Singapore is one of the best places in the world to start a business. With its pro-business environment, low tax rates, and strong legal system, many entrepreneurs choose to set up their companies here.
However, when registering a business, many get confused between incorporating a company and simply registering a business firm. These two terms are often used interchangeably, but they have distinct differences that affect how a business operates its legal structure and its tax obligations.
Understanding these differences can make the process of setting up a business in Singapore much easier. This article will clarify the key differences so that you can choose the best option for your business needs.
What’s Company Incorporation?
Incorporating a company in Singapore means creating a separate legal entity that is distinct from its owner. This is the most common choice for entrepreneurs who want to start a Private Limited Company (Pte Ltd), which offers many advantages in terms of liability protection, tax benefits, and credibility. Below are some of the key features of Incorporation!
Separate Legal Identity
When you incorporate a company, it becomes a separate entity from its owners. This means the business can enter into contracts, own assets, and even sue or be sued in its name.
Limited Liability
As a shareholder in an incorporated company, your assets are protected. Your liability is limited to the amount you have invested in the company. This means that if the company incurs debts or losses, your savings or property are not at risk.
Perpetual Existence
An incorporated company continues to exist even if its shareholders or directors change. This will make it easier to transfer ownership or bring in investors.
Property Ownership
A company can buy and own assets such as property, vehicles, and equipment in its name. This is different from a sole proprietorship, where assets are registered under the owner’s name.
Profit is Subject to Corporate Tax
Incorporated companies in Singapore are subject to corporate tax, which is often lower than personal income tax rates. This will lead to significant tax savings.
What’s Registering a Company?
Registering a business, such as a sole proprietorship, does not create a separate legal entity. Instead, the business and the owner are considered the same legal entity. Below are some of the key features of registering a company.
No Separate Legal Identity
Unlike an incorporated company, a registered business is not a separate entity from its owner. The business owner is personally responsible for all business activities, contracts, and liabilities.
Unlimited Liability
In a sole proprietorship, the owner is personally liable for all business debts and losses. This means that if the business fails, the owner’s assets (such as savings, home, or car) could be used to pay off debts.
Higher Tax Rates
Since the business income is considered the owner’s income, it is taxed at personal income tax rates, which can be higher than corporate tax rates. This can lead to higher tax obligations, especially as the business grows.
Ownership of Assets
Unlike an incorporated company, a sole proprietorship cannot own property or real estate in its name. Thus, any assets acquired by the business are registered under the owner’s name.
What’s the Key Difference Between Incorporating a Company and Registering It In Singapore?
Now that we understand what incorporation and business registration mean, let’s explore the key differences between them!
Legal Structure and Liability
- An incorporated company is a separate legal entity, meaning the owners have limited liability.
- A registered business (sole proprietorship) has no separation from its owner, so the owner is personally liable for all debts and losses.
Compliance and Regulatory Requirements
- Incorporated companies must comply with stricter regulations, such as filing annual returns, appointing directors, and maintaining proper accounting records.
- Registered businesses have fewer compliance requirements but must still renew their registration and obtain necessary licenses.
Taxation Differences
- Companies pay corporate tax.
- Registered businesses are taxed at personal income tax rates, which can be higher depending on the owner’s earnings.
Credibility and Business Growth Potential
- Incorporated companies will appear more credible to investors, banks, and customers, making it easier to secure funding and expand.
- Registered businesses may find it harder to attract investors or obtain bank loans due to unlimited liability and lack of a separate legal identity.
Costs and Administrative Burdens
- Incorporation costs $315 for a private limited company, and it requires ongoing compliance.
- Registering a business is cheaper at $115 for a sole proprietorship.
Which Is the Better Choice?
Incorporation and business registration serve different purposes. If you seek long-term growth, incorporating a private limited company is the better option. However, if you want to start small with minimal administrative work and costs, registering a business might be suitable. Understanding the differences between incorporation and business registration can help you as an entrepreneur to make the best decision for your business.
If you’re looking to incorporate a company in Singapore with ease, WealthBridge can guide you through the entire process. Contact us today to get started!