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post-title How to convert your Sole Proprietorship into a Private Limited Company

How to convert your Sole Proprietorship into a Private Limited Company

Last modified: July 3, 2019

How to convert your Sole Proprietorship into a Private Limited Company

How to convert your Sole Proprietorship into a Private Limited Company

What is a Sole Proprietorship

  • Legality

The business is not a separate legal entity from the owner. This means that the owner will have to assume responsibility of any failings or debts accumulated by the company. Under the law and public eye, the company and the owner are one entity.

  • Taxes

The Inland Revenue Authority does not recognize sole proprietorships in its definition of a company. Therefore, business run under a sole proprietorship have their profits subjected to personal tax rates. Personal tax rates range from 0-22% while effective corporate tax rates range from 0-17%. The lack of inclusion in the definition also means that sole proprietorships do not benefit from tax exemptions and incentives.

  • Risk

A sole proprietorship structure is most suited for low risk businesses because it does not protect the owner from liabilities. This is why corporations generally do not operate under this structure.

  • Perpetuity

Due to the fact that the business is not a separate legal entity from its owner, if the owner were to turn away from the business or die it would no longer exist. If a family member or chosen successor were to take over the business they would not be able to without a serious administrative hassle.

  • Public Perception

Sole proprietorship face less than favorable public perception compared to other business structures. They can be viewed as unstable and stagnant because they do not have perpetuity and lack the capital for continuous future growth.

What is a Private Limited Company?

  • Legality

The business is privately owned. This means the shares are not sold to the general public but are in the hands of no more than 50 shareholders. The members of the company are not personally liable for any losses or debts held by the company.

  • Taxes

Private limited companies fall under the Inland Revenue Authority’s definition of a company. They are taxed at the effective corporate tax rate of 0-17%. This also means that certain private limited companies are able to experience tax exemptions and incentives if they meet the proper criteria.

  • Risk

The member of a private limited company undertake low risk because it is registered as a separate legal entity. It is the most popular business structure among entrepreneurs because there is limited liability for its shareholders.

  • Perpetuity

Until it is taken off the registrar, private limited companies have legal perpetuity. This means if a shareholder were to die or step away from the company it will not significant hurt the business. It also means that ownership of the company is easily transferable, either as a whole or as parts.

  • Public Perception

Private limited companies have a perception of being a ‘more legitimate’ business. It attracts more first-rate employees as well as more investors to bring in more capital to the company.

To see different business structures click here.

Converting from a sole proprietorship to a private limited company

  • Converting your business to a private limited company is fairly easy and can be done in three easy steps
  • You have to incorporate a new private limited company and say that the company is to take over the sole proprietorship. Through Incorporate.sg, this process can easily be done.
  • All assets of the business must be formally transferred to the new company including replacing existing contracts with new ones with the new company name. Other assets to be transferred includes:
Bank accounts 
Assets
Licenses and permits
Contracts/service agreements/leases

  • The sole proprietorship must be dissolved. ACRA must also be informed that the business will no longer be run under a sole proprietor.

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