The drawback to this is that you are also responsible for all of the debts, legal actions, and anything else related to the business. When you are a sole proprietor you and you alone are responsible and will lose personal property and assets if anything were to happen. If you are a partnership or other incorporated business you are then free from legal action on the personal level. No one can touch your personal assets or sue you on a personal level they will have to go after the assets of the company for damages and claims. When you are a partnership you will have to enter into a partnership agreement.
This agreement will protect you and your business. When entering into this agreement the partners liability is limited to the investment in the partnership. As a sole proprietor your business does not have any perpetuity. What this means is that once you retire or die your business dies. If you are a partnership your business will go on to have a continued existence. When you retire or die your business will move on to shareholders, board members and others who have been running the company on a day to day basis for years.
When you are a sole proprietor, you don’t have these people within the structure of the business. Well at least not on a standard basis. When you are a sole proprietor it is harder to expand and grow your business than if you were a partnership or other business entity. When you are a sole proprietor it is hard to raise money. People are not generally willing to give money to a specific individual through loans or investments. For this reason it is very hard for a sole proprietor to take off and be as successful as those running a partnership type structured business.
When you have formed a partnership it is easier to leverage your business to venture capitalists, investors, banks and others looking to invest money into a business. These people see a partnership has stronger stability in legal terms than a sole proprietor. The next big thing is taxation. In Singapore unlike other countries such as the United States businesses in Singapore are not taxed at the business level. They are taxed at the income level of the owners.
As a sole proprietor all monies earned by the company is considered personal income. When you are a partnership you are charged taxes on the corporate tax rate which averages between 9 and 17%. But just like in the United States those businesses in Singapore get to take advantage of great tax exemptions. And the last difference is the transfer of ownership. When you are a sole proprietor you don’t have anyone to hand the business over to.
You may have some kids or something along those lines but in general you don’t have a board of directors, council, board members or people who help make business decisions for you when you are a sole proprietor. It is different when you are a partnership. You have people in place to take care of these things and if you die or wish to sell off the company it is an easier process..