What is the Difference between Sole Proprietorship and Private Limited Company
A Private Limited Company allows a business to have better access to capital, has limited liability meaning that the debt of the company is capped at the value of shares. Additionally, Private Limited Companies attract investors and allow businesses to recruit well-trained employees, which ultimately benefits the functionality of the business.
On the other hand, a Sole Proprietorship has completely opposite characteristics and positions the burden on the owner itself.
Benefits and Risks of Converting Sole Proprietorship to Private Limited Company?
There are various factors and elements that must be considered by a business prior to the conversion from a Sole Proprietorship to a Private Limited Company.
Independent Legal Entity
With running a Sole Proprietorship, the business owners benefit from the idea of complete authority. However, as a Sole Proprietor, the business and the owner are not considered to be separate legal entities. You are answerable for any debts and lawsuits filed against the business.
Unlimited to Limited Liability
In correlation to your business being a separate legal entity, the type of liability changes as well. As a Private Limited Company registered in Singapore, the business owner and the company are independent identities, under the Singapore Companies Act (Cap 50). The business owner is not liable for the debts and lawsuits of the business. This is one of the main reasons that Sole Proprietors see as a pull factor into switching to a Private Limited Company.
Perks of Taxation
Apart from the business owner and company being independent entities, Private Limited Companies prosper from tax benefits. Tax is paid on their profits, however, shareholder’s dividends are not taxed. This means that the taxes are an outcome of one’s personal income tax.
Finite Capital
With Sole Proprietorship, the gateway to sourcing finance becomes narrow. Business owners might need to dwell into personal saving, or gaining loans from banks or external investors. On the other hand, with Private Limited Companies, the scope for sourcing finance widens, with the shareholders buying shares.
Endless Succession
Reeling back to the business owner and the company being separate entities, the succession of a sole proprietorship is completely dependent on the existence of the business owner itself. The unfortunate demise or retirement of the business owner will also mean the expiration of your company, legally. Although, as a Private Limited Company, this does not apply, because the business owner and the company are independent entities in the first place.
The Public Eye
Starting off your business as a Sole Proprietorship seems the way to go. Despite that, a Sole Proprietorship limits the scope of growth and the ability to hire employees with soaring competence. Additionally, large financial investors do not vision the higher growth and potential in a Sole Proprietorship compared to a larger, more established Private Limited Company.
Admin Hardship
Although a Private Limited Company brings numerous perks, there is some administrative stress. Under the Singapore Companies Act, a Private Limited Company is governed by those laws and regulations.
Read more on how you will be able to switching from Sole Proprietorship to Private Limited Company in Singapore at InCorp Global.
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InCorp Global Joined: January 15th, 2020 Articles Posted: 37
