A sole proprietorship or partnership is easier and least costly business structure to operate as compared to private limited. However, it has limitations that may be resolved by converting the sole proprietorship or partnership into a private limited company. A change like this can helps to expand the business, wider funding options, attract investors, provide legal protection to personal assets, limit your liabilities, enjoy corporate tax incentives, and recruit high quality talents.


Advantages of converting to private limited company

The key advantages of converting sole proprietorship or partnership into private limited companies are as follows:

a.      Wider funding options and attract investors

For sole proprietorship or partnership, financial options are limited as sole proprietor or partners would have to use their own money and or rely on their own creditworthiness to obtain loans. In contrast to private limited company, financial institutions would be more confident to offer loans to a company that is not entirely depend on a sole individual. The same may also apply to investors who are more secure in investing in a company that operates with a management governed by a board of directors and shareholders which is obliged to comply with statutory regulations.


b.      Separate legal entity and limited liability

Sole proprietorship and partnership are not separate legal entity and the business owners are legally responsible for all the liabilities against the business. In comparison, a private limited company is treated as a separate legal entity from those of its shareholders or company officers. One of the most highly desired advantages of private limited company is that the liability is limited to the amount of their paid-up capital. The extent of personal financial risk for company owners would therefore likely be lower than both sole proprietorship and partnership.

c.       Tax benefits

Sole proprietorship and partnership do not have a separate legal personality; its applicable tax rate for profits earned is determined by the individual’s income tax rate. Hence, any increase in profits will also lead to an increase in personal income tax. The tax rate for individual ranges from 0% to 22%. Whereas, the corporate tax rate for company is a flat 17% of their chargeable income and IRAS grants tax rebates to private limited company as well. Therefore, converting the sole proprietorship or partnership into a private limited company may result in its owner being liable for lower taxes.

d.      Perpetual succession

A sole proprietorship or partnership’s existence is contingent on the owner’s existence, whose retirement or death will lead to the end of the business entity.  However, a private limited company will not cease to exist if the director or shareholder retire or demise, and has the options of being transferred or sold. A company is only terminated if it is wound up.

e.       Public perception

It is hard to attract highly talent employees who are ambitious to work with sole proprietorship or partnership as the public view the business as offering little opportunity for growth as well as being more unstable than a private limited company. This same apply to other companies or business entities who may find it difficult to work on large-scale business with sole proprietorship/partnership.

Primary consideration of converting to private limited company

Conversion to a private limited company will alleviate most of the issues outline above, but there are some key responsibilities that you should also take into consideration.

·         Winding up a company is more difficult and complex.

·         All the private limited company must comply with formalities on matters such as annual general meeting, annual return as well as have more formal documentation such as a certificate of incorporation and the company constitution.

·         Having to comply with more statutory regulations would result in higher administration burden and expenses.

Procedure for converting a sole proprietorship or partnership to a private limited company

W.L.P is able to assist you throughout the entire process of conversion from sole proprietorship/ partnership to a private limited company.

Step 1: Get the company name approved

According to Singapore law, no two entities can have the same business name. The business owner may submit a “No Objection” letter to the Company Registrar if you wish to use the sole proprietorship/ partnership’s existing business name as the name of the private limited company. The approval process may take a week or two depending on the Company Registrar.

Step 2: Register with ACRA

Once the incorporation documents have been prepared, a company can be officially registered with ACRA. The registration process itself takes less than an hour.

Step 3: Execute a formal transfer of all business matters

All the business assets will have to be formally transferred to the newly incorporated private limited company within 3 months of incorporation, including closing the bank accounts that were used for the sole proprietorship/ partnership, re-signing all the service contracts or agreements, settling the sole proprietorship/ partnership debts, and re-applying for licences or permits that are not transferrable from the sole proprietorship/ partnership.

Step 4: Cessation of Sole Proprietorship

A Notice of Cessation needs to be issued to ACRA confirming the closure of the sole proprietorship or partnership within 3 months from the date of incorporation of private limited company.

The process of converting sole proprietorship or partnership to private limited company could be simple or challenging based on the size, liabilities or assets of the business. If needed, please feel free to contact our experts of W.L.P before taking the final plunge.