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Conversion of a Proprietorship into a Private Limited Company

This article will tell you how you can change a sole proprietorship company into a Private Limited Company in Singapore. Do you know the advantages and disadvantages of both these types of business entities? Do you have any benefit by doing so? Find answers to all your queries relating to such a conversion in this article. It is seen that most sole proprietor businesses switch to private limited company structure after a few years of operation when they desire to expand their operations. Also, there are a few instances where a sole proprietor becomes fed up of all the obstacles that he has to face in business and he desires to change into a private limited company to experience some of its benefits.

Comparing sole proprietorship with private limited company

It is often prudent to change your company from sole proprietorship to a private limited company. This move is excellent if you are looking to expand the operations of your business as you have better chances of securing finances for your business. You are also better able to protect the assets of your company and manage the risks and liabilities. What is great is that you get to enjoy tax incentives and attract the attention of the investors. You are also able to recruit finer talent into your company when you become a private limited company.

Both business entities have their pros and cons

It is better to understand the pros and cons of both business structures before rushing to convert one into another.

Independent legal entity

In the case of a sole proprietorship firm, the business entity as well as the owner is one and the same in the eyes of the law. Yes, you have a far greater control over the assets and the finances of your business but then you are also responsible for all the risks and liabilities and it is you alone who has to deal with the debts and the lawsuits, if filed against your business.


According to the Companies Act in Singapore, a Private Limited Company is treated as a separate legal entity than the owner. Members of such a company have a limited liability. You can be sued for the debt you own to the creditors and they can recover their money by taking away your personal assets. Thus you stand at a greater risk when you own a sole proprietorship firm than a private limited company.

Tax relief measures

Corporate tax is levied on the profits received by the members of a private limited company. Dividends given to the shareholders do not attract tax. Taxes for the shareholders are at the same rate as the rate of personal income tax.

Restricted capital

Owners of sole proprietorship ventures find themselves having limited options to raise funds whether it is the question of getting loans from banks or raising funds through investors in the form of equity. This means that you can play only with your own money or the money from the friends and the relatives to make profits from your venture.


A sole proprietorship is existent only as long as you keep working or you are alive as it ceases to exist with your retirement or death. If your friends or relatives are interested in continuing, they can do so only by going through a legal procedure of incorporation. This is where a private limited company scores heavily against proprietorship as it continues to exist even after you are gone.

How it is perceived by the public

Public perception of sole proprietorships is not very good and hence they find it difficult to do business with large business entities like private limited companies. Also, good and talented employees avoid sole proprietorships as they think they are unstable and do not provide enough opportunities to grow as private limited companies.

Administrative hassles

There are many more legal compliance requirements with a private limited company than a sole proprietorship whether it is the setting up of the business structure or winding up the business operations. Singapore Companies Act regulates and governs a private limited company.

There are also LLP’s that enjoy a separate legal identity and have many other benefits. But they have their own disadvantages. Here is a look at the different aspects of an LLP.

LLP is a business entity that is a kind of partnership. Thus their assessment is done in such a manner that each partner is taxed separately for his profit as if he is being taxed for his personal income. The tax rate of LLP is higher than the corporate tax that is levied upon a private limited company. The LLP is deemed to be liable towards a debt or loss owned by a particular partner while a partner is liable to the losses made by the LLP therefore the creditors can recover their dues from a partner.

Changing from a sole proprietorship or an LLP to a private limited company.You can get all the help and assistance from Richmond if you are desirous of converting your sole proprietorship firm into a private limited company.

You will be required to make a new private limited company that will take over the entire business of the sole proprietorship firm. There has to be a date mentioned as the transition date when the old firm ceases to exist. The new company takes over all the existing contracts and obligations and the assets of the old company also get transferred to the new company. ACRA in Singapore has to be informed of the cessation of business through the old business entity that was sole proprietorship.

How to transfer assets from sole proprietorship to a private limited company

After the incorporation of the new private limited company and the closure of the existing sole proprietorship firm within a period of 90 days, the assets and liabilities of the old company have to be taken over by the new company.

Dealing with bank accounts

You have to close down all bank accounts of the sole proprietorship and need to open new accounts in the name of the private limited company. This is because cheques will be drawn in favor of the new company and it should have a bank account of its own.


If there are assets of the sole proprietorship that have been handed over to the new private limited company, they can be converted into the paid-up capital of the new business entity. This has to be done through resolutions and agreements to this effect. It has to be kept in mind that such transfers can take place only after settling of old debts to creditors.

Contracts and service agreements

Novation of all contracts, service agreements, and leases made under the old business regime has to be carried out. There can even be new agreements and contracts signed under the new business entity.

Licenses and permits

Permits and licenses are not transferrable in Singapore. Thus you need to apply for these permits from government authorities once again in favor of the new business entity.

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