5 Million+ Revenue? Convert to Private Limited Company for Audit Exemption

Last modified: March 23, 2016

Convert-to-Private-Limited-CompanyThe number of company incorporation Singapore is high. Currently, the private limited companies and exempt private companies make the most of them. There is a reason why local and foreign entrepreneurs prefer one of these structures for the company incorporation. Both of these business structures are powerful and limits the liabilities of their owners. Prior to 2003, private limited companies ruled the Singapore company registration scene.

Who Gets the Audit Exemptions in Singapore: Exempt Private Company or Private Limited Company

The Companies (Amendment) Bill 2003 and Exemptions From Statutory Audit in Singapore

In 2003, so many of Singapore companies took advantage of the amendments to Company law that introduced Exempt Private Company (EPC) business structure to Singapore business owners. According to it, private companies must fulfill the following requirements to qualify as an EPC.

  1. Annual turnover of less than S$5 million
  2. Less than 21 employees and
  3. No corporate entity as its shareholder

The move resulted in a business entity (EPC) that has,

  1. Reduced statutory audit compliance
  2. No need to appoint an auditor, like other entities
  3. Been exempted from holding Annual General Meetings
  4. A certificate of solvency, vouched by an EPC’s company secretary is enough for the Singapore authorities
  5. Reduction in the cost of statutory compliance

The Companies (Amendment) Bill 2014 and Exemption from Statutory Audit in Singapore

Something on the same scale is in the offing for the small Singapore companies. Singapore lawmakers have made changes to the Companies Act. They have defined what constitutes a ‘Small Company’ for the purpose of audit exemption.

Requirements of a Small Company in Singapore

A Singapore business, in order to qualify as a Small Company must fulfill the following requirements.

  1. It must be a Private Limited Company
  2. Its total annual revenue should be less than S$10 million
  3. The number of employees working for it should not be more than 50
  4. Its total assets should be less than S$10 million

What it Means for the Existing Sole Proprietorship and Limited Liability Partnerships

The owners of the sole proprietorship and limited liability partnerships have to pay personal income tax on their income from their business firms. They also fail to get tax exemptions applicable to the new start-ups and existing companies as their firms are not considered as incorporated ones. Assets that are acquired during the course of business, are in the owner’s name and the liabilities of the business are his own. The personal assets of the owner, if it comes to that, are pledged towards the payment of the liabilities of the business.

A number of business firm owners who wanted to qualify for the tax and audit exemptions have taken benefit of the Amendment Bill of 2014. They have already converted their business firms to private limited companies.

How to Convert Your Sole Proprietorship or Limited Liability Partnership to a Private Limited Company

  1. First of all, the owner of the business firm must hire one of the experienced firms in Singapore company incorporation.
  2. The experts, working at these professional firm, will then open a company in Singapore in the form of a private limited company.
  3. They will then transfer the assets of the old business, pay off the liabilities and transfer the balance to the newly incorporated company.
  4. They will then assist the owner in terminating the old business firm (Sole Proprietorship or Limited Liability Partnership), following all the requirements imposed by the ACRA.

The changes in the Company Act came into force starting 1 July 2014. An entrepreneur opting for the company incorporation Singapore needs to incorporate a private limited company. To qualify for audit exemptions, such a company will then have to fulfill at least two of the ‘requirements for the Small Company’. In addition to the audit exemptions, this company will then also qualify for the tax incentives, benefits, and exemptions that the Singapore government awards to the new start-ups.

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