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Private Limited vs Sole Proprietorship - Which is For You?

When starting a business in Singapore, you would want to decide on a company structure that will help your purpose. You have the choice between Sole Proprietorship and Private Limited. The decision you make will define various factors, which include taxes, the liability, and obligations to government bodies.

Hence, without further ado, here are some of the differences between Sole Proprietorship and Private Limited for your consideration to help you decide which company structure better suits you and come to a consensus.

1. Set Up

The most common choice for entrepreneurs in Singapore, Limited Liability Company (Pte Ltd or LLC) is an exempt private company limited by shares. There can be from 1 to 20 individual shareholders, not companies, and as many directors as you need. It provides a legal entity separate from its founders, hence limiting your liability (hence its name). In other words, all the debts, the risks, and the responsibilities are entirely made in the company’s name, rather than in yours.

Sole Proprietorship is set up solely by one individual. It does not provide a separate legal entity and the entrepreneur personally owns all the risks. For example, any bank loan you take is solely in your name and debts are paid out entirely by yourself. Sole Proprietorships are also extremely easy to start and manage.

2. Tax Exemptions

A private limited company’s corporate tax is at 17%, while eligible for exemptions. A Sole Proprietor pays personal tax off the income progressively from 0% to 22%. In other words, Sole Proprietor pays less. Once your business generates more profit, you’ll pay less taxes as a Private Limited.

For Private Limited owners, the Start-Up Tax Exemption (SUTE) provides tax cuts for the first 3 years after company registration. For the financial years in or after YA2020, the rules translate into the following tax exemptions:

  • 75% on the first S$100,000 of chargeable income

  • 50% on the next S$100,000 of chargeable income

Following expiry of the first 3 assessment years, you can receive a Partial Tax Exemption (PTE). Here are the effective tax exemptions:

  • 75% for the first S$10,000 of chargeable income

  • 50% on the next S$190,000 of chargeable income

3. Statutory Requirements

Sole proprietorship has minimal filing requirements and income tax is assessed in the sole proprietor’s personal tax return. Private limited has more compliance requirements to meet, such as appointing a Company Secretary, holding Annual General Meetings (AGMs), and filing Annual Returns (AR) with ACRA. Private limited companies that do not fall within the ‘small company’ criteria are required to appoint an auditor. The income tax on the business is also assessed in the corporate tax returns of the Private limited company.

4. Raising Capital

For sole proprietorships, obtaining loans and external investment is more difficult as the business is tied to the owner personally. Private limited companies, on the other hand, can raise capital more easily through bank loans, issuing equity and external investments.

5. Setting Up

Registering a sole proprietorship is more straight-forward, with government fees of $115. Setting up a Private limited company involves more steps and considerations and is more complex. For private limited companies, government registration fee is $315.

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