1) What Is A Sole Proprietorship?
A Sole Proprietorship is a business owned and run by one person. It is the simplest business structure to establish in Singapore, making it a common choice for single individuals embarking on low-risk ventures.
- It is not a separate legal entity. This means the business owner is personally responsible for all debts and liabilities of the business.
- The business name does not end with “Pte Ltd” — it typically uses just the chosen trade name. For example: “John Tan Photography” instead of “John Tan Photography Pte Ltd”.
| Feature | Details |
|---|---|
| Legal status | Not a separate legal entity |
| Ownership | Owned by one individual |
| Liability | Unlimited – the owner is personally responsible for all debts |
| Management | Fully controlled by the owner |
| Tax treatment | Profits are taxed as personal income |
| Compliance | Minimal — fewer reporting and filing requirements |
| Business name | Cannot use “Pte Ltd” or imply incorporation |
2) Who Is Sole Proprietorship Suitable For?
Sole Proprietorship or Sole Prop is often used by freelancers, consultants, or operators of small home-based businesses, such as an artisan selling handmade goods. It is suitable for individuals who want to start a business quickly and with minimal costs.
3) Advantages Of A Sole Proprietorship
The primary advantages of a Sole Proprietorship are its simplicity and the owner’s complete autonomy. The setup process is straightforward with minimal legal formalities, and the owner retains full control over all business decisions without needing consensus from partners or shareholders.
The profits generated by the business are not subject to a separate corporate tax. Instead, they are treated as the owner’s personal income and are taxed at Singapore’s progressive individual income tax rates.
All profits generated flow directly to the owner, and the compliance burden is minimal, typically only requiring an annual renewal of the business registration.
| Advantages | Details |
|---|---|
| Easy & Fast Setup | Registration with ACRA is simple. Can usually be set up within 1 day. |
| Low Start-up & Maintenance Costs | Minimal compliance requirements.No need to file financial statements or hold AGMs. |
| Full Control | The owner has complete authority over decision-making. No need to consult shareholders or directors. |
| Easy to Close | Terminating a sole proprietorship is straightforward and inexpensive. |
4) Disadvantages Of A Sole Proprietorship
The simplicity of a Sole Proprietorship comes at a significant cost:
Unlimited Personal Liability
From a legal standpoint, the owner and the business are considered a single entity. This means there is no legal separation protecting the owner’s personal assets. If the business incurs debts it cannot pay or faces legal action, creditors can pursue the owner’s personal property, including their home, car, and savings to settle the liabilities.
Limited Growth Potential
This creates a ceiling on the business’s potential from its very inception. The unlimited liability makes the structure inherently un-investable for serious equity investors like venture capitalists or angel investors, who require a clear separation of personal and business assets to protect their capital.
Consequently, Sole Proprietorships face severe capital constraints, poor perception among banks and suppliers, and a lack of perpetual succession as the business legally ceases to exist upon the death of the owner.
The choice of a Sole Proprietorship is therefore not just a decision for simplicity, but a strategic decision against a future that involves external equity funding and large-scale growth.
| Disadvantages | Details |
|---|---|
| Unlimited liability | The owner is personally liable for all debts, losses, and lawsuits. |
| Lower credibility | Seen as less stable by banks, investors, and clients compared to a Pte Ltd. |
| Higher personal taxes | Profits are taxed under personal income tax rates (up to 24%), higher than Singapore’s corporate tax rates (max 17%). |
| Harder to raise funds | Cannot issue shares, making it difficult to attract investors. |
| No perpetual succession | The business ceases if the owner dies or deregisters. |
| Poor access to government schemes | A Sole Prop is unable to access government grants and schemes, such as the Productivity Solutions Grant (PSG) and the Enterprise Development Grant (EDG). |
5) When to Choose a Sole Proprietorship
A sole proprietorship makes sense if:
- You’re a freelancer or self-employed individual.
- You’re starting a small side business.
- You want to test the market before committing to a full-fledged company.
- You prefer low setup and maintenance costs.
6) Sole Proprietorship & Other Company Structures
If you prefer the simple business structure of a Sole Proprietorship but have more than one person owning the business, you can consider setting up a Partnership or Limited Liability Partnership (LLP).
However, if you plan to scale, seek investors, or want liability protection, a Private Limited (Pte Ltd) company is usually the better choice.
A private limited company is the most popular company structure in Singapore. It is a separate legal entity from its owners (who are known as shareholders). The liabilities of a private limited are distinct and separate from the shareholders’ personal liabilities, which means your personal assets are protected.
