Frugal Foundations: Cost-Effective Strategies for Company Registration in Singapore

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To frugal companies, the point of good corporate governance is to ensure that management and the board ‘continually affirm their effective stewardship’ of company assets. According to the authors, it is to seek balance among the pressures for growth, risk, optimization, robustness and sustainability. They reiterate Charles Meeker’s statement that the essence of stewardship is to care for and guide the continuing evolution and vitality of an asset, whether material or intellectual. Unlike Mr. Meeker, they provide detailed examples of the balance amongst growth, risk, optimization, robustness and sustainability. The goal is that, in moments of crisis or opportunity, a company is not tethered by existing liabilities; in moments of strategic decision-making, the company is unclouded by any material distortions or distractions.

Companies can take a leaf from the Singapore government’s economic blueprint when setting up operations in the Lion City. The local agency responsible for promoting startups in the city-state – Spring Singapore – has continually been promoting a practice that is used by many successful local companies. Before any single dollar is spent on marketing, technology, infrastructure, training or people, the first order of business is putting in place conservative corporate governance that ensures relentless, austere fiscal discipline.

Overview of Company Registration in Singapore

The Accounting and Corporate Regulatory Authority (ACRA) is Singapore’s government agency that handles company registration and has taken great strides in providing digital submission of all necessary paperwork and additional information. This reduced a lot of the hassle in communications and the need to make trips to the office, which is always a positive. However, government websites have the reputation of being cluttered, cumbersome, and arbitrary on the information they demand throughout the process. Such is not the case with the BizFile+ service offered online by ACRA. Decimal format the use of acronyms in the full paper (e.g. “Online filing on ACRA’s BizFile+ service is simple and straightforward.”). Running through the entire process, even for first-time inexperienced self-filers with no information beforehand, the online filing is a refreshingly straightforward step-by-step online document submission process with a wonderfully clear checklist of submitted documents and the ones not submitted, and includes document verification within 15 minutes at the office of the third party that binds a corporate entity and an individual/entity for all online submissions. This all for the standard S$315 fee added to the registration process.

There are strong incentives to pursue frugality when starting a new company, and some opportunities for significant savings when pursuing the registration of a Singapore-domiciled company. As I prepare for the process of registering BinaryEdge Pte. Ltd.’s Singapore subsidiary, I decided to write down my experiences pursuing a new foreign entrepreneurship avenue and sharing the knowledge I gain along the way. Lawyers and accountants are always an option when it comes to company registration; however, their fees just for the initial registration and general consultations can range upwards from S$2,000. Additionally, companies are required by Singaporean law to have a company secretary, which can be especially problematic or costly for autonomous individuals. Surely these professionals can streamline the incorporation process and any potential issues that could arise, but their fees are too high of an entry barrier in my current context.

Importance of Cost-Effective Strategies

The same business owners will then set aside a substantial sum averaging $1000 to $5000 a month for business operations, usually without contingency plans for financial support when the business turns out less successful than expected. It is also disconcerting when these individuals prefer, if not only rely on, online ads promoting low, if not the lowest, prices for business registration services. This indicates their lack of market research and understanding that the price is ultimately reflective of a service provider’s location (i.e., far away from prime business districts). Many of these companies use hidden or additional fees as part of their business model, which in actuality presents an inconsistent, if not exaggerating, portrayal of their real value – not to mention the fact that it leads to customers wasting hundreds of dollars they could otherwise save for their business operations.

It is a well-established fact that Singapore makes it not only easy, but also affordable for business owners to set up their companies on the island. In order to encourage business owners – both locals and foreigners – to incorporate their companies in Singapore, a number of cost-effective strategies and business-friendly schemes have been introduced. This has led to the steady increase in the registration of businesses in Singapore over the last few years and it has helped transform a town island into a thriving city. However, countless small business owners still fall into the trap of registering their business without first evaluating the cost-effective strategies that can be leveraged. As a result, a significant amount of their initial capital is often consumed by registration-related fees and expenses. Therefore, cost-effective strategies to save money for a company’s registration, even under $500, are usually seen more as a necessity to start a business rather than a proud moment to celebrate.

Choosing the Right Business Structure

Under Singapore company law, there lies a collection of business vehicles principally practiced by suitable companies for business formalisation in the economy, namely the Sole Proprietorship, Partnership and the Private Company. The non-existence of the Limited Liability Partnership (“LLP”) for young companies is not bringing as much of the formation capital cost differential or any operational quantum improvements; hence, it is not practically being the best fit for our sample organisations. Thus, the foregoing question is essentially tapered down to a highly predictable economic trade-off contrasted as between the Sole Proprietorship and the Private Company models. While Sole Proprietorship and the Private Company (Limited Liability Company) considered as the simplest in structure among the three in Singapore business community, they are starkly dissimilar in a multitude of operational and financial dimensions. In view of the obvious social benefits stemming from limited liability attributes, including the relatively lower cost of business organization on compliance, monetary and reputation preservation fronts, we are then naturally swayed to the Private Company format as the baseline business vehicle for our sample entrepreneurs to consider.

For entrepreneurs instinctively bypassing the incorporation phase with a tightfisted branding of entity ownership to usher in their next disruptive business venture, such intents are not wholly wrong nor even irrational. In various instances, to which most startup owners will eventually navigate around to develop more sophisticated company structures after the birthing phase, commencement with standard business models, dominated by simple and owner controlled arrangements to overcome unpredictable operational demands, is a sanguine move, as some viable business prospects may not gracefully fit in recommended boxes postulated by traditional corporate development strategies. From such humble beginnings, practice and experience oriented rectifications can be then applied into a more formalised corporate system, as the organisation grows fairly stable in revenue while accommodating pros and cons from conventional formation methods.

Understanding Different Business Structures

Proposed solutions like Angel Investing, VCs or Crowdfunding are most likely to make investment in the C-Corporations of the USA. The companies are both expensive in terms of cost of compliance, broad-based statutory accountability and control (particularly, the required number of directors in proportion to the number of stakeholders). There is a clear trend in alternative businesses in black line where the use of Limited Liability Company (LLC) which has less obligation in terms of statutory compliance, slender in registration cost and is flexible particularly in respect of number and nationality of partners, are preferred. Singapore provides an optimum business structure similar to LLC, called Private Limited or Pte. Ltd. Company or LLP. A Pte. Ltd. com is recommended because of predominantly three reasons. First, it has the privilege of protection under the law, control and ownership privacies without any statutory obligation in terms of the number of appointees; secondly, cost-effectiveness compared to other business structures in the long run; and lastly, investment innate in its composition. Any other proposed model for business registration in Singapore (except another LLP) discussed in the live plan including Subsidiary Company, in terms of cost and treaty status is not ideal for our business that targets the global market and invests in Singapore. Other options are discussed in the subsequent chapters.

It is important to make the right choice of an appropriate business structure for your business primarily because that will determine the liability of owners, tax treatment, and number of partners. Various business structures in Singapore are such as: Sole Proprietorship, Partnership, Limited Liability Partnership, Private Limited Company, and Subsidiary Company. As a small business, our choice of the structure must not only provide protection of our business interest but also be cost-effective in terms of cost of registration, compliance, maintenance, tax, and flexibility in respect of need-based small expansions and inclusion of partners.

Pros and Cons of Each Structure

To what extent are the assumptions underpinning the essential reasons for managing several companies in the group valid? Several pros of managing a single enterprise arise, starting with the fact that simplicity remains cost-effective for the following key advantages, taking into account that systems scale and costs go down. One of the major reasons for managing multiple companies is the assumption that “separate legal entity has a separate shareholding and is capitalized”. For a nascent venture, this isn’t likely, and so it can be the case to rely on the parent and supporting structures to look after the capitalization of the subsidiary instead. Other justifications, however, can ring true in terms of the risks to which the entrepreneur is exposed. Any entrepreneur may handle debts by way of insurance, and accumulate other assets which are destined to be purchased, such as a house in a relatively less vulnerable municipality. Even an entrepreneur with serious risk exposure may use protective structures, like separate trusts for the benefit of family members, who are to hold the portions of the shares of the companies that would have belonged to the free-prone leader of the venture instead, and would be left open to the whims of creditors or courts sitting in obscure and with which no always reasonable relative happens to be affiliated.

To understand the differences between the three options for setting up a business in Singapore, relevant facts and figures are provided on whether the entrepreneur will run between one and three companies under the same parent (with all pros and cons considered) or just one individual entity for which incorporation and operations are considerably more straightforward. The pros of running with separate companies are

(a) the greater protection of assets, which allows the entrepreneur to ring-fence the “hot” business from the rest, shield the others from contingent liabilities, and employ them as champions serving the objectives of the primary enterprise;

(b) the possibility to have funds moved between affiliated companies;

 (c) the enhanced ability to recruit and retain employees, through the creation of managers or employees or partners in the aforementioned entities, who can work across the frontiers of multiple jurisdictions; and

(d) the ability to manage the tax base by offsetting losses in certain companies with profits in others. Simplification, on the other hand, boosts the value proposition by reducing admin work and forming expenses, and providing ease of understanding, flexibility, and application in other jurisdictions.

Minimizing Registration Costs

Entrepreneurs must be careful when selecting an appropriate par value for the shares, without falling into a trap of having too high a value, which can lead to the founders being priced out as the company grows. This could potentially happen if investors demand that their investment form the majority share of the company. Therefore, the selection of the par value for shares is a critical decision that entrepreneurs must make, and should be based on the local market situation and the unique circumstances of the individual company. For start-ups in Singapore, a par value of S$0.01 is an acceptable value because it can easily be divided down even further than to the SGD1 issue price, and it also does not trigger tax obligations with IRAS. In Singapore, start-up companies alternatively can issue share capital in exchange for services through an exemption referred to in the Limited Exemption Order (LEO). The Directors of the company must apply for the exemption and approval is on a case-by-case basis.

Start-up companies can minimize their registration costs by contributing their own services and goods to the company on a par value basis. In the event that there are multiple entrepreneurs, these individuals can also contribute their services and goods to the company as a capital contribution. This will result in the company not having any issued or paid-up share capital. As such, the company will not be required to pay stamp duty to the Inland Revenue Authority of Singapore (IRAS) for the issuance of share certificates (typically $5 per thousand dollars of the value of share certificates). Additionally, shares cannot be transferred until they are fully paid-up, and additional shares will have to be issued if the share does not have a significant premium (such as a value of US$8,000,000). The sale of 10,000 shares at such a high price is largely impractical. Therefore, because of high issuance costs, selecting a higher par value for shares could also serve as a barrier of share transfer and help prevent some disagreements among co-founders.

Researching Affordable Registration Services

Tight-fisted as many companies might be especially when that meant finding needed services lacking and unable to generate internal spending, greedy as many business names were for tens-of-millions in local profit alone (see Annex 1), Singapore’s volume and Share of Expensive Corporate Services proved one even further fact – that enough revenue would indeed spark the formulation of even more business-protective policies and services. Therefore, costing may be in inverse relation to the reality of a country’s actual cost of vital services as much as it is reflective of external forces shaping corporate fees. Such indications, surprisingly, point to unsubstantiated purchase of the most expensive services as an even more self-serving business leech, insofar as pointing out that certain countries actually have a large budget and even foreign-dependency despite their low price tag, will give investors even more reasons to procrastinate over vital business processes regardless of seemingly insignificant country charges such as those for company registration.

Effective marketing is what makes business registration services expensive, making up for the range of advertising costs they have to cover. A transparently marketing-free company registration service will have lower prices because it does not have to make up for any advertising costs. Look at filings online and the respective surge of low-cost online transactions today. Clearly symptomatic of the effects of its mandated effective marketing (in 2012), corporate filing in Singapore costs more. The former alternative by the Company Registrar that was priced at S$250 ($299 via 3E Accounting) after a three-day-long processing, now costs more than double at S$530. Filing online is also respectively more by at least S$100 compared to in-person filing. Clearly take this reflection into account whenever looking at registration fees for everywhere: online and off. Even the process of verifying registration applications costs more online. Clearly, publicly-available policies and services are more important than self-contained company registration. Public scrutiny alone can bring about a good deal.

With no-frills services now available for all sorts of services, you just have to know where to look to find one that’s as cost-effective as it is credible. Say for company registration in Singapore; you need not go for the most expensive one despite Singapore’s high-quality corporate filing. To spot an affordable company registration service, know the following:

Comparing Registration Fees and Packages

To start the company registration process with GuideMeSingapore, one must first visit its website. Upon browsing the website, information on the various packages offered, the costs of these packages, and other important questions are presented in a clear and concise manner. The cost of setting up a company without the optional services offered by GuideMeSingapore is US$570 and the company registration is completed within one hour after full payment of this amount is made. Among the four agents surveyed, this was the quickest time to set up a company. The various services which can be added onto this base package range from US$100 for the Nominee Director service to US$843 for GuideMeSingapore’s Annual Compliance Package. Fifty other optional services are available at a cost.

After identifying the various company registration agents and their packages, we compared the fees of the agent offering cheap company registration with and without other services. Setting up a company in Singapore is a business by itself and definitely requires a guide for a person who has no prior knowledge. As such, this paper also presents a list of steps one takes to set up a company in Singapore and an evaluation of the four cheapest company registration services based on these steps.

Managing Ongoing Expenses

Singapore’s Companies Act and its related regulations are clear and straightforward, unlike some countries’ archaic, contradictory, or overly-legalized systems. That said, doing it right requires considerable ongoing and often esoteric reporting (more on this in our next blog), and attempting to manage everything with just a rudimentary understanding will be particularly problematic. While the minimum paid-up capital requirement of SGD1 has been removed, incorporation (UGI Holdings Process Limited) and filing fees typically range from SGD2500 to SGD3500 depending on the speed of incorporation and the complexity of share capital. There are also requirements to operate a registered office in Singapore, to keep books of account, and to appoint an auditor within three months if needed. Lastly, each time changes are made to the company’s constitution or to shareholdings, complicated forms need to be filed with ACRA, and at times expensive professional services may also be necessary.

“Frugal Foundations” refers to the movement by early-stage companies towards extreme capital efficiency in their businesses, which carries forward into all aspects of building an enterprise, including in the legal and administrative underpinnings. Singapore is a popular choice as a home for (fundamentally) foreign startups launching into Southeast Asia, due to its progressive and impartial legal system, an efficient and pro-business government environment, an educated and English-speaking populace, and easy access flights to key Asian business hubs. This entry identifies several affordable strategies for establishing a legal framework on which to swiftly begin developing the rapidly-scalable inheritance of your entrepreneurship endeavors, i.e., to start a company.

Budgeting for Annual Compliance Requirements

The directors of a company are responsible for ensuring that these statutory requirements are fulfilled. However, Frugal Founders can do it themselves with Amex and 24seven’s DIY Tool. The tool provides all documents required for the company’s annual compliance requirements, including a template for the Minutes of the AGM, Annual Returns, and Resolutions needed for the filing of the AR. To facilitate the submission of the AR, the online guide Amex companies through the step-by-step filing process. This means there is no need to hire a Professional Services Firm or a Corporate Service Provider, costing anywhere from S$300 to S$500 per submission, to do the AR. What’s more, this one-time AR filing fee of around S$60 is also eligible for a S$60 rebate under Singapore’s Corporate Income Tax Rebate.

Every Singapore company is required to hold an Annual General Meeting (AGM) and file Annual Returns within 7 months of the financial year end, up to a maximum of 12 months. For the Year of Assessment (YA) 2020 and 2021 only, a company that files its AR within 4 months of the financial year end or by 31 October the following year for a company limited by guarantee will be deemed to have fulfilled the annual filing requirements. This is in view of Safe Management Measures implemented due to Covid-19. Failure to do so can be costly, with companies that fail to comply facing the possibility of penalties or a fine.

Exploring Tax Optimization Strategies

We choose several generalized tax optimization strategies rather than attempting an exhaustive analysis to minimize our subjective biases. Given our original area of interest, our main strategy is SharePoint Strategies, but we instead focus on IP-holding strategies and greenfield companies, holding strategies. To this end, we use jurisdictions for various recent years that best supported firms active in those strategies at the multi-year ticket formation cost available in the World Bank survey to identify major results of multi-national corporations. For all the years in our examination (2014-2016), by examining the leading choices of the available choice spectrum components among firms, we are able to choose the four dominant jurisdictions in the broad categories tabulated in the World Bank’s Using Business Survey.

In chapter 4, major attention is given to exploring strategies for minimizing company formation costs in most jurisdictions as a way to expand the universe of frugal jurisdictions (i.e., place a tax-optimization strategy into frugal usage). Considering that the actual costs for company formation in Singapore are not particularly low, it is surprising that Singapore actually headed our frugality rankings for about three years. The reason for this was not just its convenience, as the frugal aspects we discovered in our early study (e.g., insignificant stamp duties) were not apparent approached through quality. Therefore, among the countries that were not represented on the lists of low company formation cost jurisdictions in the first three chapters, the easiest way to identify other potential frugal targets is to examine results related low-tax optimization strategies applicable to jurisdictions to low type. To this end, we have determined which jurisdictions would be the most appropriate for applying tax optimization strategies as frugal jurisdictions. Although our results do not suggest any new actual targets, we nevertheless find that selecting frugal jurisdictions based on the applicable tax optimization strategies may indeed be considered a valid approach.