Sole Proprietorship is the simplest business structure that can be formed easily with minimal cost and legal formalities. A single person operates this form of business and the owner is responsible for all the business obligations and losses. Owner has the entire hold on the business and can run it according to the desired plans without being answerable to anyone. Owner, being the sole decision maker, is responsible for every decision that may affect the business in both positive and negative manner. There is no boundary between personal assets and business liabilities. If owner fails to pay the business debts, the creditor may recover it by consuming the personal assets of the owner, hence leading to unlimited liability. Owner may face difficulties in raising the capital in such form of business. There is no difference between the owner and the business because Sole Proprietorship is not a separate legal entity. Therefore, the business gains are added together with the owner’s income from other sources and taxed at progressive individual income tax rates, with the current highest personal income tax rate at 22%.
Private Limited Company is another business structure that a single entrepreneur can also opt for. The form of business that can be established with minimum 1 shareholder. Unlike Sole Proprietorship, it follows the concept of limited liability that restricts the contribution of shareholders, in paying the business debts, to the investment of the shareholder. Contrary to the Sole Proprietorship, this form of business offers ease of raising capital by adding a new shareholder or issuing shares to the existing shareholders that allows the inflow of capital for business expansion. Corporate tax is levied at a fixed rate (currently, 17%) on the profits earned, resulting in reduced personal income tax rates. Dividends distributed, to the shareholders, from the profits (net of taxes) are not taxable in their individual income tax returns. Certain government incentives or claims, available for Private Limited Company, are not applicable in Sole Proprietorship. Private Limited Company has statutory responsibilities, including but not limited to maintain registers of company officers, conduct annual meetings with minutes and financial statements prepared for submission to statutory bodies. Unlike Sole Proprietorship, there is no single authority to make final decisions for the business. Every shareholder has the right to vote in the decision making during the general meetings.
Might Glory Corporate Solutions is one of the leading Corporate Service Provider companies in Singapore. We specialise in company incorporation, corporate secretarial, nominee directorship, accounting and bookkeeping, corporate and individual tax services, financial reporting, and administrative support services. Contact us today for any clarification between Sole Proprietroship and Private Limited Company matters or any related to your business needs.