Convert sole-proprietorship to company for Dependant on LOC

[Strong Eagle]

Why go through all the hassle of converting to a different business vehicle? You haven't said but I assume you would apply for another LOC for the other DP you want to bring on board?

At this point, you have a business (not a company), and it can do everything your pte could do with respect to asking for another LOC.

Tell me why you think you need to change your business structure.

[SICSW]

Thanks for prompt reply Strong Eagle.

The main reason is that I want this person to invest half the cost of the App as well as share half the profits from it while keeping the counselling business separate somehow.

[Strong Eagle]

Thanks for prompt reply Strong Eagle.

The main reason is that I want this person to invest half the cost of the App as well as share half the profits from it while keeping the counselling business separate somehow.

Creating a private limited in no way makes the above happen automatically.

First, there is no separation of activities in terms of reporting or enforcability of distribution of profits, or responsibilities for debts. A pte ltd reports income and expenses, period. Creditors will have claim on the common income of the company, no matter who or how the debts were incurred. In other words, a pte ltd creates no kind of shield or wall with your partner at all, nor does it keep your counselling business separate.

How profits are divided up and how they are to be paid is determined by directors resolutions in a pte ltd. But, you can already do that with an agreement with your future partner in the business.

Similarly, you could invest in a pte ltd by issuing shares equally. But why do that? It is easier for each person to simply loan money to the company, to be paid back over some period of time.

In short, a private limited gives you no protection from your partners, nor does it separate the business of one partner from another.

In terms of keeping track of each partner's contributions, these are accounting entries. Your income statement shows two or more income sources... etc.

[SICSW]

This is really helpful, thank you Strong Eagle.

So, what I am now thinking is best:

• stick to the sole-proprietorship,
  encourage the partner to set-up her own sole-proprietorship and get her own LOC
  create an agreement between the two businesses where her loan for investing in the app entitles her to 50% of profits?

We are not talking about huge sums of money but do you think we should get a lawyer to draw out the agreement?

Many thanks!

[Strong Eagle]

This is really helpful, thank you Strong Eagle.

So, what I am now thinking is best:

• stick to the sole-proprietorship,
  encourage the partner to set-up her own sole-proprietorship and get her own LOC
  create an agreement between the two businesses where her loan for investing in the app entitles her to 50% of profits?

We are not talking about huge sums of money but do you think we should get a lawyer to draw out the agreement?

Many thanks!

The above is probably the most "arms length" way of doing business... you have separate finances and a contract that states deliverables and costs between the two of you. Of course, failure to perform on the part of a partner can still lead to lawsuits but your own business cannot be destroyed by the direct actions of a partner in it.

The other way to approach this is to hire your partner under employment contract, with you getting the LOC for her/him from your company. Employment contracts can contain just about anything you want them to contain, including required investments, KPI's and other targets.

I wouldn't fool around with a lawyer. This is small potatoes and the usual attorney will write you a 200 page contract for large sums of money for issues which will never befall you. Do some google research... employment contracts, contract for services and such. You'll get a pretty good idea of what is needed... definition of deliverables, quantification of costs, quality and time parameters, bonus for early completion and penalties for non performance.

[SICSW]

Thank you for the advice Strong Eagle.

My friend will set up her own sole-proprietorship and we will write an agreement between the two businesses.

I have heard many times that a company is better because of lower corporate taxes but we would still have to pay taxes on our personal income so I guess it doesn't make much difference, does it?

[Strong Eagle]

Thank you for the advice Strong Eagle.

My friend will set up her own sole-proprietorship and we will write an agreement between the two businesses.

I have heard many times that a company is better because of lower corporate taxes but we would still have to pay taxes on our personal income so I guess it doesn't make much difference, does it?

There are advantages to a pte ltd. First, it tends to lend "gravitas" to your business. It's a real, separate entity. Banks may be more willing to grant you credit and/or credit cards, albeit with a personal guarantee. You may look more legit for customers and financiers.

A pte ltd also provides a corporate shield from your personal assets. Should the company be sued, your personal assets cannot be attached. Note however, that a director can be sued for breach of fiduciary responsibility.

As far as taxes are concerned, there is a tax free grant on the first $100,000 of profit for the first 3 years, and a pretty good deal thereafter. You could pay yourself directors fees instead of a salary to avoid CPF but that's not applicable in your case.

Good luck.

[livingontheedge]

I don't see how setting up a sole prop and your partner setting up a sole prop is supposed to ensure that your partner sticks to her end of the bargain and claims as much profits as pre-agreed, anymore than a Company will.

Where are you going to house the App - in the sole prop or Company? Housing the App under a sole prop alongside your other businesses under sole prop may expose you to risks, claims and losses than separate Companies can limit.

[ysabelle]

Hi has anybody here tried to apply an LOC under DP of an SPASS holder?

I want to register a sole proprietorship and apply LOC to work on my own sole proprietorship, but the problem is Im a DP of an Spass holder. Is there any possibility of approval on that? or should I apply work permit for myself?

reply is much appreciated.

[sundaymorningstaple]

Hi has anybody here tried to apply an LOC under DP of an SPASS holder?

I want to register a sole proprietorship and apply LOC to work on my own sole proprietorship, but the problem is Im a DP of an Spass holder. Is there any possibility of approval on that? or should I apply work permit for myself?

reply is much appreciated.

Makes no difference. As long as the S pass holder is making more that the requisite 4K/mo there is nothing stopping you from attempting to get an LoC on a DP/Sole Proprietorship other than depending on the type of business you intend on starting. But remember, your LoC is contingent on the S pass holder managing to hold onto his own pass. Once he loses that, you lose your LoC. Even if he changes jobs, your LoC will be canceled when his S pass is canceled. You would have to reapplly once he receives a new pass.