Those willing to set up their small business entity in Singapore can choose from sole proprietorship business and partnership business. The decision to start a business depends on the funds you are willing to invest.
However, several individuals who operate a sole proprietorship business also have the option to convert it into a general partnership to expand their business with the partner.
You can also check our complete guide on setting up a business in Singapore.
So if you are in doubts that can you transfer your sole proprietorship business into the general partnership? Then yes, you can easily convert your sole proprietorship business into a general partnership by following some legal formalities set by the Singapore government. In this article, we will discuss the steps you need to follow to convert your sole proprietorship business entity into a general partnership.
Table of Contents hide
2 Why convert into a general partnership?
4 Steps to convert a sole proprietorship to a general partnership in Singapore
What is the sole proprietorship business?
A sole proprietorship business is a type of business entity in Singapore owned by the individual who is personally responsible for all the debts and business activities.
The identity of the owner and business has a single identity and is not different from each other; this simply means that all the properties of the business are possessed by the proprietor alone.
No doubt, running a sole proprietorship business has several advantages, but it also has few limitations due to which most of the owners decide to convert it into another business entity.
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Why convert into a general partnership?
The primary reason to convert a sole proprietorship business into a general partnership is to expand the business and add quality to the industry in terms of capital intervention or expertise.
But before you reach the conclusion of converting your several years’ old sole proprietorship businesses into a general partnership; you must understand the basic features of the partnership and a brief comparison of a sole proprietorship business with a general partnership.
- The functioning of a general partnership is all the more similar to the sole proprietorship, but in the general partnership business, the liabilities are distributed among the number of partners.
- All the business responsibilities are divided among the partners involved, which makes it easier for the partner, releases the burden from them, and offers minimum compliance.
- In order to convert your sole proprietorship business into a general partnership, you will require two or more individuals to enter into the agreement commonly known as “The Partnership Deed,” which includes the complete checklist of rights and responsibilities of all the partners.
Important factors that you need to keep in mind while you convert Sole Proprietorship to a Partnership:
Dissolving the proprietorship through declaration:
Though, there is no such procedure for converting a sole proprietorship business into a general partnership.
Furthermore, you will require filing a separate application as a general partner. The partners can then include a provision in the partnership deed, which consists of the assets of proprietorship business, dues, business liabilities, creditors, and debtors are transferred to partnership book value, and the sole proprietorship book will be automatically dissolved.
After that only, your sole proprietorship business will be converted into a general partnership.
Duration of partnership:
Most of the time, partnerships are formed for a specific reason or project. Once the reason is successfully fulfilled, the partnership also comes to an end. If the same is the case with converting a sole proprietorship business into a general partnership, then the signed partnership deed will include the purpose of the partnership and the duration till the partnership will be valid.
Contents of a partnership deed:
The partnership deed is very similar to the Memorandum Of Association (MOA) and Articles of Association (AOA) of the company. It is one of the important documents that includes the outlines of how partnership business will be conducted, the partners’ responsibility, and in what ratio the profits will be shared, etc.
The partnership deed basically contains the following information:
Primary details: The partnership deed includes some basic information about the partnership firm, including the business’s registered address, the name of the business under which the firm will operate, and a short description of the business entity.
Investment Information: The partnership deed also mentions some financial information about the partnership, including the capital contributed by every partner, the salaries that must be paid to every partner, ownership of shares that every partner is entitled to based on their capital contribution, and the ratio based on which the business income will be divided.
Accounting for Cash Flow and Profit:
The partnership deed also includes the essential information about how accounting for cash flow, i.e., profit and loss, business assets and liabilities, will be done, details the various methods that can be used to raise funds.
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A brief comparison between the Singapore sole trader and general partnership
Below we have outlined a brief comparison of converting a sole proprietorship into a general partnership in Singapore.
|Sole proprietorship||General partnership|
|Only one person is needed to establish a sole proprietorship business in Singapore||Must have at least two members to operate general partnership business in Singapore|
|You must have a local address||You need to have a local address continue to operate business activities|
|Personal income tax will be charged from the sole trader||Corporate or personal income tax will be charged based on the partners involved|
Steps to convert a sole proprietorship to a general partnership in Singapore
Once you have decided to transform sole proprietorship business into a general partnership, you will require following the below-given steps:
De-registering a sole proprietorship in Singapore
As already mentioned that there is no direct way to convert a sole proprietorship business into a general partnership business in Singapore. No matter functioning of both the business entity is similar to each other; both are not considered legal entities.
According to the Singapore company law, if you are willing to convert a sole proprietorship business into a general partnership, business owners first need to de-register the proprietorship business with Accounting and Corporate Regulatory Authority (ACRA) and then file the application for registration as a general partner with ACRA.
The registration of a proprietorship business is essential because Singapore’s sole proprietorship business registration requires only one member, whereas partnership businesses require a minimum of two partners.
Choose local partner
The next step is to select the local partner. Once you have chosen the local partner to join you in Singapore’s general partnership business entity, move forward to the next step to register a general partnership business.
Registering as a general partnership in Singapore
After you have successfully registered your sole proprietorship business and selected a local partner, then you will require to sign the general partnership agreement with your selected partner and file with ACRA. However, sole traders can also ask one or more members to join them in a general partnership.
Assets of a sole trader will be retained.
While converting a sole proprietorship business into a general partnership, all the previously held assets and business liabilities of the sole trader will be retained.
Choose business address
The final step involved in converting a sole proprietorship business into a general partnership is choosing the registered business address where all the relevant company notices and forms will be sent by the Inland Revenue Authority of Singapore (IRAS).
Apply for required licenses and permits
According to Singapore company law, it has been mandatory for some business entities to apply for the required licenses and permit to continue operating business activities in Singapore. However, in order to continue operating a general partnership business in Singapore, you will need to apply for a new license and permit.
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We hope the information in the above article is sufficient enough to help you understand how to convert a sole proprietorship business into a general partnership in Singapore.
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