The major reason why individuals choose to incorporate their business is to protect their personal assets, such as a home, car or family savings. In the event of a lawsuit or if your business should fail, your personal assets cannot be touched. This limited liability feature of corporations is not available in a sole proprietorship or partnership, where the individual or partners are personally liable for all business debts.
Reduces Personal Liability
Incorporating a private limited helps separate your personal assets from that of your business. Sole proprietors and partners are subject to unlimited personal liability for business debt or suits against their company. A Private Limited on the other hand is protected and only risks company assets and no more.
The main advantage to incorporation of ‘Private Limited” is to avoid being personally liable for debts and lawsuits.
Adds Credibility
A Private Limited structure gives a credibility and stature. Even if you are the only shareholder or the only employee, your Private Limited may be perceived as a much larger and more credible company. Seeing “Private Limited” at the end of your business name can send a powerful message to your bankers, customers, suppliers, and other business associates about your commitment to the ongoing success of your venture.
Tax Advantages
Private Limited attracts a lower tax bracket for the first $100,000 declared earned income. You can also bring forward all your losses to set off against future profits.
To encourage and reward entrepreneurs who start up new companies to pursue their business ideas, a full tax exemption scheme for new start up (incorporated in 2004). Qualifying new companies will now enjoy full tax exemption on the first $100,000 of their normal chargeable income. Similar to the current partial tax exemption scheme, the tax exemption will not apply to Singapore dividends received by the qualifying companies. This scheme will enable new companies to retain a larger portion of their earnings to be ploughed back into their businesses.
As this scheme is meant to help qualifying new companies, the full tax exemption will apply to any of the first three consecutive Years of Assessment (YA) falling within YA 2005 to YA 2009. The first YA of a qualifying company is the YA that relates to the basis period in which the company is incorporated.
Easier Access to Capital Funding
Private Limited can raise capital by issuing stock, bonds or other securities. Capital can be more easily raised with a Private Limited through the sale of shares. With sole proprietorships and partnerships, investors are much harder to attract because of the personal liability. Investors are more likely to purchase shares in a corporation where there usually is a separation between personal and business assets. Also, some banks prefer to lend money to corporations.
An Enduring Structure
A Private Limited is the most enduring legal business structure. Private Limited may continue on regardless of what happens to its individual directors, officers, managers or shareholders. If a sole proprietor or partner dies, the business may automatically end or it may become involved in various legal entanglements. Private Limited can have unlimited life, extending beyond the illness or death of the owners.
Easier Transfer of Ownership
Estate and family planning is simplified since shares of a Private Limited can be easily transferred or distributed to family members. Ownership of a Private Limited may be transferred, without substantially disrupting operations or the need for complex legal documentation, through the sale of its shares.