A Sole-Proprietorship is the most basic entity offered in Singapore that also meets the statutory requirement to register all profiteering activities carried out on a continuous basis. This is an ideal structure if you are just starting out in a business providing low risk services to only a few clients – entrepreneurs, specialist consultants and contractors, financial planners, freelance IT designers and developers, editors and writers, or home-based businesses.
Sole-proprietors maintain full control of their business, running it how they please without the interference of others. As a result, sole-proprietors can make decisions quickly and act on them swiftly, providing for the needs of their customers. Sole-proprietors also retain all the profits of their business.
A sole-proprietorship is the easiest and least expensive business structure to set up. A sole-proprietor simply needs to register with the Accounting and Corporate Regulatory Authority of Singapore (ACRA). Generally, only a small amount of capital needs to be invested, which reduces the initial start-up cost, and ongoing compliance requirements are minimal.
There is no obligation to file returns annually and information is kept private, unlike that of limited companies, which is necessarily made public after registration. A sole-proprietorship can be closed simply by the proprietor filing a Notice of Cessation of Business Registration, or by ACRA if the registration has expired and not been renewed.
However, a sole-proprietorship does not constitute a separate legal entity, which makes sole-proprietors financially and legally responsible for all debts and legal actions against the business. This also means that there is no corporate perpetual succession – a sole-proprietorship will cease to exist with the death or disqualification of the owner and can only be transferred via the sale of business assets.
Business capital is also limited to the sole-proprietor’s personal resources and the profits generated by the business. Business expansion can therefore be limited and difficult.
Taxes are determined at the sole proprietor’s personal income tax rate, which offers no access to the special tax benefits that are available to a private limited company. Singapore’s personal income tax rates for resident tax payers are progressive from 0% to a maximum of 22% % for income in excess of SGD320,000. The maximum corporate tax rate in Singapore is 17%.
Generally sole-proprietors are regarded as self-employed. A person is considered self-employed when they earn a living by carrying a trade, business, profession or vocation. The owner must file annual income return that includes the revenue and profits of the sole proprietorship with the Inland Revenue Authority of Singapore (IRAS).
An individual proprietor must be at least 18-years-old and either a citizen or Permanent Resident (PR) of Singapore or a Singapore EntrePass holder. Where an individual proprietor is a foreigner or does not reside in Singapore, the sole-proprietor must appoint at least one authorised representative who is of full legal capacity and ordinarily resident in Singapore.
Sovereign can assist with setting up a sole-proprietorship and can also act as a locally resident authorised representative in Singapore. The freedom from compliance formalities and undivided authority of a sole-propietorship means they can provide a suitable initial business entity for businesses on a small scale and low risk basis.
However, due to the limiting factors for potential growth and development, and the lack of limited liability, we would generally recommend that sole-proprietors should upgrade their business entity to a private limited Singapore company as soon as it is appropriate to do so. It’s easy to change your legal structure when circumstances change.