You will be able to compare the two structures on the points that matter to a one-person business.
Sooner or later, someone at a networking event tells you that you should "just incorporate". It sounds like advice for grown-up businesses: a company name, a smarter invoice, maybe a lower tax rate. What they rarely mention is the yearly filings, the company secretary, or how you get money out of the company once it is there. This lesson puts the two common structures for a one-person business side by side, so you can tell which points matter for you.
The two are a sole proprietorship, where you run the business in your own name or a registered business name, and a private limited company, often written Pte Ltd. Partnerships and limited liability partnerships exist too, but they are built for more than one owner.
A sole proprietor and the business are legally the same person. Every contract the business signs, you sign. Every debt the business owes, you owe. If a client sues the business, they are suing you, and your personal savings, investments and other assets can be used to pay a judgment.
A private limited company is a separate legal person. It signs contracts in its own name, owns its own assets and owes its own debts. If the company cannot pay, your loss as a shareholder is generally limited to what you put into the company.
That protection has exceptions. If you sign a personal guarantee, as banks and landlords often ask small company owners to do, you are personally on the hook for that debt. Directors can also be personally liable for some wrongdoing, such as trading while they know the company cannot pay its debts. So a company limits your liability; it does not remove it. Lesson 6.3 covers the contract terms and insurance that handle liability in either structure.
A sole proprietor pays personal income tax on the business profit, as covered in module 4. There is one taxpayer and one set of tax rates, the personal ones.
A company pays corporate tax on its own profits, at corporate rates, in its own tax filing. Then you have to get money from the company to yourself, and there are three main ways, each treated differently.
A salary makes you an employee of your own company. It is taxed as your employment income, and CPF contributions apply in the same way as for any other employee who is a Singapore citizen or permanent resident, from both the company and you.
Director's fees are paid for your role as a director. They are taxed as your personal income. How CPF treats them depends on the circumstances, so check with the CPF Board or your accountant.
Dividends are paid from the company's profits after corporate tax. Under Singapore's one-tier system, dividends from a Singapore resident company are generally not taxed again in the hands of shareholders.
The right mix depends on your profits, your other income, your CPF goals and current rates, which is why the people who say "incorporate to save tax" are often skipping the part that needs an accountant. Current corporate tax rates and any exemptions for new or small companies are on the IRAS website.
As a sole proprietor, you are a self-employed person. MediSave is compulsory above the threshold, and everything else in CPF is voluntary, as in modules 2 and 3.
As the director of your own company paying yourself a salary, you are an employee of the company for CPF. Both the company and you contribute, and your Ordinary and Special Accounts grow as they would in a job. Paid only in dividends, your CPF would not grow from that income at all.
A sole proprietorship has light admin: register through BizFile+, renew when due, keep records and file your personal tax return.
A private limited company brings much more. It is registered with ACRA through BizFile+ and must file an annual return with ACRA. It must keep proper accounts and prepare financial statements. It files its own corporate tax return with IRAS. It must appoint a company secretary, and it must have at least one director who is locally resident. Many one-person companies pay a corporate service provider for some of this, and that is a yearly cost the business must carry. ACRA and IRAS list the current requirements and deadlines on their websites.
Take a sheet and draw two columns, one for each structure, with four rows: liability, tax, CPF and admin. Fill each box for your own business, not for businesses in general. For Mei, the liability row says her design work rarely carries large risks, and her contracts cap what she owes. The CPF row says a salary from a company would build her Ordinary Account, which she cares about. Leave any box you cannot fill with a question for an accountant, and work through all eight in the activity.
Fill in the two-column comparison sheet for your own business with liability, tax, CPF and admin for each structure.
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