Incorporation

Converting a Sole Proprietorship to a Private Limited Company

Before you take the leap of faith, you may want to make an objective comparison between both business structures and decide on the one that best meets your needs.

 

001 Converting a Sole Proprietorship to a Private Limited Company

 

 Sole ProprietorshipPrivate Limited Company
Legal Entity A sole proprietorship does not have a separate entity from its owner. This means that under the law, the business and the proprietor are one and the same. A private limited company has a separate legal entity from its owners, shareholders and directors. This allows the company the legal capacity to enter into agreements and contracts, assume obligations, incur and pay debts, and sue and be sued.
Liability It has unlimited liability, meaning that the proprietor personally bears all risks and liabilities, even if negligent or fraudulent acts are committed by his employees. It has limited liability, meaning that shareholders are not liable for the company's debts.
Financial Risk It is one of the riskiest business structures since the proprietor bears all risks and liabilities. The financial risk is limited to the amount of capital the shareholders have put into the company.
Perpetual Succession It does not have perpetual succession. If you retire or pass away, the business will automatically cease. It has perpetual succession, which means there is no need to wind up the company in the event of deaths, or changes in shareholders or directors.
Access to Grants, Investments and Loans It is a lot harder to attract capital investment or obtain loans from financial institutions as sole proprietorships are often seen as a risky investment. It is easier to obtain grants from government, funding from investors or loans from financial institutions.
Tax Structure Sole proprietors are taxed at personal income tax rate. If the sole proprietorship is owned by a corporation, it is taxed at corporate tax rate. It is taxed at the prevailing corporate income tax rate. Additionally, there are tax incentives offered by the government for newly-incorporated private limited companies.
Regulatory Obligation Less paperwork and other formalities, e.g. there is no statutory requirement for general meetings, share allotments, etc. This translates to minimal legal and filing fees. There are tighter rules and regulations compared to sole proprietorships and partnerships, such as filing of annual returns and appointment of company secretary, which translates to higher operating cost.
Company Image The public usually views sole proprietorship as less credible, and thus the proprietor may face challenges in getting large-scale contracts. It has higher credibility and status in the minds of customers and partners.

 

002 Converting a Sole Proprietorship to a Private Limited Company

Note

VOPlus can advise you on the most suitable type of business entity for your business and help you convert a private limited company in Singapore promptly. Contact us today for a consultation!