Setting up a Sole Proprietorship in Singapore

What is a Sole Proprietorship?

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If you’re an entrepreneur looking to set-up shop in Singapore, there are many different types of businesses that you can register as. Among these, one of the most popular is the Sole Proprietorship. 

A “sole prop” is the simplest form of business ownership,  where an individual is the only owner and operator of the company. There are no other partners or shareholders. This means that the owner has complete control and responsibility for all aspects of the business. 

In Singapore, a sole proprietorship is a business owned by one individual person, or, one Singapore-registered company. 

Unlike other business structures, such as partnerships or corporations, a sole proprietorship does not have a separate legal entity from its owner; this means, the owner is the legal entity of the business per se.

This type of business structure is fairly popular in the business world due to its many benefits, from ease of formation, to complete control and flexibility of decision making, among others.

Characteristics of Sole Proprietorship

What distinguishes a sole proprietorship from other types of business structures?

Exclusive ownership and control

One person has complete authority and decision-making power over this type of company. Therefore, the owner is responsible for all operations and decision-making, and of course, liabilities. They bear all the risks and responsibilities associated with the business (more on this below).

Unlimited liability

Unlimited liability refers to the legal responsibility of the proprietor or owner for all debts and obligations incurred by the company. In the event of financial difficulties for example, or legal claims against the company, the owner's personal assets can be used to cover the costs (more details on this are available below). Unlike limited liability, where the owner's personal assets are protected, unlimited liability poses a higher risk for business owners. 

Simplicity in operations

Because all key decisions are handled by a single individual, there is significant ease and streamlining in how the business is run. There is no need to take votes. Companies can save time, money, and resources, while optimizing efficiency and productivity. In a constantly evolving business landscape, the ability to be flexible in decision-making is crucial for staying ahead of the curve and achieving desired outcomes.  

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Advantages of a Sole Proprietorship

Complete control over operations and change management

Sole prop owners make important decisions and implement strategies that align with their personal goals and values without having to compete with the values of stakeholders. This contributes to the ease of decision making and implementation of new ways of working that will benefit the company. With such a high degree of flexibility and adaptability in the business, change and progress can happen much quicker compared to large, complex organisations, where there is a necessity to argue sides and secure opinions from many stakeholders.

Relatively easy and inexpensive to set up

In Singapore, registering a sole proprietorship is relatively quick and easy (see section below for details). 

It will cost you about SGD 130.00 to start - SGD 15.00 to register your business name, and SGD 115.00 to register the business itself through the Accounting Corporate Regulatory Authority (ACRA). (These figures may change, make sure to review the ACRA website for up-to-date information.)

Direct access to profits

When you are working for someone else or with a large group of people,  you may be limited to a set salary, or have to create financial structures to ensure equitable pay for everyone involved. As a singular business owner, you have the potential to earn as much as you want (within the confines of legality and fairness, of course). As a sole proprietor, you have direct access to your business’ profits. 

Tax benefits

Sole proprietorship businesses are not considered separate legal entities from their owners. This means that business income is taxed at the personal income tax rate applicable to the proprietor. Singapore's personal income tax rates are progressive, with rates ranging from 0% to 22% for residents, and a flat rate of 15% for non-residents. 

Additionally, sole proprietors benefit from a simpler tax filing process, since they report their business income and expenses on their personal income tax returns. Unlike other business types, they are exempted from annual audits, and are not required to file annual financial statements with ACRA.

Disadvantages of a Sole Proprietorship

Unlimited personal liability

As mentioned briefly above, the biggest watch-out when it comes to setting up a sole proprietorship in Singapore or elsewhere is unlimited personal liability. This is when an individual is held responsible for all debts and obligations incurred by a business. This means that the individual's personal assets, such as their home, car, savings, and investments, can be used to satisfy debts or legal claims against the business. 

This can be a major risk for small business owners, as it puts their personal financial stability at stake. It is therefore crucial for individuals to consider the potential consequences of unlimited personal liability before starting a sole proprietorship. 

Sole responsibility for business decisions

With sole responsibility comes great power, but great power requires great accountability. Owners, though they wield this power, cannot simply make rash, uninformed businesses decisions that might endanger their organisation. It is up to them to create their own process, through data gathering, mentorship seeking, quality checking, or other means, to ensure that their business decisions are sound and the company remains secure.

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Registering your Sole Proprietorship in Singapore

Registering a sole proprietorship business in Singapore involves a few simple steps:

Step 1: Business Name Registration

• Choose a suitable name for your business. Ensure it complies with Singapore's naming guidelines, which include restrictions on offensive or identical names.
• Check the availability of your chosen business name through the BizFile+ portal provided by ACRA.
• Is available, reserve it online through the same portal. ACRA allows reservation of the name for up to 120 days.

Step 2: Register the Business with ACRA

• Prepare the necessary documents, including:

1. Completed application form for sole proprietorship registration (Form T)
2. Copy of your Singapore ID (for Singapore residents) or passport (for non-residents)
3. Proposed business name
4. Brief description of your business activities

• Submit the completed application form and required documents to ACRA either online through BizFile+ or by visiting their office in person.
• Pay the registration fee, which is typically SGD 115, using the available payment methods.
• Once ACRA approves your application, you'll receive a notification confirming the registration of your sole proprietorship. This typically takes a few hours to a few days, depending on the number of registrants being processed.

Step 3: Obtain Necessary Licenses and Permits

• Depending on the nature of your business activities, you may need to obtain specific licenses or permits to operate legally in Singapore such as: Food establishment licenses, liquor licenses, and professional licenses for certain professions. Identify and apply for the necessary licenses and permits through the respective government agencies. 

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Conclusion

Overall, setting up a sole proprietorship in Singapore offers both local and foreign entrepreneurs many advantages, from simplicity of set up to tax benefits. While there are possible drawbacks to this type of business structure, with the right planning, sole proprietorships have the potential for great success in the lion city.

By considering the reminders and steps above, you can successfully register your sole proprietorship in Singapore and start operating legally. Remember to keep updated on regulatory changes and fulfill your tax and other legal obligations to ensure the smooth running of your business for years to come.

As you are planning your sole prop registration, also keep in mind the next steps involved in running your business, including hiring your staff, and background checking your potential hires. 

Get in touch with Veremark for all your pre-employment background screening needs. As an expert in Singapore hiring regulations and Ministry of Manpower-accredited partner for Education Verification checks, we want to help your business thrive in Singapore.