Compare the two structures on the points that matter to a one-person business.
Get a blank sheet and split it into two columns, one labelled sole proprietorship and the other private limited company. Then mark four rows across both: liability, tax, CPF and admin. As you read through the differences below, you'll fill in those boxes for your own business.
The grid helps you test advice you'll often hear at networking events: "just incorporate". Whoever says it tends to list the upsides, like having a company name, sending a smarter invoice and possibly paying a lower tax rate. The downsides get less airtime: filings every year, a company secretary, and the question of how money leaves the company and reaches you.
A one-person business in Singapore usually picks between two structures. With a sole proprietorship, you trade under your own name or under a registered business name. The other option is a private limited company, usually shortened to Pte Ltd. Partnerships and limited liability partnerships exist too, though they are designed for businesses with more than one owner.
In law, a sole proprietor and their business are the same person. When the business enters a contract, you are the one bound by it, and any debt it runs up is your debt. A client who sues the business is suing you, and your personal savings, investments and other assets can be used to pay a judgment against it.
A Pte Ltd is a separate legal person. Contracts are made in the company's name, assets belong to the company and debts are owed by the company. If it can't pay, a shareholder generally loses no more than what they have put into it.
Two exceptions apply. A personal guarantee is a promise that leaves you personally liable for a particular debt even though a company owes it, and banks and landlords often want one from owners of small companies. Directors can also be held personally liable for certain wrongdoing, such as continuing to trade while knowing the company cannot pay its debts. So incorporating limits your liability but does not remove it. Lesson 6.3 explains the contract terms and insurance that deal with liability whichever structure you choose.
As a sole proprietor, you pay personal income tax on the business profit. Only one taxpayer is involved, and only personal rates apply. Module 4 explains how you pay it.
A company is taxed on its own. It files its own tax return and pays corporate tax on its profits at corporate rates. You then have to move money from the company to yourself. There are three main ways to do this, and each is treated differently:
Salary: you become an employee of your own company, and the pay is taxed as employment income. CPF contributions are due from both the company and you, as they would be for any employee who is a Singapore citizen or permanent resident. Director's fees: paid for your role as a director and taxed as personal income. How CPF treats them depends on the circumstances, so ask the CPF Board or your accountant. Dividends: paid out of the company's profits after corporate tax. Under Singapore's one-tier system, dividends from a Singapore resident company are generally not taxed again when shareholders receive them.
The right mix of the three depends on your profits, any other income you have, your CPF goals and the rates in force at the time. People who say "incorporate to save tax" tend to leave out this calculation, and it is the part you need an accountant for. IRAS publishes current corporate tax rates on its website, along with any exemptions for new or small companies.
A sole proprietor counts as self-employed. MediSave contributions are compulsory above the threshold, and the rest of CPF is voluntary. Modules 2 and 3 cover CPF for the self-employed.
A director who pays themselves a salary from their company counts as its employee for CPF. The company contributes, you contribute, and your Ordinary and Special Accounts grow the same way they would in a job. If the company pays you only dividends, that income adds nothing to your CPF.
A sole proprietorship has light admin. You register through BizFile+, renew on time, keep your records and file your personal tax return.
A Pte Ltd has much more. It registers with ACRA through BizFile+ and files an annual return with ACRA. It keeps proper accounts, prepares financial statements and files its own corporate tax return with IRAS. It needs a company secretary, and at least one of its directors must be locally resident. Many one-person companies pay a corporate service provider to handle part of this work, which is a yearly cost the business has to cover. The ACRA and IRAS websites list current requirements and deadlines.
Go back to your sheet and, in each box, write what applies to your own business rather than to businesses in general. Mei, a designer who runs her own design business, gives an example. In her liability row she wrote that her design work rarely carries large risks and that her contracts cap what she owes. In her CPF row she wrote that a salary from a company would build her Ordinary Account, which she cares about.
If you can't fill a box, write a question for your accountant in it instead. Go through all eight boxes before you decide which structure suits your business.
Fill in the two-column comparison sheet for your own business, with liability, tax, CPF and admin for each structure.
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