Starting a Business in Singapore: A Comprehensive Guide
Do you have plans to start a new business in Singapore? In this guide, let us help you to get a clear understanding of all the necessary information that you will need in order to get your business started legally in Singapore.
If you have yet to decide on your business type, Click here to read more on:
Part 1: Different Business Types in Singapore
Part 2a: Incorporating a Private Limited Company in Singapore
Part 2b: Registering a Sole Proprietorship Business in Singapore
Part 3b: Converting a Sole Proprietorship Business into a Private Limited (Pte. Ltd.) Company in Singapore
(i) Reasons to Convert
What are the disadvantages of a Sole Proprietorship Business?
As a sole proprietorship business, there are several disadvantages that you may face due to your business model.
Disadvantages of a Sole Proprietorship Business
No separate legal entity: Sole Proprietorships are not considered as a separate legal entity from the owner. This means that the financial and legal liability for all debts and legal actions against the business is the responsibility of the owner.
Unlimited liability: Creditors may sue the owner for debts incurred and can also obtain a court order to claim against the personal assets, including property, of the owner.
No corporate tax benefits or incentives: Taxes are determined based on personal income tax rate and owners of sole proprietorships do not enjoy special tax benefits that are available to a Private Limited Company.
No perpetual succession: The business lives and dies with the owner.
Low public perception: This entity is the least preferred for serious businesses. Sole proprietorship businesses face a greater difficulty in obtaining loans and investments.
Sale/transfer of all or part of the business: Owner can transfer the business only by the sale of business assets.
Cannot act as a corporate shareholder: As sole proprietorships are not considered as separate legal entities in Singapore, it cannot act as a corporate shareholder of a company.
Sole proprietors must ensure that all letterheads, invoices, bills or other documents used for the purposes of doing business have the registration number listed.
Why Convert a Sole Proprietorship into a Private Limited Company?
One of the main motivations for converting a sole proprietorship business into a private limited company would be for business expansion. As your business expands and revenue increases, the advantages of a Private Limited Company may outweigh that of a Sole Proprietorship business.
Let’s take a look at the main benefits of a Private Limited Company below.
1. Separate legal personality and limited liability
A private limited company is recognized as a separate legal entity from the shareholders of the company.
Unlike a sole proprietorship, the financial liabilities of the company will not fall under the responsibility of the shareholders. This means that all debts and losses of the company will be the responsibility of the company itself and not the shareholders.
However, the shareholders and directors will still be held responsible for the criminal liability of the company.
2. Tax benefits
In Singapore, Sole proprietorship businesses are subjected to personal income tax. This means that the profits of the business will be charged based on personal income. In Singapore, the tax rate for individuals ranges from 0% to 22% depending on the individual’s chargeable income.
On the other hand, the corporate tax rate for Private Limited (Pte. Ltd.) companies is a flat 17% of their chargeable income. For companies which have just incorporated in Singapore, the tax rate is 0% for the 1st S$100,000 of chargeable income.
This is extremely beneficial for companies, to aid it to ensure sufficient cash flow for further expansion and growth.
Click here to read more information on:
– The different types of business in Singapore
(ii) Converting a Sole Proprietorship to a Private Limited Company
What are the steps to take to convert into a Private Limited (Pte. Ltd.) Company?
In order to proceed with your Incorporation, you will first need to fulfil the basic requirements:
- Minimum 1 Shareholder, Maximum 50 shareholders
- Minimum 1 Company Secretary
- Minimum 1 Local Director (Singaporean/Permanent Resident)
- Usually Minimum paid-up capital of $1 with Minimum 1 Share
- Company must have a Singapore registered office address
- Desirable Company Name (Must Be Approved by ACRA)According to the Singapore law, no 2 business entities can have the same company name. As such, if you are intending to use the same name for your Private Limited Company, you will need to submit a “No Objection Letter” to ACRA.The letter should explain why you wish to retain the business name and also state if both entities are owned by the same person.Once the company name is approved, you may proceed to complete your company incorporation. Click here to read more about company incorporation in Singapore.
Once all the requirements have been fulfilled, you can approach your company secretary to reserve your company name and to start preparing all the necessary incorporation documents.
Appoint Lionsworld as your Corporate Secretary:
If you are in Singapore:
– Simply come to our office with the NRICs/passports of all the directors and shareholders OR
– Fill in the online form here and we will contact you to proceed with preparation
If you are Overseas:
Fill in the online form here and we will contact you to proceed with preparation
Once the Private Limited (Pte. Ltd.) company has been incorporated, the sole proprietorship business will need to be ceased within 3 month.
All the business assets will need to be transferred to the newly incorporated Private Limited (Pte. Ltd.) company. This includes:
– The net assets taken over by the Pte Ltd company can be converted as paid up capital. As such an agreement and resolutions are required. You will have to pay any outstanding dues to the creditors before you can transfer your assets.
2. Bank Accounts
– You must close all banks accounts maintained by the sole proprietorship and open a new bank account(s) under the Pte Ltd company.
– You will need to inform all your clients of the change in bank account as well.
3. Office Lease
– If you are renting an office for your business, you will need to sign a new lease agreement under the Private Limited (Pte. Ltd.) Company.
4. Contracts / Service Agreements
– You will need to re-sign any existing business contracts / service agreements, similar to office leases.
5. Licenses / permits
– You should seek the advice of the agency issuing the licenses or permits on their validity. Licenses and permits that cannot be transferred will have to be reapplied if necessary. It is generally advisable to seek advice from a professional firm if you are uncertain as to what should be done.
Note: that your existing business must cease all operations and be closed within 3 months from the incorporation date of the Pte Ltd company.
Once all the necessary company assets have been transferred from the Sole proprietorship business to the Private limited (Pte. Ltd.) company, the business will need to be officially ceased within 3 months of the incorporation date of the new company.
In order to do so, the owner of the business will need to file a Cessation of Business on ACRA’s BizFile+ to inform ACRA that the sole proprietorship has ceased.
(iii) After converting to a Private Limited Company
What do I need to do after Incorporation?
After incorporating the company, it is helpful to take note if the following have been considered:
- The business registration number issued by ACRA must be on all the letterheads, invoices, billings or other official documents of the company
- If the company’s business involves import, export, and transshipment, then the company has to be registered with the Singapore Customs for a Customs Account
- If the company’s annual taxable turnover is more than or expected to be more than SGD 1 million, it must register for Goods & Services Tax
- The company must register with the Central Provident Fund (CPF) for the making of contributions to its employees’ CPF accounts
- The company is also required to pay a Skills Development Levy to the SkillsFuture Singapore Agency for each employee hired
Are there any further filings that will need to be completed?
Unlike Sole Proprietorship Businesses that only require renewal every 1 or 3 years, Private Limited companies are required to complete annual returns filing to ACRA every year.
By the Company’s Act, all private limited companies in Singapore are required to complete the following procedures every year. This is mandatory regardless of the status of the company, i.e. if the company is dormant or active.
1) Annual General Meeting (AGM)
Every year, it is mandatory for the company or the accountant of the company to prepare the Financial Report of the company. After the report has been prepared, the shareholders are to hold an AGM to go through the financial report of the company in order to raise any doubts about the financial position of the company. The AGM must be completed within 6 months after the financial year end of the company.
2) Annual Returns (AR) Filing
After the AGM is complete, filing has to be done to ensure that company’s information on ACRA’s register is up to date. The Financial Report (if any), the AGM date and the financial position of the company has to be filed to ACRA during the filing process. The Annual Returns Filing must be completed within 7 months after the financial year end of the company.
3) Any changes in the company structure (if any)
Any and all changes in the company structure needs to be filed to ACRA. Similar to the AR filing, this is to ensure that the company’s information on ACRA is up to date. Changes in the company structure include:
- Change in directorship or shareholding structure
- Change in paid up capital
- Change in Registered Business Address
These filings may not necessarily be done at the end of the financial year, but has to be filed to ACRA as soon as the changes have been agreed upon by the shareholders.
4. File the Annual Returns to ACRA
Once the financial report and AGM documents have been signed, the documents should be given back to the company secretary. It is the duty of the company secretary to file the annual returns to ACRA.
*The Annual Returns filing must be completed within 7 months after the financial year end.
What happens if I do not complete my filings on time?
It is an offense under the Company’s Act to fail to file annual returns, hold AGMs and prepare company financial reports. ACRA can choose to charge a fine (up to S$600 per financial year) or exercise their right to summon the directors to court.
Likewise, failure to file all other changes in the company to ACRA will also incur fines and possible prosecution for the company. Hence, it is necessary for the company or the company secretary to be aware of the due dates for AGM and AR filing in order to avoid such penalties.
From 1 May 2021, the AGM and Annual Returns filing penalties by ACRA will be revised to as follows:
The AGM must be held within 6 months of the Financial Year End of the company. If the AGM is held later than 6 months, a penalty of S$300 will be charged by ACRA.
The Annual Returns have to be filed within 7 months of the Financial Year End of the company.
- If the filing is done within 8-10 months of the financial year end, there will be a S$300 penalty charged by ACRA
- If the filing is done after 10 months of the financial year end, there will be a S$600 penalty charged by ACRA
Click here to read more information on:
– Annual Company Filings in Singapore for Private Limited (Pte. Ltd.) Company in Singapore
While there are many benefits of converting a sole proprietorship into a private limited company, doing so would likely also result in higher compliance costs for business owners. Business owners should therefore carefully consider whether making the switch would be in the business’ interests.