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Sole Proprietorship: Meaning, Features and Benefits
Starting a business venture is an exciting milestone – whether you’re a first-time or a seasoned entrepreneur. Singapore offers a thriving environment with a robust business infrastructure, a favourable tax regime and economic and political stability. But what business structure is suitable for your business? One of the easiest and most affordable ways to launch your business in Singapore is by registering a sole proprietorship.You may wonder about the meaning of sole proprietorship and why it is considered the easiest business structure. In this article, we’ll cover what a sole proprietorship is, including the features of a sole proprietorship and the advantages and disadvantages of a sole proprietorship.
What is a Sole Proprietorship?
Among the four main business structures, a sole proprietorship is the simplest. So, what exactly is a sole proprietorship? Unlike a private company, it grants the owner complete control over the business and is entitled to all profits. Given its autonomy, the sole proprietorship meaning in this context, also means that the owner is personally responsible for the business’s debts, assets and liabilities. Foreign individuals who plan to launch a business venture in Singapore can also register a sole proprietorship. However, they must appoint a local authorised representative and engage a filing agent, such as a corporate secretarial company, to submit the application through Bizfile.Key Features of a Sole Proprietorship
Aside from being the simplest business structure, ideal for small startups, what sets sole proprietorship apart from the other business structures? Here are some key features of a sole proprietorship:- It does not have a separate legal entity from its owner, meaning there is no distinction between the owner and proprietor.
- The owner has unlimited liability.
- As a sole proprietorship isn’t a separate legal entity, the owner cannot own property, which is considered the owner’s personal asset.
- The owner can adapt the business according to the market conditions.
Advantages Of Sole Proprietorship
The first step in starting a new business is choosing the business structure. Here are the advantages of sole proprietorship.- The business owner makes the overall decision in the business.
- The profits generated from the business belong to the owner.
- There will be fewer administrative duties and ongoing compliance requirements.
- The business owner is not required to submit an annual return filing, as the income will be taxed at the personal income tax rate.
- Likewise, all the profits earned will be taxed at the personal income tax rate instead of the corporate tax rate.
- The start-up cost for a sole proprietorship is minimal.
- The registration process for a sole proprietorship is fuss-free and easy.
- Under a sole proprietorship, the business owner can transfer their business ownership.
Disadvantages Of Sole Proprietorship
Although a sole proprietorship presents numerous advantages, it also has several disadvantages. Here are some disadvantages of sole proprietorships:- The owner is personally liable for the losses and debts incurred by the business, meaning the company can be sued in the owner’s name, and personal assets can be affected.
- The sole proprietorship registration in Singapore needs to be renewed annually.
- If the sole proprietorship registration is not renewed on time, the Accounting and Corporate Regulatory Authority (ACRA) can cancel the business.
- Since a sole proprietorship is tied directly to the business owner, it ends when the owner passes away, as it cannot transferred in part, resulting in a lack of continuity.
- A sole proprietorship is not eligible for tax exemption or corporate tax rebates, which only apply to other business entities.
How To Register A Sole Proprietorship
Curious about how to register a sole proprietorship?The sole proprietorship registration process is straightforward, as long as you have the relevant documentation. To start smoothly, it’s important to understand the steps involved in registering your business with the ACRA.
Choosing A Business Name
Before registering your business, choosing a business name is the first crucial step. Your business name defines your brand, shapes your business identity, and drives growth. In a competitive market, it’s what sets you apart. When selecting a name, it is crucial to keep these key naming guidelines in mind:- Avoid names that infringe on other trademarks or could be considered offensive.
- Ensure your business name is not identical to an existing company name.
- Steer clear of generic names, such as ‘international’ or ‘global’.
Appointing Of Managers
If you are a foreign individual looking to start a business in Singapore, you will need to appoint a manager who is a Singapore resident, a Permanent Resident, or a person holding an Employment Pass, EntrePass, or Dependants’ Pass.Providing a Registered Address
All businesses registered in Singapore are required to have a registered business address. The registered office address must be a physical address, not a P.O. Box. Similarly, a registered business address must be open to the public for at least three hours per day during normal business hours on weekdays.While some businesses can use a residential address, having a registered business address lends a more professional image to your business and establishes credibility with your customers. For foreign individuals looking to start a business in Singapore, you may engage a corporate service provider, such as Lanturn, to provide you with a local registered business address.
Opening a Corporate Bank Account
After successfully registering with ACRA, you will need to open a corporate bank account with an international or local bank in Singapore.Providing Identification Documents
If you are a Singapore resident, you must provide a valid ID while registering a sole proprietorship or employment pass if you are a foreign individual. Hence, registering a sole proprietorship in Singapore may seem overwhelming, but with the right knowledge and information, the process can be smooth and straightforward.Is A Sole Proprietorship Right For Your Business?
A sole proprietorship is an ideal launchpad for small businesses. With minimal regulatory obligations and less complicated paperwork, it’s a hassle-free way to kickstart your entrepreneurial journey. While a sole proprietorship offers simplicity and cost-effectiveness, it also possesses certain factors which you will need to evaluate. These factors include your business goals, risk tolerance, capital requirements and long-term vision. One of the main risks of a sole proprietorship is that you will have unlimited liability, which may cause unnecessary stress. After deducting from your business operating costs, your profits will be taxable based on your personal income tax rate instead of a corporate tax rate.To understand whether a sole proprietorship is right for your business, it’s essential that you review your options from financial to operational. You may also consult corporate service providers like Lanturn for valuable insights and solutions tailored to your unique business needs, ensuring your business structure aligns with your objectives.
