Converting Sole Proprietor to a Private Limited Company

Converting Sole Proprietor to a Private Limited Company

Normally, first-time entrepreneurs in Singapore start a business by registering a sole proprietorship. This business structure is the most preferred among new entrepreneurs because when compared to others:

  • It has less strenuous registration procedures
  • It has much lesser administrative expenses,
  • It has no burdensome compliance requirements to fulfil.

However, a sole proprietorship setup also has some limitations, especially as your business expands and revenue grows. You would encounter a number of problems, such as high tax costs, inaccessibility to government incentives, trouble obtaining loans, challenges in sourcing investors, among others.

Why Convert to a Private Limited Company (PLC)?

With the sole proprietorship business no longer an ideal structure for you, you may consider converting it to a Private Limited Company (Pte. Ltd). Often, one of the main motivations for conversion would be for business expansion. However, the following advantages also supplement the rationale for incorporating a PLC:

Separate Legal Entity

Owners are not financially and legally responsible for all liabilities against the business, such as debts and lawsuits.

Limited Liability

The liability of company owners/shareholders is limited to the value of their subscribed share capital, which lowers the financial risk of their personal assets.

Tax Incentives

Unlike sole proprietorships, Private Limited Companies are taxed at corporate rates, and are eligible for tax exemption.

Perpetual Succession

While the death or retirement of a sole proprietor also ends the business operations, in Private Limited Companies the company will continue to exist irrespective of the death or departure of shareholders.


It conveys a long-term business plan that is poised for growth and expansion due to a credible image as a mature commercial entity with ample resources.

Loans and Grants

Financial institutions would be more confident to offer loans to a company that is not entirely dependent on a sole individual. This also applies to investors who want to invest in the company.

Four Steps to Convert a Sole Proprietorship into a Private Limited Company

Step 1: Write a No Objection Letter

The “No Objection Letter” gives reasons for retaining the business name and whether you are the same individual who owns it. The letter indicates that the PLC will take over the sole proprietorship business, and specifies the effective transition date.

As long as you meet the requirements for setting up a PLC in Singapore, you will submit your application to register the new company through the Accounting and Corporate Regulatory Authority (ACRA).

Step 2: Incorporate a Private Limited Company

As published on ACRA’s website, to register a private limited company in Singapore, the fees that you have to pay is SGD$315, which covers Name Approval (SGD$15) and Registration Fee (SGD$300). However, that’s not all.

At the very least, you will also need to have the following as minimum setup requirements for a Private Limited Company:

  • One shareholder
  • One Singapore resident director
  • One company secretary
  • At least SGD$1 in initial paid-up share capital

Once the company is incorporated, you must close the sole proprietorship within three months, and hire a company secretary within six months.

Step 3: Formal Transfer of All Business Assets

The list of assets/liabilities list that should be transferred to the PLC are usually recognised as ‘share capital’ or ‘amount injected by director’. A director’s injection can be an interest bearing loan or non-interest bearing loan (advances).

At this stage, it is of essence to engage a professional to assist you in the asset transfer because the computations are usually complex, and involve the buying and selling of various assets and liabilities from one business to the other. Some of the common items for transfer include:

  • Assets – All assets must be transferred to the PLC as a paid-up capital. You must also settle all owed debts to any creditors before the transfer of such assets.
  • Bank accounts – You must close all bank accounts maintained by the sole-proprietorship and open a new account under the name of the PLC. Ensure you update all stakeholders about this change.
  • Contracts. You will have to novate or reassign all contracts, including leases and service agreements signed under the sole proprietorship business under the new business entity.
  • Licences/ permits – Since licenses and permits cannot be transferred you will have to apply for them afresh from the relevant government authorities issuing them.
  • Goods & Services Tax (GST) Registrations – If your sole proprietorship is GST-registered, you must deregister it and register the PLC afresh with the Inland Revenue Authority of Singapore (IRAS) for GST.

Step 4: Cessation of Sole Proprietorship Business

Finally, after completing the transfer of all business assets to your PLC, you will have to inform ACRA through a Notice of Cessation to allow them to officially deregister the sole proprietorship business.

Closing Remarks

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. You must carefully plan, seek legal opinion and evaluate the impact before effecting the conversion.

It is advised that you engage a professional Singapore company incorporation firm if you are uncertain of the steps to follow. If necessary, do not hesitate to seek legal assistance from the experts of Tianlong Services to advise you on all matters if you are uncertain as to how to proceed.

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