax
Profit generated from the sole proprietorship business is the business owners’ personal income. Therefore, the owner will be taxed based on earnings at the individual income tax rate.
OBLIGATORY REQUIREMENT FOR PTE LTD/PRIVATE LIMITED COMPANY
A private limited company must be responsible and oblige to all of the government’s compliance requirements. Below we cover all the mandatory requirements for a private limited company.
1) Maintaining Company Register
Although a private limited company is not required to renew its business registration, the Companies Act has mandated that all companies must make sure to maintain their company register always to be up-to-date. According to ACRA, whenever there are changes in the following roles:
-
- Shareholders
- Nominee Directors
- Secretaries
- Financial Auditors
- CEOs
- Beneficial owners
The company must update the information on the company register via BizFile+. This update must be done within 2 weeks starting from the date of changes on any of the above roles.
2) Appointment of the Company’s Secretary
A private limited company must appoint a Singapore company secretary within 6 months of the company’s incorporation in Singapore. The company secretary must be a natural person who is not simultaneously holding the role of the company’s director. In addition to that, the secretary must be a resident of Singapore.
For further information on the appointment of the company’s secretary, you can refer to Section 171 of the Companies Act.
3) Financial records
In line with the Singapore Companies Act, a private limited company must have its financial statements audited by an auditor or public accountant at least once yearly. The company is expected to keep accurate records, which must be made available to auditors during annual reviews and inspections. Additionally, the financial records and accounts of the company must be kept for at least 5 years.
For further information regarding a company’s financial record, you can visit the ACRA site.
4) Filing annual return with ACRA
A private limited company must submit annual returns to ACRA through the appointment of the company secretary. According to ACRA, private limited companies have 7 months to file their annual returns from the financial year end. You can file for the annual return via the BizFile+ online portal.
You can visit the ACRA site for further information regarding the proper documentation and filing process for annual returns.
5) Annual Tax Filing:
Private limited companies are taxed at the single tax tier. Thus, a Pte Ltd company will be taxed at the corporate tax as a final tax. Starting from 2010, the recent corporate tax rate is 17%.
Tax Exemption
Nonetheless, Singapore provides a lot of tax incentives for certain private limited companies. For example, new start-up companies in 2020 and forward are eligible for the Start-up Tax Exemption (SUTE) scheme. The SUTE scheme provides tax exemption for the first 3 consecutive Years of Assessment, such as:
- 75% tax exemption on its first SGD 100,000 income
- 50% exemption on the next SGD 100,00 income.
If you require further information on the Tax Exemption Scheme for New Start-up Companies, visit the official IRAS site.
6) Holding Annual General Meeting
A Pte Ltd company is mandated to hold the annual general meeting known as AGM. During the AGM, the director of the company must present the financial statements and justify the business transactions (if shareholders have any queries) to the shareholder of the company.
The company’s financial statement will have information such as the profits and losses incurred. AGM is mandatory to be fulfilled before the filing of the annual return for the company.
PROCEDURE TO SET UP SOLE PROPRIETORSHIP AND PTE LTD
Procedures to register sole proprietorship and Pte Ltd company is a straightforward process. However, the process of setting up a private limited company requires a lot more steps and technicalities. The first step for registering a sole proprietorship and a private limited company is similar. To register a sole proprietorship and a private limited company is as follows:
Step 1: Choose and register the business/company’s name
The first step to registering for your business, whether a sole proprietorship or a Pte Ltd company, is to choose a suitable name that does not identify with existing business in the market. Once you have come up with a proper name, register through the BizFle+ portal to search for its availability and reserve your company’s name. The cost for the name application for both a sole proprietorship and a private limited company is capped at SGD 15.
Step 2: Wait for approval on the business name.
After the name application process, your business name will be approved if it fulfills all the requirements set by the ACRA’s Policy Statement on the Treatment of Business Names and Name Complaints. Upon approval, the business name will be reserved for 120 days. The name will no longer be reserved and will be made available to other members of the public if you do not register the business or incorporate the company after the given 120 days.
Step 3: Register the company’s name and business activities.
For this step, sole proprietorship and private limited business have different procedures.
For Sole Proprietorship Procedures:
Within 120 days after the approval of your business name, you must register your name as the owner and your business information such as the business location via the BizFile+ portal. The processing duration of this application will take about 3 working days. If the application must be forwarded to another agency for approval or evaluation, it might take 2 weeks to 2 months. The required governmental fee for this registration is SGD 100.
Pte Ltd Similar to the procedure in a sole proprietorship, private limited company information must be registered and incorporated through BizFile+ within 120 days of the business name approval. The required governmental cost of the company’s incorporation will be SGD 300, and the processing duration of the application is the same as the sole proprietorship.
However, to incorporate a private limited company, several crucial and additional information must be provided regarding the company’s structure and details. The company’s required information is as follows:
- Shareholder and Director details (including address, ID number, ID type, Nationality/Citizenship, and contact information)
- Decided Company’s Final Year End (FYE) date (based on ACRA regulations)
- Registered Office Address
- Company’s Constitution
- Companies Shares details
If you have further inquiries about Sole Proprietorship and Private Limited Companies in Singapore, do not hesitate to contact us at Relin Consultants or email our experts at enquiry@relinconsultants.com.
HOW TO CLOSE THE SOLE PROPRIETORSHIP OR DEREGISTER THE PTE LTD BUSINESS IN SINGAPORE?
Sole Proprietorship
One way to close and cease the sole proprietorship business in Singapore is to let the business registration expire simply. By opting not to renew the business registration for your sole proprietorship business, the business will be considered as close or ceased. You can also file for a ‘Notice of Cessation’ through the BizFle+ portal and notify the ACRA.
Pte Ltd Company
The process of closing a private limited company is complex. You can file for a “cessation of business” application via BizFile+ to deregister your company.
There are two ways to close and deregister your private limited company. Firstly, you can apply for a strike-off to ACRA by filling out the form in the BizFile+ portal. The application to strike off must fulfill certain conditions to be successful. Secondly, you can voluntarily wind up your company within an agreement between the company’s shareholders.
CONCLUSION
Based on the topics we have covered in the article above, it can be deduced that setting up a sole proprietorship and a Pte Ltd company has its merits and cons. To sum up, the sole proprietorship is much easier to set up and requires less obligatory compliances than a private limited company.
Despite that, sole proprietorship imposes a more enormous risk to the business owner as it has an unlimited liability. Ultimately, if you decide to open a sole proprietorship business in Singapore and wish to change it into a private limited company, you can do so by filing the requirements. Thus, we advise you to consider all aspects before deciding which business entity is suitable for your business venture.
