Saturday, 13 August 2016

Sole Proprietorship Vs Private Limited Company

There is no denying the fact that Singapore is one of the most business friendly countries in the world. It usually affords the best of facilities for new and budding entrepreneurs. It is therefore not surprising when we find that some big startup firms are located here. All business are governed by well laid down rules, regulations, processes and procedures. Therefore if you are one of those on the lookout for starting your business in right earnest, Singapore would be a great place. When we talk about businesses we usually refer to sole proprietorships, partnerships, private limited companies and public limited companies. In this article we will try and find out what sole proprietorship is all about as per the laws of Singapore. We will also try and draw a comparison with private limited companies as they are defined and described under the Singapore business laws. This will help you to understand the applicable differences and therefore will enable you to have clarity when planning to open a business in Singapore as a foreigner.

How Is Sole Proprietorship Defined In Singapore

It would be pertinent to mention here that sole proprietorship in Singapore is not a legal or incorporated identity. So as per the law and in the eyes of the general public the person who starts the sole proprietorship and the company which he is running will be one and same both the from the legal standpoint and the operational standpoint. Hence if you start a sole proprietorship you have total control of the entire business which you run, but at the same time you alone will be responsible for all the debts, obligations and liabilities. In other words, the proprietor will have unlimited liabilities. He or she could be sued by creditors, government agencies and others for wrongdoings done by the company which he or she owns and runs. This is because there is no difference between the company and the individual running the show. Therefore it a sole proprietorship has its own advantages, benefits and shortcomings. It is basically suitable for small startups and home based businesses, where the capital is low and the turnover is also within manageable limits. In fact some of the best known corporate houses in Singapore have started as sole proprietorships and then moved on to become companies.

What Is A Private Limited Company All About

On the other hand when we talk about a private limited company or a LLC (limited liability company) as it is also known as, there are quite a few differences when compared to sole proprietorship organizations. A company can be considered as a LLC when it has two members and where the total number of shareholders do not exceed fifty. Further when we talk about LLC 100% foreign ownership is also allowed. Further the biggest difference when compared to sole proprietorship is the liability that is defined.

Unlike sole proprietorships the liability of the shareholders or owners is limited to the amount that shareholders have committed to. The minimum paid up capital for a LLC can be as little as $1 and the concept of authorized capital is no longer available. However, it must have a memorandum and articles of association and it must be registered with the local registrar of companies.

Which Is Better

The common question which comes to the mind is to whether go in for sole proprietorship or LLCs. This would depend on individual needs, objectives and requirements. However, when there is a need for expansion and when liabilities are to be taken into account, there is no denying the fact that private limited companies are always a better option. As a shareholder, you will not have the Damocles Sword hanging on your head as is the case with a sole proprietor. You are different as a shareholder and the company is a separate legal existence. Hence you will not be liable for the acts taken by the company of which you are a share holder.

Tax Benefits & Other Points Of View

Though from the outside it might look that sole proprietorship offers better tax facilities for businessmen, if you go a bit deep into it there is no doubt that the tax benefits are much better and attractive for private and public limited companies. It would be pertinent to mention here that Sole proprietorships are not taxed as far as their business is concerned. However, the personal income of the owner and the profits generated by his or her company is considered as income and therefore liable for taxation at the individual taxation rates. On the other if it is a private LLC the company is taxed at the corporate rates applicable. Further they also have quite a few tax exemptions available for them. There are tax holidays for the first three years of operation. The tax percentage at the lower level is 3% and at the highest slab it is around 17%. This would depend on the profit generated by these private LLC companies. Singapore is a country which follows a single tier tax system. In other words if the company income has been taxed, the dividend that is distributed to the shareholders will not be taxed again.

Hence when all the above factors are taken into account there are reasons to believe that going in for private LLC would always be a better option. But as mentioned earlier, it would again depend on the overall long term, short term and medium term objectives of the company and its promoters. However, if there is a need to expand and grow from one level of strength to another it might always be better to go in for a private LLC company because of the various benefits mentioned above. But if one wishes to keep the company small it would be better to opt for a sole proprietorship. The control which the owner of the company can exercise overall sole proprietorships is also something which makes them suitable and perhaps even more flexible and easy to manage. But one thing is clear. Whether it is proprietorship or private limited company, Singapore offers the best of facilities to run their business smoothly.