What is sole proprietorship and private limited company?, In this article we provide information about Sole Proprietorship and Private Limited Company (Pte Ltd) along with their differences. For every entrepreneur one crucial step in starting a business in Singapore is understanding its business structure accurately. Once you understand the business structure, there are two types of choices available: sole proprietorship and private limited company (Pte Ltd). Each structure has its own differences as well as advantages and disadvantages. Here are the differences between Sole Proprietorship and Pte Ltd that we have summarized in this article.
Overview:
What is the meaning of Sole proprietorship
Sole proprietorship is a business structure where one individual owns and operates the business In this arrangement, there is no legal distinction between the owner and the business entity itself. This means that the sole proprietor is personally responsible for all aspects of the business, including debts and other obligations.
Advantages of Sole proprietorship
- The owner of a sole proprietorship has full control over their business in Singapore. For example the owner can make decisions independently without having to consult with others (shareholders).
- Establishing a sole proprietorship is relatively simple and fast. The procedure is not complicated and the cost is affordable, allowing the owner to start their business easily.
- For sole proprietorship, the benefit of relatively low tax rates is especially advantageous for small businesses.
- Sole proprietorships in Singapore are not required to disclose their business information publicly, allowing them to maintain the confidentiality and privacy of their business.
- For sole proprietorship owners, they have full rights to the profits generated by their business in Singapore. There is no profit sharing with shareholders or other partners.
Disadvantages of Sole proprietorship
- The main drawback for sole proprietorship owners in Singapore is unlimited personal liability, the owner is personally responsible for all debts and liabilities of their business.
- Sole proprietorship allows owners to experience limitations in terms of capital and resources in Singapore, It can limit the business’s ability to expand and grow.
- Limitations in skills and lack of experience. Sole proprietorship must handle all aspects of its business on its own in Singapore, which becomes a challenge if they have limitations in certain skills or experience.
What is the meaning of Private Limited Company
Private Limited Company is a type of limited company owned by an individual or a specific group. This means that the company’s shares are not traded on the open stock market and have limited numbers of shareholders, private Limited Companies are typically marked with the suffix “Pte Ltd” in the company name.
Advantages of Private Limited Company
- One of the main advantages of a Private Limited company in Singapore is limited liability for its owners, this means that owners are not personally liable for the debts or liabilities of the company beyond the amount of capital invested.
- Private limited companies are often considered more stable and credible in the eyes of consumers, business partners, and financial institutions.This can help in building good relationships and enhancing the business’s reputation.
- Private limited company has easier access to capital as it can attract investors and obtain loans from financial institutions more easily. This allows the company to undertake larger investments and expansions.
- A private limited company has better longevity compared to sole proprietorship because it has a separate legal entity from its owners.This means that the business can survive even if its owner passes away or resigns.
- A private limited company allows flexibility in tax planning, and often these companies can take advantage of available tax incentives, as well as relatively low tax rates.
Disadvantages of Private Limited Company
- The establishment costs of a private limited company in Singapore can involve higher expenses compared to sole proprietorship or other business forms. This includes incorporation fees, government fees, and annual administrative expenses.
- The owner of a Private Limited Company may have to share control with other shareholders, which can limit their freedom in decision-making and business strategies.
- Private Limited Companies in Singapore must adhere to strict financial reporting requirements, this include the preparation and submission of comprehensive annual financial reports.
- In a Private Limited Company, there is potential for conflicts among shareholders, especially if there are differences in opinion regarding the strategic direction or management of the company. This can disrupt the performance and growth of the company.
You also can read this arthicle : Register Business Singapore: A Step-By-Step Guide
What are the differences between Sole Proprietorship and Private Limited Company
Here are the differences between Sole Proprietorship and Private Limited Company in Singapore.
- Legal Structure:
- Sole proprietorship : The owner is personally liable for all debts and obligations of the business.
- Private limited company : The owner’s liability is limited to the amount invested in the company, the company is owned by shareholders and it’s operations are managed by directors. Shareholders’ liability is limited to the amount they have invested in the company.
- Liability:
- Sole proprietorship : The owner has unlimited personal liability for the debts and obligations of the business. Personal assets may be at risk.
- Private limited company : Shareholders’ liability is limited to the amount they have invested in the company. Personal assets are generally protected.
- Ownership and Management:
- Sole proprietorship: Owned and managed by one person who makes all decisions.
- Private limited company: Owned by shareholders who elect directors to manage the company operations.
- Legal Formalities:
- Sole proprietorship: Minimal legal formalities are required for registration and operation.
- Private limited company: Requires formal registration with ACRA (Accounting and Corporate Regulatory Authority), annual filings, and adherence to the Companies Act.
- Taxation:
- Sole proprietorship: Business income is taxed as personal income of the owner.
- Private limited company: Subject to corporate tax on profits, and shareholders are taxed separately on dividends.
- Establishment and administration:
- Sole proprietorship: Setting up is simple, and business administration is relatively easy and inexpensive.
- Private limited company: The establishment requires numerous, more complicated procedures and higher costs, as well as strict compliance with government regulations and reporting requirements.
The differences in taxation between a Sole Proprietorship and a Private Limited Company
In Singapore, Sole proprietorship is not subject to separate taxation from its owner. On the contrary, the income earned by the owner is taxed at personal income tax rates, ranging from 0% to 24% from YA 2024 onwards. And private limited companies are taxed on the income earned by the company at a rate of 17%. The tax exemption scheme for newly incorporated companies provides an exemption on their taxable profits in the first three years of operation. For more detailed information or updates, you can visit the IRAS website.
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