You are at: Guides | What to know about company incorporation and business registration
1. Different types of business structures in Singapore
A sole proprietorship is a type of business entity that is owned and run by an individual (natural person), and in which there is no legal distinction between the individual and the business. Given that it is wholly owned and controlled by the sole proprietor, the sole proprietor has unlimited liability and can be sued in his or her name, or the business name. A sole proprietorship is not considered as a separate legal entity.
The profits of a sole proprietorship is taxed based on the personal income tax rate, hence a sole proprietorship will not benefit from the effective corporate tax rate, nor can it benefit from the multiple of tax incentives that are specifically meant for companies.
In general, a sole proprietor must be at least 18 years of age, is ordinarily resident in Singapore and is not an un-discharged bankrupt. However, a sole proprietor can also be a company; in which case, the company must appoint a natural person who fulfills these requirements to act as local manager.
Practically speaking then, it is generally very difficult for investors who reside overseas to apply for a sole proprietorship as the sole proprietor needs to be Singapore Ordinarily Resident. A local manager needs to be appointed if none of the owners is a Singapore Ordinarily Resident. A Singapore Ordinarily Resident is someone who has a local address and can live in Singapore for a long term. A local manager must be above 18 years old and must be a Singapore Citizen, Permanent Resident, Employment Pass holder or Dependant Pass holder.
Very similar to a sole proprietorship in terms of structure, liability and taxes, the single biggest difference is that a partnership has more two or more partners (owners), subject to a maximum cap of twenty individual partners. Once a partnership exceeds this cap, it is required to incorporate as a company under the Companies Act.
As with sole proprietor, a local manager must be appointed who is a natural person and at least 18 years of age, is ordinarily resident in Singapore and is not an un-discharged bankrupt. This business structure allows for foreign individuals or companies to be partners. Similar to a sole proprietorship, the tax rate imposed will be that of the partner, i.e. if the partner is an individual, the personal income tax rates will apply, if the partner is a company, corporate tax rates would apply.
A partnership is not considered a separate legal entity and all partners are personally liable for the partnership’s debts and losses, even if the debts and losses are incurred by other partners.
Given the risks associated with a partnership, a limited partnership provides the option of allowing a degree of limited liability. Same as a partnership, there must be at least two partners, but there is no maximum cap on the number of partners. Of the partners, at least one partner will be the general partner, who will have unlimited liability and will be personally liable for all debts and losses. The other partners may be limited partners, who are not personally liable for debts or obligations, save for that which is his or her agreed liability.
Both the general partner and limited partners can be either individual of at least 18 years old or a corporate entity. In addition, in the case where the general partner is not ordinarily resident, a local manager who is ordinarily resident will have to be appointed. Similar to that of a sole proprietorship and partnership, a limited partnership will not qualify for any tax incentives provided to companies and profits earned will be subject to each partner’s personal tax rate. However, if the partner is a company, then corporate tax rates would apply.
Limited Liability Partnership
A limited liability partnership (“LLP”) is very different from a partnership and limited partnership; and resemble to a private limited company. The partners of an LLP are taxed at their personal income tax rate and an LLP will need to submit an annual declaration of solvency to state whether the LLP has the ability to satisfy its debts during the normal course of its business. This requirement is not applicable to the other forms of partnership.
The key differences between an LLP and the other forms of partnership lie in its legal status – it is considered to be a separate legal entity from its partners; and can own property in the LLP’s name, which is not possible for the other forms of partnership. In addition, while partners will be held personally liable for debts and losses, this is restricted to debts and losses resulting from their own wrongful actions, not that of other partners.
Private Limited Company
A private limited company is the most common form of the company chosen by entrepreneurs and investors, mostly because of the tax incentives that can be applied for, as well as the fact that it is considered as a separate legal entity and is separate and distinct from its shareholders and directors. The biggest advantages of a company is that the shareholders (owners) of the company will not be held personally liable for the debts or losses of a company. A company can be wholly and fully owned by foreigners.
Unlike all the other business entities, a private limited company can qualify for tax exemption schemes and is taxed at the effective corporate tax rate of less than 17%. There are two key tax exemptions that have proven to be extremely beneficial for companies. For newly incorporated companies that meet the qualifying conditions, 75% tax exemption can be claimed on its first S$100,000 of chargeable income for each of its first three consecutive years of assessment. A further 50% exemption is given on the next S$100,000 of chargeable income for each of the first three consecutive years of assessment.
It should be noted that there are more formalities and procedures for a private limited company to comply with. For example, it is required to appoint a company secretary within six months of incorporation and annual returns are needed to be filed annually with the authority (“ACRA”). The company will be required to be audited for its annual financial numbers depending if the company does not meet definition of a small company under the Companies Act.
2. All about company incorporation
As the most common type of business entity set up in Singapore is a private limited company. We will cover more on the incorporation and requirements of a company.
2.1 What are the requirements to register a company in Singapore?
1 Shareholder (individual or corporate entity)
1 Resident Director
1 Company Secretary
Initial paid-up share capital of at least S$1
A physical Singapore registered office address
2.2 What info is required before incorporation?
Company name: The company name must be approved by ACRA before the company can be incorporated. ACRA will reject a proposed company name if it is identical to another existing Company Name; undesirable; or similar to established Names or trademarks such as Unilever; Keppel; etc..
Shareholder names and details: A minimum of one corporate shareholder or individual shareholder is required to register a company. A shareholder can choose to either act as or not to act as the director of the company. 100% foreign shareholding is allowed, ie. foreigners (non Singapore citizen) can own 100% of a Singapore company. After a Singapore company is incorporated, shares of the company can be freely issued or transferred at any time.
Directors names and details: The company need to appoint a at least one resident director, (ie. either a Singapore citizen, a Singapore permanent resident or a person who holds an employment pass with a residential address in Singapore). There is no restriction to the number of additional resident or non-resident directors that can be appointed to the company. Both resident and non-resident directors need to be at least 18 years old, not bankrupt, and free of any criminal malpractice charges in the past.
Share capital and paid-up capital: The minimum paid-up capital to incorporate a Singapore company is S$1 or its equivalent in any currencies. The minimum issued number of shares is one share. “Bearer” share is not permitted. The share capital capital can be increased anytime after incorporation of the company.
Registered address: A company must provide a local, physical Singapore address to be the registered office to which all notices and official documents may be sent and at which the company is to keep the various registers that it is required to maintain under the law. The registered address cannot be a PO Box.
Company secretary: The company will need to appoint a qualified resident company secretary within 6 months from the company incorporation. Sole director and/or shareholders cannot act as the company secretary concurrently. The company secretary is is essentially in ensuring regulatory compliance of the company with the companies act.
2.3 How long does it take to incorporate a company in Singapore?
The company registration procedure in Singapore is fully computerized by Singapore’s Accounting and Corporate Regulatory Authority (ACRA). The entire process to incorporate a company can be completed within a same day if there is no exceptions. It is therefore important that you have the complete information and identification documents to prevent any delay for compliance approval.
The company name reservation generally takes 30 minutes and require these information: (1) company name, (2) business activity, and (3) resident director/ shareholder name and details. They are 3 possible outcomes to the name reservation application - approved, rejected or referred. A name will be rejected if it is considered to be sensitive e.g. Temasek. If the name is considered to be similar to an existing name or if it includes specific references to regulated industries, e.g.school, the application will be referred to the relevant authority for approval which can take from 7 days up to 2 months for approval. Upon approval, the name will be reserved for a period of 120 days and incorporation should be completed within this period.
When the Singapore company has been incorporated, ACRA will send an official email notification to confirm it. The email notification includes the company registration number and is treated as the official certificate of incorporation in Singapore. A business profile (PDF file) of the newly incorporated company will also be available for download soon after the company is incorporated. A business profile will contains the following details:
Company name and registration number (and any previous names for the company, if any)
Registered office address
Company secretary details
The email notification of incorporation and company business profile are sufficient in Singapore for all legal and contractual purposes, including the opening of corporate bank accounts, signing of office leases, subscriptions to telephone/internet services, etc. Also, it is highly recommended that the company seal and company rubber stamp be ordered and made available as it is almost certain these two items will be required for contract and agreement signing.
3. What is next after incorporation?
After the company is incorporated, there are few matters to look into before the company is ready for business. We cover some of the more common items that most new companies will require:
Company bank account: Once the company has been incorporated, you will need to open a corporate bank account in Singapore in order to carry out business with your customers and suppliers. You may choose either the local or international banks based in Singapore, e.g. DBS, OCBC, UOB, SCB, Maybank, HSBC, etc.. Most banks require that the account signatories and directors be physically present in bank branch office in Singapore to complete and the paperwork in front of the bank officer when opening the company bank account. If you are unable to come to Singapore, some banks may accept the signing of documents at one of their overseas branches or at a Notary Public.
Business license and permits: Some business in Singapore require the company to obtain a license/ permit from government authorities before the company can begin its business. Private schools, travel agencies (STB), liquor distributors (SPF), moneylenders (MAS), fund services (MAS), childcare centers (ECDA), food and beverages business (NEA), and employment agency (MOM) are some examples of businesses that need permits to operate.
Singapore Central Provident Fund (CPF): If the company is going to hire manpower/ staff to carry out the business, it is very likely that the company will employ at least one (1) local resident (Singapore citizen or Singapore Permanent Resident (PR)) to work in the company. If this is the case, the company will need to contribute Central Provident Fund (CPF) to these local residents. The CPF is a compulsory pension fund scheme in which the employer and employee contribute a percentage of the monthly salary to the fund. CPF contribution by the employer is mandatory for all local employees who are Singapore citizens or permanent residents earning more than S$50 a month. The maximum CPF contribution rate for employer and employee is 17% and 20% respectively and can be lower depending on certain factors such as employee age for example. There is no requirement to contribute CPF for foreign employees.
Custom registration: If your business activities involve import, export, and transshipment in and out of Singapore, you will need to register your company with the Singapore Customs and obtain a CR Number (CRN) or commonly known as Custom Registration. The CRN is mandatory for Singapore companies or organizations engaged in trading activities.
Goods and service tax (GST): GST is equivalent to VAT in other jurisdictions. In Singapore, the GST is 7%. When a company’s turnover is S$1 million or more, it is compulsory for the company to register for GST and file its GST returns every quarter. You can only charge and claim for GST if you are GST-registered. A company can also choose to register for GST voluntarily. There are however rules and regulation attached to voluntarily registering to be GST-registered company.
Business insurance: The company on most instances will need to obtain general liability insurance, workers compensation insurance, and any business specific insurance that may be applicable to the business. Reach out to us for recommendation to a a good insurance broker which they can be of great assistance during as your business grows.
Accounting system: It is important to keep accurate track of the income and expenses of your business from its very first day of operations. With an accounting system you will be able to track the business performance and also allows you prepare for the company tax filing with the authorities. Henceforth, the implementation of an accounting system is something that the company should set up before any business is transacted. Let us know if you needed any advice or recommendation on which accounting system to adopt or you can also reach out to us for fuss free accounting system implementation. It is most likely for early phrase of your business, there are limited transactions and it is unlikely the company need full time staff for this function; in such cases, outsourcing the accounts will be very cost-effective.