I had a few readers who were interested in driving for a private hire company, currently Uber or Grab that are more popular in Singapore. And they are asking me what is the difference between setting up a sole proprietor business and a private limited company. This post is for those who owns a car and thinking of setting up a company to drive for a private hire app company.
Table of Contents
Sole Proprietor VS Private Limited
These are two of the few types of companies that can be set up in Singapore. The details can be found at ACRA website. However, I will be summarising the difference so you will know the key similarities and differences that is required for you to decide on which model to use when setting up your own business.
|Sole Proprietorship||Private Limited|
|Owned by||One person||
One or more person
|Legal Status||Owner has unlimited liability
Can sue or be sued in individual’s own name
Owner personally liable for debts and losses of business
|A separate legal entity from its members and directors
Can sue or be sued in its own name
Members not personally liable for debts and losses of company
|Registration Requirements||Age 18 years or above
Singapore citizen/Singapore permanent resident/ EntrePass holder
|At least one shareholder
At least one director ordinarily resident in Singapore
|Formalities and Expenses||Quick and easy to set up
Easy to administer and manage
Registration cost is low
Less administrative duties
Must renew registration before the expiry date
|Higher cost to set up and maintain
More formalities and procedures to comply with
Must appoint a company secretary within 6 months of incorporation
Must appoint an auditor within 3 months after incorporation unless the company is exempt from audit requirements
Annual Returns must be filed
Statutory requirements for general meetings, duties of director/company secretary, share allotments, etc.
|Set Up Fee||$115 ($15 name application fee and $100 registration fee) for 1-year registration
$175 ($15 name application fee and $160 registration fee) for 3-year registration
|$315 ($15 name application fee and $300 incorporation fee)|
|Taxes||Profits taxed at owner’s personal income tax rates||Profits taxed at corporate tax rates|
|Continuity & Transferability||Exists as long as the owner is alive and desires to continue the business||Its corporate existence lasts as long as its shareholders decide it should. A company’s life is usually perpetual
Ownership of a company can be transferred and additional shareholders can be appointed
|Closing the Business||By owner or authorised representative by filing a Notice of Cessation of Business Registration
By Registrar – if the registration has expired and has not been renewed
|Winding Up – Voluntarily by members or creditors, Compulsorily by the High Court
The table shows the key points that you will need to know for setting up a private hire business. There are other points that may not be that relevant in this private hire context. Some of the key points to take note of is as follow:
For Sole Proprietor, the owner has full liability on all matters. So for example if you get into an accident and the insurance you purchase is not able to cover the full payment, you will be liable and has to fork out your own money or even go bankrupt just to pay off the remaining payment.
For Private Limited, the company will bear the full responsibility. Thus if the claim exceeds the insurance coverage, the owners personal assets wont be affected by the claim.
Ease of Setup
Starting a Sole Proprietorship business is much cheaper and does not include a lot of admin work. You just need to think of a company name, set up the business, convert your car to be under the company and you are good to go. More details please refer to my previous post for UberX and GrabCar.
Starting a Private Limited company is much more complex. There are lots of administrative things to settle, and it is more expensive. You have to appoint a company secretary, get auditor if you earning big money(but most likely not if is just driving for private hire), have company meetings etc. The hassle is a little too much if it is just for driving private hire. But if you have a fleet of cars and you wish to convert all of them to be able to drive for private hire, and rent out the cars to others to drive, then maybe you will want to consider the private limited type of operation setup.
Tax and CPF
Sole Proprietor tax is his personal tax. So whatever the company earns as profit would be taxable under personal tax rate. The sole proprietor also has to place in money to his own CPF Medisave account.
Private Limited Company will be taxed under the cooperate tax rate. However, newly set up company would have some tax exemption up to a certain amount for the first 3 years of startup. For more details please refer to IRAS website.
Closing the business
Not many people start a company thinking of closing it. However for driving for Private Hire, it may most likely be the case when you decided to stop driving or your car can no longer drive and you are not getting a new car.
For Sole Proprietor, you can end the company by writing in or not extending the business license.
For Private Limited, members got to agree to end the business and do it legally.
Conclusion and Recommendation
In conclusion, if the company is set up just for the purpose of driving for private hire, it may be more advisable to go with sole proprietorship. The reason is because it is much easier to set up, cheaper to set up and close down, which is important as driving for private hire does not earn you big bucks.
However, the only downside is mainly the unlimited liability. Drivers are not earning a lot from driving for Private Hire. What is worst is you get into an accident and has to put your personal asset at risk if the claim exceeds the insurance. This risk can be minimised by getting a good insurance.
Most people would just go for the cheapest insurance they can find in the market, not knowing the terms and conditions. Most insurance cover the damage cost of the vehicle to a high value, usually more than a the cost of a new car unless the car is a sports car such as Ferrari or Lamborghini. They however only cover the minimum for medical coverage or lost of income. For example, if you are fetching some high salary CEO of a big company and got into an accident that cause the CEO not able to work for a long period of time, your insurance may have to pay for his salary. So if your insurance has very low coverage on lost of income, you may end up having to pay with all your assets.
For those who are setting up a business/company for private hire, you may want to ask in details the coverage of insurance on such claims. I would recommend not to go for the cheapest as you usually get what you paid for. Cheapest would mean the least coverage which in turn increase risk to your asset. But most importantly drive safety and avoid all accidents.