Overview of Sole Proprietorship
Singapore, as a commercial hub of Asia, has a very rich enterprise ecosystem. From very large multinational corporations to very small sole proprietorships all forms and sizes of business thrive in its pro-business environment. All profit making activities that are carried out on a continuous basis must be registered.
Accounting and Corporate Regulatory Authority (ACRA) is the registering and regulatory authority for Sole Proprietorship.
The registration of Sole Proprietorship comes under the purview of Business Names Registration Act (BNRA). The Act came into effect on 3 January 2016 and repealed the Business Registration Act. It requires individuals and corporations to register each business name under which they carried on business in Singapore.
It must be noted that individuals or firms that carry on business in their own name are exempted from registration. For instance if Mr. Kevin, an independent tutor, issues invoice to his students in his name, for his services then Mr. Kevin is exempted from registering his business with ACRA. However, if he issues invoice under a business name, say, ‘Excel Tuitions’, then he is required to register his business name with ACRA.
A sole proprietorship is a business owned by a single individual or another registered entity. It is the easiest form of business to set up. Most first time and small entrepreneurs chose this entity type, because of the simplicity of setting up and negligible compliance norms. The cost is also minimal.
Lacks Legal Identity: The registration does not render it a separate legal identity. It is deemed to be one and the same as the owner. Since it lacks legal identity, it cannot sue or be sued in its own name and also cannot own property.
Validity/ Renewal: Registration must be renewed. Renewal must be done before the registration expires and can renewed for a period of one year or for a period of three years.
Eligibility: Any natural person whose age is 18 years and above can register a Sole proprietorship. A Singapore registered company is also eligible to register a sole proprietorship.
Singapore citizens and Permanent Residents who are self employed, are required to register for CPF and top up their Medisave account in order to register or renew their business registration.
Officer: In the case of foreigners who are not residing in Singapore a manager must be appointed to ensure compliance with regulatory requirements and in order to accept notices served and respond to them. The manager must be at least 21 years of age and must be ordinarily resident in Singapore. Ordinarily resident means, a citizen or permanent resident of Singapore or foreigners on employment pass or dependent pass.
Registered Address: A local Singapore physical address must be registered. Resident individuals in Singapore can use their residential address as registered office address after getting approval from the relevant authority (HDB in the case of public flats and URA in the case of private residences).
Taxation: Chargeable profits are treated as personal incomes of the owner and are subjected to personal income tax rates in the case of individual owners and corporate tax rates in the case of companies.
Limitation: As it does not constitute a legal entity, a sole proprietorship cannot register another legal entity such as a partnership.
Continuity: A sole proprietorship will cease to exist with the death or disqualification of the owner.
Approved business name
- Description of principal activities
- Local business address for the proposed business (Where required, with approval from relevant authority)
- Copy of Singapore ID for the owner
- Local residential address of sole-proprietor
- Declaration of compliance and Statement of Non Disqualification
Typically the registration takes less than one day, but if the authority needs to forward the application to other government agencies for review, then it may take up to two months. But it is a rare occurrence.
Upon successful registration, the owner will be notified by mail and issued a registration number. Business profile containing all the important details of the business can be retrieved online from Bizfile.com.
If need be, you may open an account with any of the local or international banks in Singapore. We recommend opening a separate account in order to maintain clear records of revenue and all financial transactions. Using the personal account for business transactions would lead to errors in accounting.
Post Registration Compliance
All business communication materials such as letterheads and invoices must bear the registration number.
Any change in registered details must be promptly notified to ACRA.
It is an offence to carry on the business after the lapse of validity of registration or after the registrar has canceled the registration.
Sole Proprietorships are exempted from annual audit and are not required to file annual financial statements with ACRA.
The owner must file annual income return that includes the revenue and profits of the sole proprietorship with IRAS.
It is mandatory to keep records and accounts for a period of five year at least.
Unlimited Liability: The liabilities of the business extend to the owner. The liability of the owner remains unlimited and personal assets can be attached in the event of claims against the loss, liability or debt incurred by the business.
Raising Capital is Challenging: The sole proprietorship doesn’t reflect well on the growth plans of the business and generally it is difficult to attract investors or creditors. It is challenging to even get good quality workforce. Banks may require the collaterals in the form of personal assets of the owner for loan approvals. The owner has to single handedly meet all capital and resource requirements and its growth depends only on the strengths of the owner.
Tax: The sole proprietorships do not constitute a legal entity for tax purposes, hence not entitled for the competitive tax rates or the tax incentives available in Singapore. It must be noted that the owners are charged personal tax rate (0% to 22%) on the chargeable income of sole proprietorships while the effective tax rate for new startups and companies with chargeable incomes of S$100,000 or less is 8.5% only. The maximum corporate tax rate is 17%.
Lacks Perpetuity: The registration is not perpetual. It must be renewed annually and it ceases with the death or insolvency of the owner. In such events the licenses issued to the sole proprietor will also become invalid. The assets of the business cannot be transferred wholly.
Consideration for foreigners: If they choose to continue to reside outside Singapore they have to appoint a locally resident manager. Foreigners must seek the approval from MOM before registration. EntrePass are not available for sole proprietors and the likelihood of the obtaining an employment pass under a sole proprietorship is also very slim.
Merits: The key incentives for setting up a sole proprietorship are the simplicity and ease of establishing a sole proprietorship. The minimal post registration compliance requirement make is easy and cost-effective to manage for small business owners. The single owner can have absolute control and ultimate say in all business matters. No external parties can interfere in the business decisions with claims of control or voting authority. However it is ideally suitable for very small businesses with low risk profile.