Establishing A Small Business in Singapore
If you are considering starting a small business on your own in Singapore,
you may consider setting up a sole proprietorship or to form a partnership
to run the business. You may also set up a Singapore company to run the business.
What is a sole proprietorship?
As the name suggests, a sole proprietorship is where you
run your business on your own. This means you have complete control of the
business and you are answerable to no one. On the other hand, you are also solely
responsible for any liabilities that arise from running the business.
What are the advantages of having a sole proprietorship?
The advantages of a sole proprietorship are as follows
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You are your own boss. |
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You take all the profits of the business. |
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You make all the decisions. |
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Easy and low set up and maintenance costs. You do not need lawyers or accountants to assist you. |
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Few legal requirements each year to maintain a sole proprietorship. |
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Easy to convert to other types of business entities eg. a partnership or a company. |
What are the disadvantages of having a sole proprietorship?
The disadvantages of a sole proprietorship are as follows:
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Your sole proprietorship has no legal capacity to enter into contractual transactions. The law does not recognise the sole proprietorship as a legal entity. You must enter into contractual transactions in your personal name, making you vulnerable to commercial risks. |
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You alone are liable for all the business losses. This may mean that if you are unable to settle the business debts, your creditors may take legal action to make you a bankrupt in order to recover their money. You may lose your assets including your home (except when it is a HDB flat). |
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You may run out of capital to fund your business. You will only be able to borrow money in your personal capacity. |
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You may lack the maturity and experience to run a business. |
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Your sole proprietorship ceases to exist when you die. To continue the business, your next of kin must register with the Registrar of Companies and Businesses by filling in the requisite forms. |
Should I become a sole proprietor?
Keep in mind the following when you decide whether you should operate your business as a sole proprietorship:
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Do you want to be boss?
If you wish to be the only one in charge, making all the decisions for your business, then you should set up your business as a sole proprietorship.
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Do you want to make decisions for the business?
As a sole proprietor you will be the sole decision maker.
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Do you want to be liable for the risks?
If you do not mind the risk of being personally liable for the debts of the company, you should set up a sole proprietorship as you alone bear the burden.
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How much do you want to pay to maintain your business?
The cost in setting up a sole proprietorship is minimal. There is no need to hire an auditor to submit your accounts yearly.
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How much do you want to pay for Income Tax?
The income you receive in your sole proprietorship is taxed as your personal income. The rate of personal income tax for the assessment Year 2000 is lower than the rate of company income tax.
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Do you want your business to grow?
As a sole proprietorship, your business will not have the opportunity to grow and expand. This is because you are the only financial resource and skill or expertise available to run the business.
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What is a partnership?
A partnership is where you
and other people come together to run a business. You and the other people are
all partners in the business. The partners make the decisions for the business
and share the liabilities of the business. The partners share the profits in equal
proportion unless agreed differently.
What are some of the advantages of forming a partnership?
The advantages of forming a partnership are as follows:
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You will have more financial resources available. You will have more capital to fund your business. You and your partners will have a higher borrowing capacity. |
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You share equally the liabilities and debts of the business. |
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You will have greater selection of talents and expertise in running the business. |
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Easy to set up with low set up and yearly maintenance costs. You do not need lawyers or accountants to assist you. |
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Few legal requirements each year to maintain a partnership. |
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Easy to convert to other types of business entities eg. a sole proprietorship or a company. |
What are the disadvantages of forming a partnership?
The disadvantages of forming a partnership for your business are as follows:
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You have to share the profits of the business with your partners. |
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If one of your partners commits an offence while operating the business, you and the other partners will also be liable for that offence. |
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Your partnership has no legal capacity to enter into contractual transactions. The law does not recognise a partnership as a legal entity. You and your partners, must enter into contractual transactions for the business in your personal names, making you and your partners vulnerable to commercial risks. |
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You are not the sole decision maker. You and your partners have an equal say in the running of the business. Often partners may disagree on the business plan and this may be an opportunity cost for your business. What this means is that while you and your partners are arguing over a decision, the opportunity to proceed with a plan or acquire something is lost. |
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Your partnership will cease to exist when you or any of your partners pass away. To continue the business, the surviving partners must register with the Registrar of Companies and Businesses by filling in the requisite forms. |
Should I set up a partnership?
Keep in mind the following when you decide whether you should operate your business as a partnership:
Do you want to be boss?
If you prefer to share the duties of running a business with someone else, you may consider setting up a partnership or a company. This will mean having to trust your partners to be honest when running the business.
Do you want to make decisions for the business?
If you use a partnership or a company to run your business, you may not be the sole decision maker. In a partnership, all the partners have equal say in running the business and most business decisions will be made by taking a majority vote.
Do you want to be liable for the risks?
In a partnership, you share the risks of the business with your partners. However, while you may be sharing the risk with your partners, if your other partners are unable to discharge their share of the debts, the burden may then fall on you.
How much do you want to pay to maintain your business?
The cost of setting up a partnership is minimal. There is no need to hire an auditor to submit your accounts yearly.
How much do you want to pay for Income Tax?
The income you receive from the partnership business is taxed as your personal income. The rate of personal income tax for the assessment Year 2000 is lower than the rate of company income tax.
Do you want your business to grow?
As a partnership or a company, your business will have the opportunity to grow and expand. This is because with other partners or with a company, you will have more financial resources and skill or expertise available to run the business.
