How and Why can I convert Sole Proprietorship into Pte Ltd in Singapore?

1 minute read

Converting Sole Proprietorship into Pte Ltd

When does it make sense to convert?

When you see your business works. Sole Proprietorship is a great way to test ideas. Once you know you’re going to stick with it, consider setting up a Pte Ltd. Another good sign is when you start hiring. And the most obvious one — if you think your taxes are too high.

Why is Pte Ltd better?

  • Limited liability. If things go wrong, a proprietor pays all the debt from his pocket. Pte Ltd protects you from that.
  • A proprietor is on his own. You can’t involve other partners. Your children cannot inherit your business. If a proprietor retires or dies, so does his company — while a Pte Ltd remains.
  • Fundraising is easier. Loans become cheaper and you can attract investors — a regulated company incurs more trust than a single person.

What about money?

Pte Ltd is more expensive to manage — you have to hire a corporate secretary and file annual returns to ACRA. But taxes are super low thanks to a flat rate and a lot of exemptions. Let’s do the math.

A Sole Proprietor pays progressive tax up to 22%. A Pte Ltd pays 17% flat minus all the exemptions . Add a corporate secretary to that — with Osome it’s S$300 a year. It turns out it’s cheaper to convert after you’ve made more than S$92,727 a year in profit. And if you make S$120,000 a year, you’ll save S$2,550.

Scenario 1: S$25,000 profit a year

SP Pte Ltd
Taxes S$100 S$1,062.5
Corporate secretary - S$300
Total expenses S$100 S$1,362.5

Scenario 2: S$92,727 profit a year

SP Pte Ltd
Taxes S$4,241 S$3,941
Corporate secretary - S$300
Total expenses S$4,241 S$4,241

Scenario 3: S$120,000 profit a year

SP Pte Ltd
Taxes S$7,950 S$5,100
Corporate secretary - S$300
Total expenses S$7,950 S$5,400

Ok, I’m sure I want to convert. Now what?

Converting in reality is closing down your Sole Proprietorship and opening a new company. The only thing you can carry on is the name. Here’s what you need to do:

  • Write an appeal to ACRA explaining your name will be used by a new company instead of the proprietorship you are closing.
  • Incorporate a Pte Ltd — Osome will do that for you within an hour.
  • After that, you have 3 months to set up everything for the new company — bank accounts, assets, contracts, licenses.
  • Inform ACRA about proprietorship termination once you are done. That also should happen within 3 months after incorporation. Osome will do that, too.

What exactly do I need to arrange?

  • You need to re-sign all the contracts (rent, suppliers, clients) to the new company.
  • Same goes for bank accounts: close the old ones, open new ones to the company name. You might want to inform your partners as this could mean a delay in processing invoices.
  • If your business needs a license (like a retail shop, a spa or a real estate agency), you’ll have to apply for a new one — these cannot be transferred.
  • Consider which assets (like equipment, real estate or cash) you want to transfer. You might sell or lease them.

This article was written by experts at Osome – online Incorporation, Secretary, and Accounting in Singapore. We help entrepreneurs to start and run business and get Employment Passes. We respond fast 24/7 in a secure chat. Learn more and get a free consultation on our site.