Sole Proprietorship vs Pte Ltd Company | Business Structures and Differences

Published on 14 July 2022

You might be wondering what kind of business is appropriate for your needs if you are a Singaporean or a foreigner trying to launch a new venture here.

Sole Proprietorship and Private Limited Company (Pte Ltd) are the two primary forms of companies. The crucial factors that must be considered before making this choice will be covered in this post.

Let’s look at each business structure and how to convert a sole proprietorship to a private limited company in Singapore.

What is the Difference Between Sole Proprietorship and a Private Limited Company in Singapore?

Legal Entity and Liabilities

business liabilities

Sole proprietorships are run by a single person and have no separate legal entity, which means that they are 100% personally liable for their profits and liabilities.

If you have unlimited liability, then your personal assets are at stake should you encounter any financial complications.

Meanwhile, a Singapore Limited Liability Company (LLC) and Limited Liability Partnership (LLP) need to have at least one director and one shareholder, and each shareholder’s responsibilities are limited to how much they invested.

They have a separate legal identity; therefore, they have limited liabilities falling on the business assets.

Lifespan and Succession

As a sole proprietor, the business and the business owner are seen as one. Since your business has no indefinite lifespan, your retirement or death will put an end to your business.

For private limited companies in Singapore, the business continues to exist regardless of the status of its partners, directors or stockholders.

The continuous existence of an LLP or LLC is typically unaffected by a member’s resignation or death.

Business Expansion

sole proprietorship or private limited company

Sole proprietors find it difficult to get any external capital through bank loans or investments into your business.

The capital of a sole proprietorship is dependent on its business profits and personal finances. Should they want to secure a loan from financial institutions, they would have to risk their own personal assets as collateral.

Generally speaking, LLPs also struggle to raise additional funding, which is frequently restricted to contributions from its partners.

You can improve your capacity to raise capital as a private limited company with the addition of business financing, equity partners, venture funds, etc.

Usually, investors are more likely to invest in a company structure where there is a formal division between personal and commercial assets. Banks typically prefer to lend money to corporations over sole proprietorships or limited liability partnerships.


tax exemptions

Singapore taxes sole proprietorships and LLPs at the personal income level of the owners rather than the business level.

For sole proprietors, all their business profits will be regarded as the owner’s personal income; hence they are taxed at the personal income tax rate.

In LLPs, profits are allocated to partners in accordance with the partnership agreement, recognised as a portion of each partner’s personal income, and taxed at rates applicable to personal income.

On the other hand, an LLC or private Limited Company in Singapore is subject to corporate income tax.

These private limited companies will be taxed according to the corporate tax rate and are eligible to enjoy special tax incentives.

Singapore has a single-tier tax system; therefore, dividends paid to shareholders of a private limited company are not subject to taxation once corporate income has been taxed.

Ongoing Maintenance

singapore companies act company incorporation

The simplest and least expensive type of business structure to set up and run in Singapore is a sole proprietorship.

There is a government fee of S$115, and not much paperwork is needed for sole proprietorship registration. With the exception of the sole proprietorship’s annual renewal, there are no ongoing filing requirements with ACRA.

LLP registration is more complicated than sole proprietorship registration.

The Singapore government registration charge is S$115, and you’ll probably need help preparing a partnership agreement from a specialist.

An LLP is required to file an annual declaration of solvency or insolvency to ACRA
as part of the yearly compliance requirements. No other paperwork has to be submitted.

The government registration price for an LLC is S$315, and it is a little more difficult to register than the previous two types of businesses.

The process and yearly tax filing requirements are more complicated and there are several other stipulations you must fulfil, such as holding an annual general meeting, etc.

It is adviseable that you work with a reputable organisation (corporate secretarial, accounting, or a law firm) to manage the initial setup of the business as well as its ongoing compliance needs.

In other words, a private limited company’s advantages, flexibility, and power come at a cost.

Ownership Transfer

You cannot sell LLP or sole proprietorship on its whole. The assets, permits, and licences must all be transferred separately.

However, an LLC allows for the simple transfer of full or partial ownership of a business without affecting ongoing operations through the selling of stock.

What’s The Better Option?

converting sole proprietorship to private company

Now that you know the differences between the businesses, which do you choose?

The greatest option for encouraging entrepreneurs in Singapore is to establish a limited liability company or private limited company out of the three legal entities.

You have a structure that enables you to expand your firm, unique tax benefits from the government, and your personal assets are shielded from corporate liabilities.

As a Foreigner in Singapore, Which is The Best Option?

Foreigners can easily start their own business in Singapore. But the issue still stands: which kind of structure should you pick?

A foreigner living outside of Singapore may register a single-owner sole proprietorship, but they must designate a local approved representative to manage and operate the business on their behalf.

For a private limited business, there are no limits on foreign ownership of shares. However, at least one local director is necessary. The person need not own any stock in the company and can be either a Singaporean national or permanent resident.

Private limited companies will have fewer liabilities, more flexible tax arrangements, and other advantages not available with sole proprietorships or partnerships.

Therefore, Pte Ltd Companies, which restricts shareholder liability, may be the best option for foreign potential business owners looking to conduct business in this region.

How To Convert Sole Proprietorship Business To Private Limited Company?

All you need to do is draft a letter in which you state that your existing business name may be used as the name of a private limited company.

Then, you can start creating a private limited business and submitting the necessary paperwork.

After that, you have to transfer the assets of the active business to the formed private limited company and inform the Accounting and Corporate Regulatory Authority (ACRA) that your sole proprietorship business has ceased production.

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