Freelancers typically do not have a company under their name. We are assuming that the person who sent us this question does not have one under her name. This person has been a freelancer for a couple of years and is contemplating setting up a private limited as she wants to get involved in larger projects. These clients are asking her for her company and she does not have one. She has been taking ad hoc jobs and the income which she earns is tabulated as personal income and subject to personal income tax rates. Before starting a private limited company for her business, here are some of the advantages and disadvantages that freelancers should consider.
Advantages of setting up a private limited company
- Your personal assets are separated from the businessAs the shareholder of the company, your liabilities are limited to the amount of contributed capital to the company. If in the event of the company being sued, the liabilities, if the judgement is obtained against the company, will be limited to the assets of the company. The personal assets of the shareholders and the officers of the company are protected. i.e. if the shareholders and directors have private properties and monies in their personal bank accounts, these assets and monies cannot be touched by the company’s creditors.
- Corporate taxes are usually lower than personal income taxProfits are taxed at the prevailing corporate tax rates. Corporate tax rebates and incentives make corporate taxes very low. In fact, for new startups, there are attractive tax incentives that can help reduce the overall tax liability. After the company has settled its corporate tax bill, dividends can be issued to shareholders. These dividends are issued after-tax (i.e. the shareholders do not need to pay taxes on dividends received).
- Better credibilityTypically, having a company does project an image that you are serious about doing business. Having a company may also allow you to bid for certain projects which only allow companies to bid for.
- A company has better longevityIf the shareholders of a company passes away, the company can still remain a going concern. This will not be the case if the freelancer passes away. The business will end with his or her passing.
- You can get funding for your companyYou can sell or allot shares to investors. This may allow you to expand your business better as investors will allow the business to grow with additional funding. You can also attract venture capitalists or seed funding if you structure the company appropriately.
Disadvantages of setting up a private limited company
- Higher costYou will need to set up a company and perhaps engage a company secretary, directors or officers to help run the company. You will also need to do annual return filing, have a proper accounting system and have your financial statements prepared. The financial statements may also need to be audited. These factors will add to the cost of running the company.
- More corporate compliance to adhere toThe registrar, ACRA, does have mandatory requirements for companies. If companies do not adhere to these requirements, they may open themselves up to financial penalties or prosecution. You will need to engage a competent corporate service provider to handle compliance matters for the company if you are unable to do so yourself.
Little Big Secretary Services Pte Ltd is an ACRA registered filing agent with years of experience in corporate compliance. We will know how to adhere to the mandatory requirements for companies. If you have any queries you may contact us at [email protected].
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at Singapore Secretary Services
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