How and Why Can I Convert a Sole Proprietorship into a Private Limited Company in Singapore?

3 min read

It makes sense to convert when you see that your business is doing very well. A Sole Proprietorship is a great way to test ideas. Once you know you’re going to stick with your business, it's time to consider setting up a Pte Ltd (that's is what how they shorten "a private limited company" in Singapore). Another good reason to convert is if you plan to start hiring. And the most practical motivation one can have is that you think your taxes are too high.

If you want any help with this, check out our company secretary service in Singapore!

Why is a private limited company better?

  • Limited liability. If things go wrong, a proprietor pays all the debt from his pocket. A company, being a separate legal entity, protects you from that.
  • A proprietor is on his own. You can’t involve other partners. Your children cannot inherit your business. We hate to be indelicate, but if a proprietor retires or dies, so does his company — while a private limited continues to exist.
  • Fundraising is easier. Loans become easier and you can attract investors — a regulated company incurs more trust than a single person.

What about my money?

A private limited company 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 private limited company 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$84,827 a year in profit. And if you make S$120,000 a year, you’ll save S$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$84,827 profit a year

SP Pte Ltd
Taxes S$3,905 S$3,605
Corporate secretary S$300
Total expenses S$3,905 S$3,905

Scenario 3: S$120,000 profit a year

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

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

Converting actually means 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 private limited company — 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  should also happen within 3 months after incorporation. Osome can do that for you, 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 will have to apply for a new one — these cannot be transferred.
  • Consider which assets (for example, your equipment, cash, or even real estate) you want to transfer. If there are things you don't need anymore, you may want to sell or lease them.

Next steps

If your situation is specific or you need more information about the conversion, our experts are here to help. Get a free consultation in our secure chat.

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