If you are a person engaged in business in a continual basis for the purpose of personal gain, it is required under the Singapore Business Registration Act to register a business either a sole proprietorship, a private limited company or a limited liability partnership. This article will give you information on what a sole proprietorship is.
Basic Facts on Sole Proprietorship
- Being a sole proprietor in Singapore means that the owner of the business is personally liable to the obligations incurred during the operation of the business. Thus, the owner is not viewed as a separate legal entity from the business.
- A natural person at least 18 years of age or a Singapore registered company is eligible to register as a sole proprietor.
- The appointment of at least one manager who is a natural person with the minimum required age of 21 years old and a resident of Singapore (Singapore Citizen or Permanent Resident) is required upon registering a sole proprietorship. Normally, the owner performs this capacity.
- For the registered business address, a local address must be provided for the sole proprietorship. If the owner operates the business in his/her residential home under the Home Office Scheme, the owner must obtain written approval from HDB (for HDB Properties) or URA (for private properties) to utilize their home as their office.
- The owner must ensure that his or her Medisave accounts are sufficiently funded before proceeding with the sole proprietorship.
- Any profit gained under the sole proprietorship is treated as a personal income of the owner and thus will be subject to a personal income tax rate. On the other hand, if the owner is a private limited company, the profits will be treated as income subject to a corporate tax rate.
- A sole proprietorship, once registered, cannot register another firm or business as it is not a legal entity.
- All letterheads, invoices, bills, or other business forms or documents used by the sole proprietor in business must have the business registration number listed.
- Since profits made under the sole proprietorship is treated as a personal income of the owner and taxed under that manner, it is not required to file annual returns with ACRA or audit their accounts.
- In the hopes to obtain additional funds for expansion under a sole proprietorship, the sole proprietor’s options will be limited as investors will hesitate to invest in non-incorporated entities.
- If there are changes to be made in the business after registering, these changes should be lodged with the Registrar within 14 days from the date these changes were made.
- Singapore Sole Proprietorship registration must be renewed annually.
Procedures and Requirements
The following are the required documents in order to register a Sole Proprietorship in Singapore:
- Proposed business name
- Description of principal activities
- The local business address of the proposed business
- Copy of owner’s Singapore ID
- Owner’s local residential address
- Declaration of compliance and Statement of Non-Disqualification
The registration procedure involves two parts namely,
- reservation of the name; and
- business registration.
For the registration procedure, it usually takes only a day to complete as it is computerized and quick, provided that all documents required and presented together with the endorsements. However, it can last up to a few weeks if the nature of the business needs a referral from another authority such as businesses that are financial in nature, media related, educational services, etc.
To ensure that the name registration process is speedy, be certain of the following:
- The proposed name is not identical or closely similar to any existing local company or business names.
- The proposed name does not infringe any existing trademarks or copyright.
- The proposed name is not obscene or vulgar.
- The proposed name is not already reserved.
An email notification from the Registrar will be sent to the owner of the business once the registration has been confirmed as successful containing the registration number. No hard copies are issued by the Singapore government as the electronic copy sent is already valid.
Opening a Bank Account
After a successful sole proprietorship registration, a bank account can be opened in any of the international, foreign and local banks in Singapore. It has the option to open either separate accounts of different currencies or one single account using one currency. Banks have different account opening procedures and requirements but in general, the following documents should be prepared:
- Opening an Account Application Form
- Copy of Owner’s Singapore ID
- Latest print-out of the business profile for the sole proprietorship
- Required Minimum Deposit (depends on the bank)
Sole Proprietorship Pros and Cons
Based on the information listed above, you already have an inkling on the definition of a sole proprietorship and how to register one. However, you still have not decided on whether to register your business in a sole proprietorship or as a private limited company. If you are caught in this conundrum, read on below as we cite the pros and cons of a sole proprietorship:
Easier to Set Up
Taking into consideration the registration and setting up process, among the different types of business structures, a sole proprietorship is by far the easiest and quickest to set up. It is also the least expensive if you are tight on the budget.
Ownership or Control
As the sole proprietor, you have complete ownership rights and control on how to run your business. You decide how to conduct the business’ affairs and take complete control of the decision making part.
No Profit Sharing Scheme
All profits gained during the course of the business is yours.
Easier to Terminate
Given the ease of setting up a sole proprietorship, the same ease also applies once you decide to terminate the business. As compared to other business structures, it is less time consuming and less expensive. It is also less complicated.
As stated earlier, there are no other required returns to be filed other than the yearly renewal file. Compared to other business structures, this involves less hassle that will enable the owner to focus more on running the business.
Not a Separate Legal Entity
As described earlier, the sole proprietorship and the owner is one and the same. Obligations incurred during the course of the sole proprietorship binds the owner as well.
As the owner and the sole proprietorship is not a separate legal entity, unpaid creditors can demand in court to have your personal assets as payment of your debts to them. Thus, it is wise to ensure that in running the business, being mindful of obligations being incurred are properly planned and managed.
Absence of Corporate Tax Benefits or Incentives
The tax benefits and incentives available to a private limited company is not available to a sole proprietorship.
Limits on Funding the Business for Capital
As explained earlier, it is difficult for the owner to attract other investors because it is risky for them. Thus, the business’ capital is limited to your own existing funds and the income generated by the business. It could be deemed as difficult for future business expansion.
Perpetual Succession is Not Applicable
If you die, the business dies with you as you and the sole proprietorship are the same.
Less Preferred by the Public
A sole proprietorship is personal in nature. The owner and the business is one and the same thus, the public, depending on the owner, may have their own reasons as to why they are unwilling to invest in the said business. It would also be difficult for a sole proprietor to attain large investors due to the risks involved. In the same manner, employees who are looking for advanced opportunities like that in a corporate world would not be willing to work in a sole proprietorship business structure.
Selling/Transferring Part/All of the Business
There is no option to sell shares of the business like that of a corporation for ownership. The only option for transfer is to sell business assets.
In sum, a sole proprietorship is a simple, less risky and less complicated business structure. It meets the basic legal statutory requirement to register all activities related to gaining profits. It gives more leeway in the compliance matters on returns to be filed and ownership control but it also inhibits growth particularly on gaining larger investors and attract more experienced and top-notch employees.
However, one who is intending to start a sole proprietorship business must also take into account of it’s unlimited liability.
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