Earlier on in these guides, we outlined the different drivers and restrictions of the entity-types available in Singapore as well as the compliance requirements and the associated costs. Both Guides, Part 1 and Part 2, are part of a total package of 5 themed guides, to walk you through setting up your company in Singapore completely international business language but concisely, with a focus on practical issues, to save you time and eliminate jargon and complexity. When you have decided which Singapore company structure would be most appropriate for your business needs, you might want to take a look at Guide 3, which informs you about the steps and procedures to register a new business in Singapore. For a maximum overview of your responsibilities as a business owner in Singapore, in relation to the corporate entity structure you chose, and labor, immigration, taxation, compliance and health and safety issues, take some time to read through Part 4 and Part 5 as well! We wish you all the best in establishing your new company in Singapore and we are here to help you should you require assistance with that!
Congratulations on deciding to set up your company in Singapore! There are so many decisions to be made when establishing your company. One which is of paramount importance is to choose the right legal structure for your firm. It will either give you a solid foundation on which to grow your business, or it will make it almost impossible for the business to thrive and grow. Selecting the right corporate entity comes down to bank credit and taxation implications, risk exposure, compliance procedures and cost, among other things. It is essential to get this part right from the start. As for many things in Singapore, the options are among others to choose from!
Understanding Legal Structures for Singapore Companies
There are relational and definitional distinctions between the legal structures for Singapore businesses. The relationships and definitions must be examined by the business owner to determine what makes the most commercial sense if he or she is planning to operate at a single basic level or have the capacity to change the level of risk and different revenue streams in separate businesses. In all cases, the decision must be made with safety and also potential for growth and adaptation for the future. The considerations to be taken into account include whether persons or entities other than the business owner should have an ownership interest in the business, what is the level of liability that the business owner would want to be exposed to. In addition, what are the business owners’ personal needs, risk appetite, tax planning, investment horizon, and its business and financial cycle.
At a basic level, business structures may be divided into large multinational corporations and smaller local proprietary or partnership entities. Although larger private entities or even not-for-profits may be limited by guarantee, most investor-owned entities are public companies. Larger entities may arrange their businesses into separate companies to create a corporate group of subsidiaries, which are at least 50% owned by the parent (holding) company. These structures allow the parent company to protect its assets from being used to satisfy the parent company’s liabilities. At the other extreme, the smaller local business operator would typically find the financial, compliance, and administration requirements of companies excessive if he or she opts to conduct businesses as a sole trader, or perhaps as one of a number of partners in a partnership entity.
Sole Proprietorship
The business profits are subjected to the personal income tax rate. If the business has no other source of income, a sole proprietorship will have no need for audit according to Company Act, Chapter 50, Section 175. Under the company’s internal Audit Exemption Requirements, if two of the following three conditions are met for the immediately preceding financial year – Total revenue does not exceed $10 million, Total assets do not exceed $10 million, The number of employees does not exceed 50, the company also does not need to have its financial statements audited. Closure of the business is also simple. The sole proprietor will need to deregister with ACRA, the IRAS and the CPF Board and settle any outstanding VAT accounting with the IRAS. However, the self-employment income of the sole proprietor is not covered by CPF protection which is available to ordinary wages.
A sole proprietorship is a business entity owned by one person. It is the easiest to set up. No formal registration with any statutory body is required. A sole proprietor simply needs to notify when starting business and deregister it when ceasing business. A sole proprietorship is not treated as a separate legal entity. The sole proprietor owns and runs the business and is personally responsible for all the liabilities arising from the conduct of the business. It should be funded by personal capital from the sole proprietor. A sole proprietorship can employ people utilizing Central Provident Fund (CPF) accounts if the business is registered for the GST. It can be cheaper and easier to administer a sole proprietorship.
Partnership
For the purpose of protecting creditors, there is no need to make public filings to create a partnership. Unlimited partners are protected by having their names recorded with the Accounting and Corporate Regulatory Authority. If the name of an unlimited partner is not recorded, regulations do not take precedence in any claims of the partnership’s assets by third parties. If a partner becomes mad or disgracefully found, he will remain liable as a partner for all obligations and losses of the partnership until the date of registration of the notice of the inability of the partner or guardian. A partner cannot get out of a partner oath, note, or court’s order, from any obligation or the injury of the partner. The partnership is responsible under this Law. At the request of the assignee, the partner’s estate is guaranteed an account of the profits of the assignment partner for a value that is being proven to have been made for a partnership in business.
In Singapore, a partnership consists of at least 2 and no more than 20 partners. A partnership is not a separate legal entity from its owners, who are personally liable for the debts and obligations of the business. A partnership can be limited or unlimited. Some features of a limited partnership are: a partnership can be formed by signing a partnership agreement, or it can be formed simply by de facto partners carrying on a business without a proper agreement. Each partner is an agent of the partnership, able to bind the partnership to business transactions. Taxes are not paid at the partnership level; partnership profits are allocated to partners, who are taxed as individuals. Every partner must automatically make his own Annual Income Tax Return.
Private Limited Company
A Pte Ltd Company can be set up with a single shareholder who can also act as the sole director. Both the director and majority of the shareholders must be Singapore citizens, Permanent Residents or EntrePass holders if the company wishes to be classified as a local company and enjoy local company benefits, incentives and tax exemptions. As such, if you are a foreign entrepreneur intending to relocate to Singapore and assume an executive role in your Singapore company, you must select a suitable work pass that will allow you to do so. Upon relocation, you may then be able to apply to the ACRA to be appointed as a Director or Business Administrator of this company.
Private Limited Company. The most common form of business entity in Singapore, the “Private Limited Company” or “Pte Ltd”, is a separate legal entity that is owned by shareholders and managed by directors. Incorporating a private limited company is the most flexible and scalable business structure in Singapore for a business. The maximum number of shareholders in a private limited company is 50. Owners or shareholders are not responsible for the company’s debts and liabilities, and are only liable for the amount unpaid on the shares they hold.
Limited Liability Partnership
The main characteristics of an LLP include its separate legal entity status, perpetual succession of an LLP, partners’ limited liability, and management by board or managers, etc. Additionally, it is noteworthy that all other partnership legislation will not apply to an LLP, and all rights and powers and duties enjoyed by the former partners of the partners of a partnership, which have contractual relationships with them or any rights, powers or obligations against or in favor of a Limited Liability Partnership can still be enforced.
A Limited Liability Partnership (LLP) is established under the Limited Liability Partnership Act, which came into effect on 1 March 2005. LLPs are a business vehicle enabling professional expertise and entrepreneurial initiatives to be combined in a single business entity. This means that partners are not usually liable to any personal risks beyond their agreed contributions. LLPs must have at least two partners and can have an unlimited number of partners. Corporate bodies can also become a partner in an LLP, and are entitled to all rights and obligations of a partner, subject to other relevant governing legislation.
Factors to Consider When Choosing a Legal Structure
For a business that is going to be jointly run by two or more individuals, a partnership is generally appropriate. If the Singapore business is going to be run by a business owner working individually, the sole proprietorship structure is usually chosen. This structure is also the least expensive to set up and administer as compared to the partnership, company, or corporation structures. Other important factors to consider when selecting the correct legal structure are the personal liability of the business owner, the profitability of the business, and the insurability of the business. The sole proprietorship does not limit personal liability for business losses if a claim arises. This legal structure can be problematic, especially if the business becomes insolvent, and the owner risks either losing the asset of the business or his or her personal assets.
Factors to consider when choosing a legal structure. In general terms, businesses are organized with one of three legal structures in Singapore. Authorized under the Companies Act, possible choices include the following: Sole Proprietorship, a form of business organization in which the business is owned and managed by a single person who is entitled to all the profits. Partnership, a form of joint-business ownership by a relationship consisting of two or more individuals who, as co-owners, pool their resources of skill, finance, and capital in the running of the business. Corporation, or Company, is a legal entity within the jurisdiction of Singapore, with the ability to possess a separate legal personality from the shareholders, owners, and the board of directors. The idea and the concept of how the business is to be managed will have an impact on the legal structure that is chosen.
Liability Protection
Applying third-party analysis, a company will also be viewed as an individual that has responsibilities of its own. As such, it is able to acquire and possess property just like any other person. But this idea of a company being a separate legal entity also brings us to another hot topic in the company legal structure discussion – limited liability and lifting the corporate veil. By virtue of the corporate veil, the company is separate both from its shareholders and its directors. In Hubbard v Vosper (1972), Lord Morris observed that without any rules as to how a company should conduct its business, the corporate veil can enable the true controllers of the company to evade legal obligations. This means that the company is just a façade behind which the true personalities are hiding, for instance, from their responsibilities and obligations.
One of the factors that motivate people to incorporate businesses is their desire to protect their personal assets from being at risk due to their business activities. This is where a company’s legal structure comes into play. In Singapore, a company is a separate legal entity from its members and shareholders. Therefore, shareholders are not liable for the company’s debts and losses. Instead, a shareholder’s liability extends only to the value of their investment in the company. What it means is, if the company goes belly up, the shareholder’s personal assets such as their savings, car, or home will not be affected. It would just mean a sad story of losing money based on their exposure through their shareholding. They will not be in a position of losing their personal wealth in a bankruptcy scenario.
Tax Implications
When deciding on the entity of your business, bear in mind that whilst all entities – partnerships, sole proprietorship and tax resident entities – may be taxed on business asset income regarded as business income (i.e. achieve the tax benefits) on business asset income, unincorporated businesses like partnerships and sole proprietorships pay tax at the personal tax rates of individual partners and sole-proprietors. This is an important consideration when determining which entity your business assumes. Withholding taxes on royalties, interests and technical service fees are to be considered for withholding tax upon payment by Singapore-based companies. It is crucial that corporations identify these transactions to ascertain whether or not to transact them from Singapore. If the companies’ accounts fall short of the criteria of SFR 125, such transactions may not attract withholding tax.
After the legal and statutory requirements, it is important to consider what the tax implications are regarding your choice of business form. Some forms of business entities may appear to be more efficient, but may not always be the most efficient in the eyes of the IRAS. The easiest explanation of local taxation is that resident companies are subject to income tax at the rate of 17.5% on chargeable income. Generally, resident entities such as limited liability companies and branches of overseas corporations are taxed locally on their chargeable income, based on IRAS guidelines on what is taxable.
Ownership and Management Structure
Owner: Sole proprietor (a natural person), Sole proprietor, General Partner (natural person), one or more Limited Partners (companies or individuals) (a LLP does not have partners), Shareholders. Liability: Unlimited, Unlimited, Unlimited, Partners’ liability limited to their share of obligation of contribution, Shareholder’s liability limited to their share of… at least $50,000.
Forms of legal entities in Singapore as shown in Section 3.1 above: Sole Proprietorships (Business Name), Partnership (Business Name), Company Limited by Shares (Pte Ltd) tends to have the following characteristics:
In considering the choice of legal structures, entrepreneurs would need to consider their desired ownership structure and their preference in the management of the company. For example, sole proprietors and partners manage and operate the business, while shareholders are not involved in the daily business operations. Based on the general worker description of the company types, the decision to establish a Private Company Limited by Shares (Pte Ltd) would generally be more suitable for businesses with a proper management and ownership structure, where the shareholders may not be responsible for the business’s daily operation. A sole proprietorship or a partnership is more appropriate for companies that are small and personal in nature, where the business or partner desire to be involved in the company’s operation but assumes personal liability.
Funding and Investment Opportunities
Funding is any injection of money into the company so that the company can acquire more working capital. The law says that all funding can only come in the form of equity shares or preference shares; only the company’s shareholders have the right to buy equity. Accordingly, if the company consists of 100 shares at $1 each, and $50 liquidity is required, the present shareholders can choose to take 5 shares at $1 each in their proportions and keep their current ownership.
To the typical entrepreneur, the prize at the end of the road, if successful, is the sale of the business for a large sum of money frequently referred to as the “exit”. Inevitably, in order to get to that stage, a daily worry of the entrepreneur would be the adequacy of funding available to keep the business running. There are broadly 2 categories of funding options – debt or equity. Briefly, debt instruments are loans and bonds. The entrepreneur retains control of the company and the risk of default if loan repayments cannot be met. On the other hand, some advantages of equity are that no repayments are required, funding is effectively by way of capital raised thus reducing the gearing ratio and the provision of funds does not result in any interest payments that affect profitability. Essentially, the entrepreneur does not have to worry about repaying any funds.
Steps to Set Up Your Singapore Company
– Your name must be unique. It is not allowed to incorporate a company with a name of a similar company unless it is part of your company or it is approved by the existing company.
– Your name must not be too similar to already incorporated company or business names.
– Your company name must not infringe on the trademarks of others.
– Your name must not infringe on the names of established government bodies. For example, the name ‘MP Singapore Pte Ltd’ would not be allowed.
– Certain reserved names like MAS, HDB, CDC or DUKE-NUS cannot be used in the company’s name. It may be allowed after approval by the relevant stakeholders, in which case there is a template available on the ACRA.
These are some guidelines for choosing a name:
In Singapore, private companies are allowed to have limited, or ltd as part of the name. Limited, or ltd can also be translated into Chinese. Please note that when using Limited or Ltd or a similar spelling, they all refer to the same word.
The first step in setup company in Singapore, your Singapore company is to think of a suitable name. When you have decided on the name for your company, you will need to get it approved. All Singapore company names are subject to the approval of the Accounting and Corporate Regulatory Authority (ACRA). ACRA will decide whether they will approve the name.
Step 2: Register a company name.
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Name Reservation and Approval
The registration of a new company begins when a proposed name for the business has been decided. The selected company name could be reserved if there is a need to do so. Reservation of a company name is an optional step. If the name of the new company is readily approved for use, then a prior reservation of the name becomes unnecessary. However, the name should be reserved if more time is required to prepare and submit the incorporation documents since only names that are either successfully reserved or already approved can be used for a newly incorporated company. This name would be held up or temporarily reserved for a period of 120 days, beginning from the date it has been approved. The approved company name could be reserved for this period within this 120-day period, but not beyond it.
In Singapore, companies conducting business activities can choose from three main types of company types, specifically sole proprietorship, partnership, or private limited company. Both the sole proprietorship and partnership entities are not separate legal entities, and therefore provide the owners of the business unlimited liability. Therefore, the owner(s) could be personally liable for the debts of the business. On the contrary, the establishment of an incorporated company, such as a private limited company, provides the owners with the benefit of limited liability, i.e. its owners would be liable only for the amount of money that they invested in the venture and not liable for the company’s debts. Because a private limited company is recognised as a separate legal entity from its owners, the company can enter into contracts or purchase assets and be taxed separately. When limited liability protection, tax efficiency, strong professional image, and perpetual succession of the company were considered the most, the setting up of a private limited company was the preferred and possibly the most suitable option.
Company Registration
When incorporated online, you will be appointed a company secretary if you fail to appoint one during incorporation. Since 28 September 2020, you can now incorporate your company through the Accounting and Corporate Regulatory Authority’s (ACRA) redeveloped electronic filing and information retrieval system called BizFile+, a one-stop service portal for businesses and corporate facilitate faster business registration and instantly generate a company instant information document online in BizFile+ for those who successfully incorporate their company online. Following the successful incorporation of the company, the company’s unique entity number can also be instantly integrated into the company’s name. Note that you will receive a confirmation email from ACRA when you successfully incorporate your company.
After your company’s name has been successfully approved, you can usually start incorporating your company with ACRA. To incorporate a company with ACRA, a subscriber to the memorandum, who is empowered to act as a director, company secretary, and member of the company, can lodge the following forms and documents online through BizFile+ or Authority’s portal. You will need to do the following to initiate your company registration: reserve your company name, prepare your company registration documents, and engage a registered filing agent. ACRA maintains a list of entities that will be able to help you with the online registration of your company. When your registration documents are complete and your name has been approved, your registered filing agent will help to lodge your registration on your behalf.
Appointment of Directors and Company Secretary
Every company must have at least one company secretary within six months of its incorporation. The primary duty of a company secretary is to ensure compliance with the requirements of the law, failure of which would result in a fine and an additional daily fine for the company. Every lawyer who is normally residing in Singapore and foreigners requires the approval of the relevant authorities unless the name is approved by the Board of Authority (ACRA). It is advisable to appoint a company secretary to satisfy related functions prescribed by the Singapore Company Act to ensure compliance with necessary requirements. The company secretary acts as the officers. Refer to section 1. Approval of the company’s name.
Directors will be responsible for the overall day-to-day management responsibilities and formalities. The Singapore Company Act requires a company to appoint at least one director who is ordinarily residing in Singapore. Every director must be at least 18 years of age and not been disqualified from acting as a director pursuant to the provisions of the Singapore Company Act. The name of the company should be submitted to BizFile before preparing the Company name application form and Memorandum and Articles of Association for certifying the appointment of the first director and company secretary. The company will need to register the self-managed SingPass of the director with a SingPass account. It might take 14 days before the reseller, the person authorized to apply for the company’s registration, applies for the registration of the appointment of the director.
Opening a Corporate Bank Account
Once the corporate bank account is opened, it is crucial for the company and the directors to understand what the bank does and does not require from them. The customer boarding process, both in Singapore and abroad, requires that the bank examine the nature of the transactions as well as the company’s revenue source to prevent compliance with anti-money laundering rules. If the bank determines that your business doesn’t qualify for offshore set-up, it may recommend a relocation. After bank account opening, a bank’s client relationship manager will probingly inquire about your plans and why you seek such long processing times for bank transactions. Before answering any questions, it will always be beneficial to consult with RMC or a qualified specialist about what you should or should not say.
Each bank has its unique procedure for account opening, which may differ in time, costs, and set of documents requisitioned. Working with RMC ensures that the corporate bank accounts are opened with a reputable partner bank within several hours. The client’s presence is also not mandatory. Opening accounts in lesser-known or offshore jurisdictions could take one to two weeks due to the higher level of compliance, which is typically necessary in those banks. The bank manager requests certain additional documents that the client must present in person. With an increase in checks carried out by banks, even a simple transaction can take several weeks to clear.
Memorandum and Articles of Association 2. Identity card and residential address proof of directors, signatories, and ultimate beneficiary owners 3. Ultimate beneficiary owner’s consent and residential address proof 4. Company’s business profile from ACRA (as mentioned earlier)
Once the company is officially incorporated, it will need a bank account for its operations. The basic documents that are necessary for the account opening are:
Obtaining Necessary Licenses and Permits
The above-ordered steps might appear to be a bit tedious and difficult. This is not necessarily the case. It is important to note that completing these tasks is usually faster than actually waiting for them to appear after acquiring the property and/or business license, the company formalities will generally be completed in 48 hours! Be sure to appoint the right firm to work for you, rather than have the agent who will call you to set up the whole company, as you will be working in both commercial real estate and business licensing.
What follows is that before you engage and start any business, you should know if you are able to obtain the appropriate license to operate. You can obtain useful information on this through the many companies providing comprehensive services for company registrations. This is an extremely useful service for expatriates who are new to the country (and unfamiliar with business practices in any one particular industry, let alone a different country) and wish to navigate the red tape as quickly as possible.