Are you planning to embark on an entrepreneurial journey in Singapore? Then, you must know that choosing the right business structure should be your very first step. Whether you are going to be a constructor, a proprietor of a small retail outlet, or any other service provider, this understanding will illuminate the potential benefits of selecting the right business structure for you.
As this article explores sole proprietorship, which is a popular option for aspiring business owners in Lion City, we will give you a brief idea of its top advantages.
We will know
What is Sole Proprietorship?
- You know that there are many business models you can opt for. This particular one is a type of business owned by one person, called the sole proprietor.
- It is a great way to start a business in Singapore with minimal risk and cost. This business model is unique because it does not legally separate the business from the owner, giving the owner full control over all business aspects.
- The registration process for this one is also not as complicated as the rest. If you need to register a sole proprietorship in Singapore, you need to choose a name, pay registration fees, and appoint an authorised representative if you are a foreign individual or company. This representative must be a Singapore citizen or permanent resident.
- However, you should keep in mind that the sole proprietor is responsible for all debts and liabilities, so getting professional advice and appropriate business insurance is quite important. Most small-scale enterprises or startups opt for this type in their initial phase.
- As the sole owner, documenting business decisions and drafting clear contracts with suppliers and customers is important for future planning, and everything is your responsibility. This business model is different from others because it offers simplicity and complete control yet also places full responsibility for debts and liabilities on the owner.
Advantages of Setting Up a Singapore Sole Proprietorship
Low Startup Costs
One of the top advantages of setting up a sole proprietorship in Singapore is the low startup cost.
Establishing a sole proprietorship involves minimal expenses compared to other business structures like companies or partnerships. When you start a sole proprietorship, you only need to pay for the business name registration and entity registration, which are relatively inexpensive.
This means that you do not need to pay hefty incorporation fees or ongoing compliance costs that come with forming a company. Unlike partnerships, you do not have to draft complex partnership agreements or pay legal fees for setting up the structure. Also, a sole proprietorship does not require you to maintain extensive financial records or undergo regular audits, saving you both time and money. These reduced administrative and regulatory costs make it easier for new entrepreneurs to enter the market and start their businesses quickly.
The simplicity of the registration process also means you can avoid the high professional fees often needed for navigating more complex business setups. This cost efficiency allows you to allocate more of your resources towards growing your business, such as marketing, product development, or expanding your customer base.
Setup is Easier and Simpler
The process is straightforward and can be completed quickly, usually within a day, if you carry all the required documents with you. This quick setup stands in stark contrast to the more complex and time-consuming procedures required for other business structures, like companies or partnerships.
You know that forming a company is not an easy task. It involves drafting a detailed memorandum of association, appointing directors, and complying with various statutory requirements. Partnerships, too, require extensive legal agreements and formalities on the other hand. However, if you compare sole proprietorships, this framework needs minimal paperwork. You only need to reserve a business name and register the entity with the Accounting and Corporate Regulatory Authority (ACRA).
This simplicity reduces the need for legal or professional assistance, which can save you significant costs and time.
As you can see, the straightforward nature of setting up a sole proprietorship helps you to focus on launching and growing your business rather than getting bogged down by administrative hurdles.
Taking Complete Control
As a sole proprietor, you have full control over all business decisions without needing to consult with partners or shareholders. This autonomy contrasts sharply with other business structures, like companies or partnerships, where decision-making often involves multiple stakeholders.
In a company, directors must gain approval from the board and sometimes even from shareholders for significant decisions. This is where partnerships require consensus among partners, which can lead to delays and conflicts.
However, as a sole proprietor, you can make swift decisions, indeed. This allows your business to be more agile and responsive to market changes. You can implement strategies, introduce new products, and make operational changes without waiting for approvals or dealing with disagreements.
This direct control enhances the efficiency of your business operations and can lead to faster growth and adaptation in a competitive environment. What is more, the sole proprietorship structure allows you to maintain a clear vision for your business, as you do not have to compromise with others’ ideas or interests.
Yes, in the purest sense of the word, you own singular authority!
Enjoying Tax Benefits
Another top advantage is enjoying tax benefits. What does that indicate?
Did you know that sole proprietors in Singapore are taxed at personal income tax rates? Yes, this can be lower than corporate tax rates, especially for small businesses. This taxation method contrasts with companies, which are subject to corporate tax rates that can be higher and more complex.
You know that the personal income tax rates in Singapore are progressive. This means they increase with higher income levels, yet for many small businesses, these rates remain relatively low compared to flat corporate tax rates. This tax structure aids sole proprietors retain more of their earnings, which they can reinvest in their business for growth or use for personal financial goals.
Going beyond that, sole proprietors can take advantage of various personal tax reliefs and deductions that are not available to corporations. These can include deductions for personal expenses, which can further reduce taxable income.
However, when it comes to corporations, they face stricter regulations on deductible expenses and often need to maintain more comprehensive financial records and reports, increasing administrative costs. The simpler tax filing process for sole proprietorships also reduces the need for extensive accounting services, saving both time and money.
Direct Receipt of Profits
What exactly are we discussing at this point?
This indicates that all profits generated by the business go directly to the owner, without the need to share with partners or shareholders. This direct profit reception is a major advantage compared to other business structures like partnerships or corporations.
It is quite obvious that when you are in a partnership, profits are distributed among all partners based on an agreed-upon ratio. No need to say that this can sometimes lead to disputes or dissatisfaction if contributions are perceived as unequal.
In a corporate environment, profits are distributed as dividends to shareholders. This usually occurs after being taxed at the corporate level. Shareholders might also face double taxation, where dividends are taxed again at the personal level.
However, as a sole proprietor, luckily, you bypass all these complications. You retain complete control over how the profits are used, whether reinvested into the business for growth, saved for future needs, or utilised for personal expenses. This direct access to profits can enhance your financial flexibility and provide immediate rewards for your hard work. Not to mention that, without the need to distribute profits, you can make quicker financial decisions, which can lead to faster business growth.
Simple Compliance Requirements
This is another massive benefit, beyond any doubt. Unlike corporations or partnerships, sole proprietorships have minimal regulatory and administrative burdens. The rest of the structures must adhere to stringent compliance requirements, including filing annual returns, holding annual general meetings, and maintaining detailed financial records that are subject to audits.
However, this is totally different in the sole proprietorship scenario. This type benefits from significantly reduced paperwork and regulatory obligations. The main requirement is to register the business with the ACRA, as we stated before, and to ensure that the registration is renewed annually.
Sole proprietors do not need to prepare and file detailed financial statements or undergo audits, which saves both time and money. This simplicity applies to tax filings as well.
Since this business framework has simple compliance requirements, it is much easier to streamline business operations, lower administrative costs, and allow owners to concentrate on growing their business. It makes this structure greatly appealing to small business owners and new entrepreneurs.
Optimising Company's Sole Proprietorship Structure with Robust Tools
If you have read the full article, you already know that setting up a Singapore sole proprietorship offers numerous advantages, from simplicity in setup to complete control over business operations. If you can integrate a robust Business Intelligence tool from a reputed provider, you, the sole proprietors, can gain valuable insights, optimise decision-making, and drive your businesses towards sustained growth and success in a competitive market without making any extra effort.
