5 Differences between the Limited Company and Sole-Proprietorship

5 Differences between the Limited Company and Sole-Proprietorship

In starting a business in Singapore, business owners like you are more likely to be confused as to what type of business entity should you use. The two most popular choices are business (sole proprietorship) and limited company or private limited company. We will be discussing the five significant differences between these two business entities.

What Is The Difference Between A Limited Company and A Sole Proprietorship

1. Business Ownership

The main difference between the two is the business ownership. In Sole Proprietorship the owner of the business is a single person, while for a Limited Company it can be owned by shareholders of fifty people and up. This shift in the number of owners from a single person to multiple persons has an effect on the following:

  • Decision Making
  • Business Entity

In Sole Proprietorship, the business owner has more freedom to make decisions and he or she can make risky ventures or involve the business in other fields. This scenario is very different in the case of a Limited Company, before any major decisions can be implemented it has to be first discussed in a meeting with all owners of the company. Since the interest of many people is at stake, a longer decision-making process is required.

A business owned in a Sole Proprietorship format is not viewed as a separate legal entity. A company, on the other hand is viewed as a separate legal entity.

 

2. Business Set-up

Setting up a Sole Proprietorship business is direct and does not require a lot of complex documents to be submitted. And the fees to be paid to the government for registration cost only $115 with $15 name registration included.

Setting-up a Limited Company, Public or Private, on the other hand, includes a more complicated procedure with clearly stated requirements like the requirements of a resident director, a corporate secretary, and an auditor. More requirements also mean that there are more paperwork and documents to be submitted to ACRA for company registration. A fee of $315 is required by the government in order to complete the company registration process.

 

3. Liabilities At Stake

A private limited company and a public company has limited liabilities, a big difference when talking about creditor claims and bankruptcy for its owners, unlike a sole-proprietorship which as unlimited liabilities. For any businessman, the security of their personal assets is important, and a limited company provides that protection that they need in case the business falters. Sole-proprietorship offers no protection against creditors and bankruptcy.

 

4. Taxes To Be Paid by the Business

The taxes by these two business entities differ significantly. A business under sole-proprietorship is taxed according to the owner’s individual’s tax return which can start at 0% and progressively rise to 22%. A limited company is taxed at a fixed rate of 17%, and for companies qualifying for the start-up Tax Exemption, they can enjoy three years of 0% from the Tax Exemption Scheme.

 

5. Raising Capital and Financial Support

Raising a capital for a business is a bit difficult and more complicated when it’s compared to a company. The government also offers more sources of financial support for a limited company than to a business owned as a sole-proprietor.

Sole-Proprietorship or a Limited Company, the choice is yours to make, seeing the difference and the resources at stake are for you to balance out and weigh, either way, Singapore is the business-friendly destination that can help you start your enterprise big or small.

Confused as to what business type to choose? Give us a call, and we’ll be glad to give you a deeper understanding of the business entities you can start in Singapore.