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If you are considering the conversion of your sole proprietorship or Limited Liability Partnership (LLP) company to a Limited Liability Company (LLC) (also known as Private Limited (Pte Ltd) company) for better liability protection and flexibility for growth, it is not impossible. However, it is important to look into the impact and how it may potentially affect or help your company before you take that step.
There are several questions that you would need to consider before taking the step to convert your company. Answering the why you should do it, how it would benefit you, and what the advantages and disadvantages are would help to give you greater clarity on whether this is a step you should take. In this article, we discuss some of these points to help you put things into perspective.
In many cases, converting your sole proprietorship or LLP to a Singapore private limited company is a wise decision. A change like this can help you to expand your business, protect your assets, limit your liabilities, allow you to enjoy corporate tax incentives, attract investors and recruit high quality talent. In many other jurisdictions, a private limited company is also referred to as LLC, PLC, Corporation, Pvt Ltd, and so on. In Singapore, a private limited company is often referred as Pte Ltd.
A private limited company is a business entity registered under the Singapore Companies Act, Chapter 50. It has a separate legal personality and members have limited liability. Private limited companies pay corporate tax on their profits and the shareholders receive dividends which are tax free. A private limited company offers protection of personal assets and portrays a higher credibility and standing in the market.
The statutory and legal aspect of converting a sole proprietorship or LLP to a private limited company in Singapore is relatively straightforward and most of the complexities will likely arise from issues associated with transferring business matters from your sole proprietorship or LLP to the Pte Ltd company.
There may be several reasons that are prompting you to convert your sole proprietorship or LLP to a private limited company in Singapore. At this point, to reaffirm your decision, let us first review the key advantages as outlined below.
As a sole proprietorship you may currently be facing some or all of the following issues:
An LLP is slightly different from a sole proprietorship. As an LLP, you enjoy a separate legal identity and its ensuing benefits, however, you are still exposed to certain drawbacks such as:
For more detailed information on various types of business entities and their advantages and drawbacks, refer to Singapore business entities overview.
While converting to a Singapore private limited company will mitigate most of the issues outline above, there are some drawbacks to operating a Pte Ltd company.
The sole proprietorship or LLP is a completely separate legal form from a company and the law does not provide any process for conversion from one form to the other. Instead,what you will need to do is:
The first step to setting up your company is the approval of your business name. According to Singapore law, no two entities can have the same business name. If you wish to set up your Singapore Pte Ltd company using the existing business name of your sole proprietorship or LLP, you must submit a 'No Objection Letter' to the Company Registrar. The letter must explain why you wish to retain the business name and also state whether the companies are owned by the same person. You must also undertake to cease operations of the old business entity within 3 months from the date of incorporation of the company.
For more details on incorporation requirements and procedures, refer to Singapore Company Registration guide.
Once you have incorporated the private limited Singapore company, the next step is to transfer all business matters from the existing sole proprietorship or LLP business to the new company. Note that your existing business must cease all operations and be closed within 3 months from the incorporation date of the Pte Ltd company. This step will likely take the most time to complete. Some of the items that require transferring will include:
It is strongly advised that you explore and plan the above matters before making a decision on if you should convert your Sole Proprietorship or LLP into a Private Limited Singapore Company.
Once the Pte Ltd company is incorporated, you will need to take the following actions within 3 months from the date of incorporation:
For an LLP, once you have successfully transferred all matters of the LLP business to the Pte Ltd company, you can choose to strike off or wind up the LLP. Striking off is a less complicated procedure than winding up.
In conclusion, the structure of a private limited Singapore company is more complex than a sole proprietorship or LLP, but it offers better liability protection, usually has more room for expansion and portrays more credibility to investors. While it might cost more to start a private limited company, the ends may justify the means if you can handle the extra work and complexity of the structure.
Converting a Sole Proprietorship or a LLP to a Pte Ltd company in Singapore requires careful planning and execution. It is highly recommended that you seek professional help if you plan to convert your existing Singapore business into a Pte Ltd company.
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