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Converting a Sole Proprietorship to a Private Limited Company

Typically, first time entrepreneurs start a business in Singapore by setting up a sole proprietorship.  This is the preferred structure among new entrepreneurs because the company registration and administrative expenses are much lesser than a Private Limited Company (PLC) and there is no onerous compliance requirement to fulfill.

So as a first time entrepreneur, you must have also taken the beaten path by starting off with a sole proprietorship. However, as the business expands and the revenue grows, you would encounter problems such as high tax costs, difficulty in obtaining loans or sourcing investors, lack of access to government incentive schemes etc. A sole proprietorship setup also does not facilitate succession planning. Thus as your business evolves and expands, the sole proprietorship setup would no longer be an ideal structure for you. You may consider converting it to a PLC.

Besides limiting your liability and protecting your personal assets, PLC offers a host of benefits. By converting to a PLC, you will be able to enjoy tax savings from the competitive corporate tax rates and incentives. As a PLC, you can bring in more shareholders and investors to increase the capitalization needed for fueling the business. Additionally, the PLC will augment a credible and prestigious image for your business among customers, suppliers and other stakeholders.

Before converting your sole proprietorship to a PLC, it is essential to understand the pros and cons of both the entities. Following is a comparison of key factors in both the entities.

Sole Proprietorship Vs Limited Liability Company

Concerns Sole Proprietorship Limited Liability Company
Legal Identity No separate legal identity. The business and the owner are considered one and the same. The owner is fully responsible as much as the business. LLP is a separate legal entity. The business is distinct from the owner(s)/shareholder(s). It can own property and sue and be sued in its own name.
Liability Unlimited liability. Claims can be made against the personal assets of the owner in the event of a lawsuit for the debts/liabilities or losses incurred by the business. Limited liability. The liability of the owner(s)/shareholder(s) is limited to the value of the subscribed share capital. The personal assets of the owner(s)/shareholder(s) remain insulated from any claims made against the debts/liabilities or losses incurred by the company.
Taxation Chargeable incomes are taxed at personal tax rates. Chargeable incomes are taxed at corporate tax rates. A newly set up company can enjoy a partial tax exemption of 50% on its chargeable income of S$300,000 for the first three Years of Assessment. The dividends at the hands of shareholders are tax-free.
Perception It does not convey a long-term commitment or vision aimed at business growth. It is perceived as a one-man show with limited resources. This will even limit the business’s access to quality talent. It conveys a long-term business plan that is poised for growth and expansion. It has a credible image as a full-fledged commercial entity that has ample resources. A company may be able to attract and retain quality talent because of the credible perception.
Perpetuity It has no perpetual succession. It ceases with the death or insolvency of the owner. The next generation will not be able to inherit and continue to the business operations. Irrespective of the death or departure of shareholders, the company will continue to exist. Succession planning is easy.
Access to loans and grants Lending institutions are generally unwilling to offer loan facilities to sole proprietorships.

There is limited access to government grants.

Lending institutions and investors have a better perception about a body corporate as they generally have a management to run the operations and not dependent on a single person’s expertise.

Government has several schemes for which a Singapore incorporated company will qualify.

Compliance The administrative burden and cost of compliance is much less, it is indeed negligible. The ongoing compliance after incorporation is complex therefore the administrative burden and the cost involved are high.

Converting to a LLP

Converting a sole proprietorship to a LLP involves the following three major steps

  1. Company Incorporation
  2. Transferring the assets and commercial matters
  3. Termination of the sole proprietorship

Company Incorporation

You must first file an application with ACRA for the name approval. You must also indicate that the proposed company will take over the existing business. It is also essential to provide the transition timeline, undertaking to cease the operations of the existing business within 3 months from the date of incorporating the company. In most cases, the owner would wish to retain the name of the sole proprietorship. In order to retain the name, a ‘No Objection’ letter stating the reasons for retaining the name must be submitted along with the application for name approval. After name approval, you must file the application with ACRA for company incorporation.

Related Link: Details on incorporation of a private limited company

Transferring the assets and commercial matters of the business to the company

After incorporating the Private Limited Company (PLC), all assets and commercial matters such as bank accounts, service contracts, lease agreements, licenses etc must be transferred to the PLC. You must notify all stakeholders such as vendors, customers, contractors, service providers and employees of the impending change and the adaptations that would be required from their side to ensure a smooth transition.


All assets must be transferred to the PLC as a paid-up capital. It can also be reflected as an interest-bearing or interest-free loan made to the company by the director. All debts, including payments/fines owed to government bodies must be settled before transferring the assets. If allowed or if agreed by the creditors, the debts and outstanding payments may be reassigned to the new PLC. It must be noted that the transfer of immovable property to the PLC will involve stamp duty and Goods & Services Tax (GST) charges therefore you will have to exercise discretion in the transfer of such assets. We advise you to seek professional legal opinion on this matter.

Bank Account

The first step is to open a bank account in the name of the PLC. Thereafter you must notify your customers to issue cheques in favor of the new account. The bank account of the sole proprietorship must be closed.

Related Link: Opening a Corporate Bank Account in Singapore

Lease Agreements

Any prevailing lease agreements must be transferred to the company. It is generally a re-signing of the lease agreement under the PLC’s name. Make sure that the landlord in agreement to continue the lease under same terms otherwise you must renegotiate.

Service Agreements/ contracts

Vendors, service providers and contracting parties must be promptly notified about the PLC and all existing services agreements and contract must be transferred to the PLC.

Licenses and Permits

Generally licenses and permits are not transferable, you must apply for new licenses and permits under the PLC.

Goods & Services Tax (GST) Registrations

If your sole proprietorship is GST registered you must deregister and the PLC must register with the IRAS afresh for GST.

Terminate the Sole Proprietorship

The Sole Proprietorship must cease its operations and notify ACRA about its termination within three months from the date of incorporation of the PLC.

Closing Note

The decision to convert a sole proprietorship into a PLC may be simple or complex depending on the size, assets, liabilities and the stakeholders of the business. Typically the vendors and creditors do not pose a hindrance as long as the sole proprietorship commands a strong goodwill. However issues may arise if the vendors and creditors are comfortable dealing only with the sole proprietorship setup in which the owner has undisputed authority. You must carefully plan, seek legal opinion and evaluate the impact before effecting the conversion.

Convert to a Private Limited Company with ease

We make your conversion process simple. Join thousands of companies who have relied on us to convert their Sole Proprietorships to Private Limited Companies.
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