What is a Sole Proprietor.
A sole proprietorship is a type of business entity that is owned and run by one person. It is the simplest and most common form of business in Singapore. According to the Accounting and Corporate Regulatory Authority (ACRA), which maintains the register of business entities in Singapore, there were 146,925 sole proprietorships and partnerships as of December 2021. This number represents about 26.5% of the total live count of 555,272 business entities in Singapore.
The sector distribution of sole proprietorships and partnerships in Singapore reflects the diversity and dynamism of the economy. According to the Singapore Department of Statistics (DOS), which adopts the Singapore Standard Industrial Classification (SSIC) 2020 to classify economic activities, there are 18 major sectors in Singapore. The most popular sector for sole proprietorships and partnerships was wholesale trade, which accounted for 16.4% of the total formations and 15.8% of the total cessations.
Key Characteristics of a Sole Proprietorship
Some key characteristics include of a Sole Proprietorship include :
- The sole proprietorship must have a unique and meaningful name that does not infringe on any trademarks or existing businesses. The name must also comply with certain guidelines and restrictions set by ACRA
- The sole proprietorship must have at least one owner who is at least 18 years old. The owner can be a Singapore citizen, permanent resident, or holder of an EntrePass. An EntrePass is a type of work pass that allows foreign entrepreneurs to start and operate a business in Singapore.
- The sole proprietorship must have at least one manager who is ordinarily resident in Singapore. A manager is someone who has the authority to manage the affairs of the business. The manager can be the owner or another person who is at least 21 years old. The manager must be a Singapore citizen, permanent resident, or holder of an employment pass, dependent pass, or long-term visit pass
- The sole proprietorship has to keep proper records and accounts of its business transactions for at least five years. The records and accounts should include invoices, receipts, bank statements, contracts, and other documents that support the income and expenses of the business.
- The sole proprietorship must have a local registered address in Singapore where it can receive official correspondence. The address can be a residential or commercial address, but it cannot be a post office box.
- The income of the sole proprietorship is taxed at the progressive personal income tax rates in Singapore, which range from 0% to 22%.
- The sole proprietorship has to register for Goods and Services Tax (GST) if its annual turnover exceeds or is expected to exceed S$1 million. GST is a consumption tax that is levied on the supply of goods and services in Singapore. The current GST rate is 7%.
- The sole proprietorship has to contribute to the Central Provident Fund (CPF) for any employees that it hires. CPF is a mandatory social security savings scheme that covers retirement, healthcare, housing, and education needs. The CPF contribution rates vary depending on the age and citizenship of the employees.
Benefits and Drawbacks of a Sole Proprietorship.
Some of the benefits of a sole proprietorship are:
- It gives the owner full control and flexibility over the business operations and management
- It allows the owner to keep all the profits and losses of the business.
- It does not have to pay any corporate income tax, as the income of the business is taxed as the personal income of the owner.
- It does not have to file any financial statements or annual returns with ACRA, as it is not a separate legal entity.
Some of the disadvantages of a sole proprietorship are:
- It exposes the owner to unlimited liability, as the owner is personally responsible for all the debts and obligations of the business.
- It does not have any legal identity or continuity, as the business ceases to exist when the owner dies or retires.
- It has limited access to funding and support, as it cannot raise capital from investors or lenders, or qualify for most government grants or incentives.
- It has limited growth potential and scalability, as it depends on the skills, resources, and capacity of the owner.
Have a question? Fill out the form below and we will assist.
+65 8121 2113
Address: 133 New Bridge Road, #08-01 Chinatown Point Singapore 059413
Email: [email protected]
