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Advantages and Disadvantages of a Sole Proprietorship

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Let’s face it. When it comes to incorporating a new business, limited liability companies and partnership entities are often associated with multiple collaborators. People tend to leave these categories for entrepreneurs who work in groups, while solo investors are typically encouraged to go for sole proprietorships. 

Now, on the face of it, that sounds just right. But, when you dive deeper, it turns out that the more you learn about these corporate structures, the more things prove not to be what they might seem at first. 

Take the sole proprietorship structure, for instance. Many praise it for its simplicity and convenience. But, while such advantages of a sole proprietorship understandably make it attractive to solo entrepreneurs or sole proprietors, it also comes with its fair share of disadvantages. And to help you make an informed decision, here’s everything you need to know about sole proprietorships. 

What Is A Sole Proprietorship?

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As its name suggests, a sole proprietorship is a business that you venture into alone, without any partners or shareholders. That means that as an individual proprietor or the business owner, the entire business is registered in your name, and you retain all the control privileges. Therefore, in other words, you can think of it as a corporate entity that revolves around a single administrator. 

That said, it’s worth noting that this business structure is not a company per se. Rather, the registrar of companies considers it a business that you’re personally liable for. 

So, whichever way you look at it, this business structure cannot exist and run independently. It’ll always be treated as an extension of yourself. That makes you personally responsible for all its liabilities and debts. 

On a brighter note, though, at least you can neutralize that with the accompanying advantages of sole proprietorship. 

What Are The Advantages Of Sole Proprietorship?

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  • Total Control: A sole proprietorship places you right at the top of the business, with absolute administrative authority. You get express rights to govern all the activities, make management decisions, as well as control the future of the business. 
  • Full Share of The Profits: Since you’ll be the only shareholder in your business, all the revenue that you happen to generate goes back to you. You won’t be required to share the spoils with other parties. 
  • No Corporate Compliance: Considering sole proprietorships are registered as general businesses, you won’t be subjected to the standard corporate compliance processes. So, you can forget about submitting your financial reports or holding Annual General Meetings (AGMs). 
  • No Corporate Tax: Another good thing that comes with not being registered as a company is corporate tax avoidance. You won’t be required to declare your corporate income or pay the resultant corporate taxes. Instead, the tax agency will calculate your business spoils as part of your personal income. 
  • Few Business Registration Requirements: It doesn’t take much to register a sole proprietorship. You just need to fill the application forms, provide your personal details, and pay an application fee. Certainly not as cumbersome as company incorporation procedures, which are normally accompanied by technical documents like the Memorandum and Articles of Association. 
  • Low Administrative Costs: Thanks to the few registration requirements and the extremely lenient compliance framework, managing a sole proprietorship is comparatively easy and cheap. You don’t need to hire a company secretary or a financial auditor to help you with compliance filings. Even legal services are considerably cheap because sole proprietorships follow basic rules. 

What Are The Disadvantages Of Sole Proprietorship?

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  • Unlimited Liability: Liability protection is not one of the advantages of this business structure. In contrast to what we’ve seen with LLCs, sole proprietorships are registered as personally-dependent business entities with unlimited liabilities. That means that you’re personally responsible for all the expenses and debts incurred by the business. Consequently, even your personal assets can be legally seized by creditors to recover their finances. 
  • Business Credit Challenges: With a sole proprietorship, you’re bound to have a hard time convincing banks to open a corporate bank account. Hence, you’ll be forced to operate directly from your personal accounts, which makes it difficult to build stable business credit. And without a line of credit, you’ll have challenges securing business financing. 
  • No Business Continuity: Since the business itself is attached to you, its survival is entirely dependent on your decisions. If you choose to move on from it, you can’t simply pass it down or sell it to other parties. The best you can do in such a case is to sell just the physical business assets, instead of the company itself. 

Setting Up a Sole Proprietorship in Singapore

After reviewing the advantages as well as the disadvantages of sole proprietorship, would you say that you’re still convinced to register one?

If yes, contact us here today at WealthBridge so we can help you set it up in the global business capital of Singapore. You can also read our comprehensive guide on how to set up a sole proprietorship here.

However, if you’re less inclined to join the band of sole proprietors, our corporate experts will still help you find and incorporate an ideal alternative. 

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