Why You Should Set-up A Company in Singapore

In times of uncertainty, there are some who would rather write their own destiny by becoming an entrepreneur in Singapore. They leave behind their jobs in the corporate world to build a business of their own. Often, one of the first dilemmas is whether they should be registering a company for it.

Regardless of whether you are a hobbyist looking to monetise your expertise, a stay-home mum / dad who is exploring alternative channels to make some side income or a foreigner entrepreneur thinking of setting up a business in Singapore, the question of incorporating a company or not, is an important one to ponder.

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Why you should incorporate a company?

One of the main reasons why you should consider incorporating a company, is that it offers protection for you, the business owner! Operating a registered company protects the assets of the business owners from creditors and potential lawsuits, as a company is a separate legal entity from its members and directors. Under the law, the members of the company have limited liability and are not personally liable for debts and losses of the company. Thus, creditors of a company can seek payment from the assets of the company, but not from the personal assets of members of the company, such as shareholders and directors.

The other important reason is taxation. Unlike other business structures such as sole proprietorship, partnerships & LLP, a registered company in Singapore is subjected to corporate tax, not personal income tax, and enjoy tax incentives granted to companies. One such instance is that the partial tax exemption granted to most companies incorporated in Singapore. In the first consecutive Year of Assessment (YA), the 75% of the first $100,000 of profit is exempted from tax and 50% of the next $100,000 of profit is exempted from tax. Furthermore, Singapore follows a single-tier tax policy which means once the income has been taxed at the corporate level, dividends that are distributed to shareholders will not be subjected to further taxes.

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Benefits of setting up a company

As businesses grow, it may become necessary to raise funds for expansion, having a registered company, would give businesses more credibility, as banks would generally prefer to lend to businesses with a legitimate structure. It would also be easier for businesses to raise funds through on-boarding of additional business partners or even fund managers as companies are able to raise capital through share issuance.

A registered company is also more attractive to investors as it is easier to track and manage from than a sole proprietorship. Investors can view the business as an entity on its own, and that gives them the option to make changes to it without infringing on other shareholder’s personal rights or needs.

Most people would hold a favourable view of incorporated companies as they are more credible due to their relatively perpetual existence; their existence is not subjected to that of its owners or shareholders. Even if the business owner or shareholder(s) retires or leaves the company, the company will be able to continue its operations.

In the event where a business owner decides to sell off his/ her business or pass on the business to the next generation, having a registered company would make the process much smoother. As the company is a separate entity on its own, it is much easier for both sellers and buyers to decide on the value of the company. Ownership of the company can also be changed easily with the transfer of shares.

A company that is registered in Singapore will be subjected to reporting requirement, no doubt that this increases the cost of business. A Singapore registered company will at the minimum, be required to fulfil 2 annual reporting requirements:

1. Annual return filing and AGM to ACRA: this include an annual statement to ACRA, filing the resolutions passed by members at the AGM and providing the company’s financial statements to ACRA. This is important for ACRA to ensure a high level of corporate governance for companies
2. Tax filing to IRAS: All companies are required to file an estimated chargeable income (ECI) within 3 months after financial year end and the actual tax filing via Form C-S or Form C on the 15 December every year.

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If this sounds too complicated to you, don’t fret. You can always enlist the help of a company secretary who will typically help you with the annual return filing and AGM requirement, and an outsourced accountant / tax agent to help you get your financials in order.

Sprout is a specialist at helping new and small companies to maintain its compliance requirement at effective and competitive pricing. We can do this because of our reliance on technology to automate workflow while allowing our team to focus on providing good service.