Nature of sole proprietorships
Why a sole proprietorship may not be right for foreigners
1) Difficulties in obtaining work visas
To kick start your business as a foreigner in Singapore, you need to hold a proper working visa to legally work here and also relocate your family to Singapore. Having a sole Proprietorship as a business structure would give Ministry of Manpower an impression that the business is not going to expand and therefore will not hire many local staffs in future. As a result, when you, as a foreign entrepreneur, apply for an Employment pass or EntrePass pass, it is less likely to be approved.
Even if it is approved, the business will face difficulties in getting visa approval for their future foreign staffs. If the foreigner does not have an approved working visa, it will also mean that he will have difficulties in opening a personal bank account and obtain a lease as he does not have the visa to stay in Singapore after his travel or business visa expires.
2) Difficulties in expansion and financing
Sole Proprietorships have trouble in expansion and hiring staffs. It gives people an impression that it is small business and therefore banks and suppliers are less willing to extend credit. Furthermore, when it comes to hiring, sole proprietorship business cannot give stock option as a hiring or rewarding incentive. It is also difficult to raise capital from investors as sole Proprietorship only allows one owner and all control of the business lay in one person.
3) High level of risk and personal liability
In a sole proprietorship, the business and its owner are considered a single legal entity. Therefore, the business owner is personally liable for the debts of the business and any other legal action taken against it. You as a foreign entrepreneur can also be sued in a personal capacity and the worst of it all, it will deem you to have an unlimited liability. Therefore, if anything of such happens, it will put your personal assets at risk.
4) Higher tax rates
Taxation of a sole proprietorship business can also attract higher tax rate compares to a private limited company. The reason being that tax is calculated for sole proprietorship profit from $20,000 at 2% to a maximum of 22%. Whereas the maximum company tax rate is 17% and tax exemption for new start-up company is $75,001, it means that profit from $0 to $75,000 is NIL tax.