If you're an aspiring entrepreneur aiming to establish a business in Singapore, you have various options for business structures to choose from. Sole proprietorships are among the most popular types of business models in Singapore, especially now that entrepreneurship is becoming an even more interesting venture for most people.
This article will explore the concept of a sole proprietorship and will walk you through the process of setting up a sole proprietorship in Singapore. You'll find tips, requirements, and all the important insights that can make the process of setting up your sole proprietorship as easy as a breeze!
What is a Sole Proprietorship?
A sole proprietorship is a type of business that facilitates solo ventures. It is owned by one person or a Singapore-registered company. That means the owner single-handedly manages all the business operations, makes all the business decisions, and runs the company by themselves as the head of the organization. The sole proprietor may employ several workers in the company, but they must be the sole business owner.
Quite a sharp contrast compared to private limited companies and limited liability partnerships, which legally require more than one stakeholder. In sole proprietorship introducing other parties is only possible after you’ve restructured everything and transformed the business into a legal partnership, or limited liability company. That, in short, means you can forget about bringing in investors in the near future. You won’t be able to grow your capital by selling a stake in the business.
Unlike partnerships or corporations, a sole proprietorship also lacks a distinct legal identity apart from its owner. Thus, making the owner the sole legal entity of the business. Despite this, sole proprietorships remain widely favored in business due to their numerous advantages, including simplicity of establishment, full control over operations, and flexibility in decision-making processes.
Responsibilities of the Sole Proprietorship
A sole proprietorship represents the most basic form of business ownership, with an individual serving as the sole owner and operator of the company. There are no additional partners or shareholders involved. As a result, the owner maintains absolute control and accountability for every facet of the business's operations.
Although its operation is being conducted under a business name, the Accounting and Corporate Regulatory Authority (ACRA) won’t recognize the business as a separate legal entity from the owner, thus the owner will need to fulfill all the responsibilities of a sole proprietorship as follows:
- Every business liability will be translated into personal liability. Thus, you as the owner need to bear the responsibility related to accountability for all aspects of the business.
- It is not a separate legal entity from the business owner. Thus, it can sue or be sued in the owner’s name.
- Owners need to adhere to regulatory requirements set by the ACRA and other relevant authorities.
- Maintain accurate financial records, fulfill tax obligations, and conduct business activities ethically.
- Stay informed about legal development and seek professional guidance to navigate the legal landscape effectively.
Who is Eligible to Set Up a Sole Proprietorship in Singapore?
Singapore Citizens and Permanent Residents
Individuals who are Singapore Citizens, Singapore Permanent Residents, or holders of an eligible Foreign Identification Number (FIN) and are at least 18 years old.
Foreigners
While foreigners can register a sole proprietorship in Singapore, there are specific requirements to be aware of such as that we explained below.
- Foreigners Residing Abroad: Foreigners residing overseas who wish to register a sole proprietorship must appoint at least one locally resident authorized representative, such as Singapore citizens, Permanent Residents, or holders of EntrePass/ Employment Pass.
- Foreigners Residing in Singapore: Foreigners who reside in Singapore and want to manage the operations of a sole proprietorship or partnership in Singapore must obtain approval from the Ministry of Manpower after registering the business entity.
Setting up a sole proprietorship as a foreign individual can be difficult and confusing. Therefore, it might be best to consider incorporating a Singapore private limited company instead.
Why Register a Sole Proprietorship?
Autonomy and Control
In a sole proprietorship, the owner enjoys complete autonomy and control over business operations. They are the sole decision-makers, shareholders, and founders of the company, thus they will retain full control over every aspect of the business.
Profit Retention
Every profit generated by the sole proprietorship belongs to the owner. There are no shareholders to distribute profits to, allowing the owner to retain all earnings for personal use or reinvestment into the business.
Reduced Compliance Obligations
Setting up a sole proprietorship in Singapore eliminates many corporate compliance obligations. Requirements such as recording and submitting Annual General Meeting (AGM) minutes, maintaining a company constitution, or conducting account audit reports are not necessary, streamlining administrative processes for the owner.
Accessible for Beginners
For individuals starting a business in Singapore, a sole proprietorship offers a manageable and straightforward option. It provides an opportunity to enter the market with minimal regulatory burdens and overhead costs, allowing for easy scalability and potential growth over time.
Pros and Cons of a Sole Proprietorship
Pros
- The registration process is pleasantly simple, economical, and straightforward.
- IRAS doesn’t levy corporate income taxes. Instead, it allows you to file the business returns along with your personal income.
- You become the sole beneficiary of the business profits.
- Doesn’t come with numerous corporate compliance obligations.
- The company owner retains absolute control over the business.
- You can easily convert it into a partnership or limited liability company.
- You don’t need to audit the company’s accounts.
Cons
- It doesn’t protect you from the accompanying business liabilities.
- You cannot purchase properties using the company name.
- It misses out on the corporate tax perks in Singapore.
- You cannot possibly grow your business capital by trading a stake in the company.
- The business can potentially die with its original owner.
- It can overwhelm you with administrative tasks.
Documents Needed to Form a Sole Proprietorship
To register a sole proprietorship in Singapore, first, you’ll need to gather all the necessary documents and information for the business registration process. These include:
- Proposed business name
- A description of the main business activities
- The local address where the office will be registered
- Evidence of your local residential address
- Declaration of Compliance and Statement of Non-Disqualification
- Completed application form for sole proprietorship registration (Form T)
- Copy of your Singapore ID (for Singapore residents) or passport (for non-residents)
How to Register a Sole Proprietorship in Singapore
After gathering the necessary documents, the next thing to do is follow this step-by-step guide that we have curated below!
Step 1: Business Name Registration
Select an appropriate business name, which complies with Singapore's naming regulations. After choosing the name that you like, you can verify the availability of the chosen name via ACRA's BizFile+ portal. If available, reserve the name online through the same portal. The registration fee for your chosen name is S$15, and upon approval, it remains valid for 120 days. Ensure reapplication within this timeframe to retain your name, if not, you will risk having to restart the process, potentially allowing another entity to claim the name in the interim.
Step 2: Choose a Local Business Address
Providing a physical local address is crucial for Singapore sole proprietorship registration. If you plan to operate from home, you can utilize your home address as the principal business address. But do keep in mind that you need to obtain written consent from either the Urban Redevelopment Authority (URA) or the Housing & Development Board (HDB) to utilize your home for business purposes.
Step 3: Register the Business with ACRA
Submit the completed application form and documents that you've gathered to ACRA, either online via BizFile+ or in person at their office. You will need to pay the registration fee of S$115. Upon ACRA's approval, you'll receive notification of your sole proprietorship's registration, typically it can take within a few hours to days.
Step 4: Obtain Necessary Licenses and Permits
Last but not least, depending on your business activities, you might need to secure relevant licenses or permits mandated by Singaporean regulations after registering your sole proprietorship business. Thus, you need to identify and apply for the requisite licenses and permits through the respective government agencies to ensure legal compliance and operational legitimacy.
Taxation of a Sole Proprietorship in Singapore
Although classified as a tax resident, a sole proprietorship is not recognized as a distinct corporate entity for taxation purposes. Instead, the profits garnered are subject to taxation at the proprietor's income tax rates. Singapore's personal income tax rates for resident taxpayers follow a progressive scale, starting from 0% and escalating to a maximum of 22% for incomes exceeding SGD320,000. It is worth noting that Singapore imposes a maximum corporate tax rate of 17%. Furthermore, sole proprietorships are exempt from undergoing annual audits and are not mandated to submit annual financial statements to ACRA.
What is Next After Registering a Sole Proprietorship in Singapore
If the registration and approval process sails through without any delays or difficulties, then you deserve a hearty applause for successfully registering a sole proprietorship. But, don’t get lost in the moment. The registration process is only the first, and possibly the easiest step in the long journey of getting a business up and running in Singapore.
Once your application is approved, you'll be notified via email and provided with a registration number. Additionally, you'll receive a Unique Entity Number (UEN), which is crucial for interactions with government agencies. Ensure to safeguard these details, as they may be necessary for various operational tasks such as opening a business bank account, finalizing office leases, or establishing phone lines.
Aside from all of this, you still need to worry about annual renewals, the accompanying compliance obligations (such as tax filing), as well as essential business operations (like accounting and payroll management). And if you’re lucky enough to get a hang of all that, don’t expect things to get easier. The tasks will continue to pile up with time, as you get busier managing the business!
Now, that’s exactly where we come in.
WealthBridge is an accredited network of corporate experts specializing in not only Singapore company incorporation, but also compliance filing, accounting, payroll management, customer service, general administration, and bookkeeping. We also offer company secretarial services, personal assistants, digital media managers, and cold-call sales staff.
Feel free to get in touch if you need to take the edge off the cumbersome processes of setting up and running a sole proprietorship company in Singapore.