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We have compiled some information that may be of use to you, particularly regarding the typical operations of a company in Singapore. For further discussions or enquiries, feel free to contact us.
Starting a business?
Starting a new business can be daunting, especially if it is your first business. In Singapore, we have very strict corporate governance and have many items to deal with in relation to running a business.
Fret not, regardless of how much you may know about running a business, you may rest assured that by engaging us, you will be well looked after and we will guide you through the various processes. Feel free to contact us for consultations on setting up and operating a business as well. Therefore, as long as you have the great business idea that you would like to turn into reality, simply take the leap of faith and let us make it happen together.
Despite so, we recommend that you familiarise yourself with the fundamentals in order to ensure that you know what is taking place and prepare yourself on what to expect in running a business. An overview of the key functions and procedures of a Company are presented below which should generally be able to give an overview of what is minimally required. If you will like to have a deeper insight and are keen to learn more, ACRA has published a free interactive learning platform "Essentials of Starting a Business (ESB)" that may be of use to you, which can be accessed via this link. The course should not take more than 2 hours to complete which is broken into bite sized modules which you can access at your convenience.
Types of business entities
In Singapore, there are various entities businesses can set up, namely a sole-proprietorship, partnership, limited partnership, limited liability partnership, or a Company (typically private limited).
Depending on your business requirements and its nature, a specific type of business may be more applicable for you, based on its running costs, compliance requirements, income tax treatments and liabilities involved.
You may view this publication by ACRA for a comparison of the differences between the various forms of businesses.
In general, most individuals starting a business opt for a private limited company (Pte. Ltd.) due to it being a separate legal entity on its own, have shareholders, own properties, while not being liable to any debts or liabilities the company incurs. This form of business also has perpetual succession as its shares are transferable and they determine the ownership of the company. Business income is also taxed at the corporate rate, which can be lower than the individual tax rates, and has significant tax exemptions and rebates.
Structure of a private limited company
A private limited company consists of the multiple persons that make up its operations, with various role and responsibilities.
An illustration of the basic formation of a company is shown here:
The individual roles of each person are listed below
Directors: Manage the business and act for the company (through resolutions, see below)
Obtain loans, secure charges/ mortgages, open/close bank accounts
Appoint individuals as directors/ secretaries
Shareholders: Own the business (owners/ investors)
Holds voting rights at meetings
Entitled to the profits of the company (dividend payments)
Approve the appointments of/ appoint/ remove directors and/or auditors at meetings
Decide on ordinary/ special resolutions (see below)
Secretary: Ensure company compliance
Has knowledge and experience on statutory requirements and Companies Act (Cap. 50)
Prepare all documents to execute the items listed under the abilities of directors and shareholders
Perform filing to ACRA
Prepare documents relating to the company's statutory requirements
Maintain and keep company's records
Auditor: Verify company compliance (Only if company does not qualify as a small company, see below)
Audit accounts for compliance with requirements
Identify any non compliance with requirements in operations
Verify records and filing transactions are properly kept
For more information, visit this link.
Note: Each company must have at least 1 local director, 1 shareholder at any point in time and the secretary position must not be vacant for more than 6 months.
As a Company is not an individual person, but a legal entity, it can only make decisions by passing resolutions. While the directors and shareholders have their own respective powers in representing the company and having ownership in the company respectively, they both can decide on matters within their scope by way of passing resolutions, either at a physical meeting or by written means, with the requirements stipulated in the company's constitution (articles of association).
All matters relating to the company's operations, such as purchasing of properties, securing credit facilities, recommending dividends, investing in subsidiaries will require a resolution from the company as a form of documentation, such as the bank requiring a resolution from the company to state its intention to open a bank account. This resolution shall be decided by the directors and signed. Usually, all matters relating to the operations of the company can be decided by way of a director's resolution, other than matters requiring the approval of the members through an ordinary or special resolution, as required by the Companies Act.
The shareholder's resolution are matters resolved by the members of the company, not the directors, and are decided at the Annual General Meeting, or Extraordinary General Meetings (any meetings other than the AGM). The shareholders can call for meetings to decide on matters relating to their ownership of the company, such as deciding on the appointment or removal of directors, declaration of director's fees, or declaring dividends. While the directors do have powers to appoint other director's, the members have their right by passing an ordinary resolution to remove or appoint the directors, as well as deciding if a director should be re-elected at the AGM when their term expires. The members can also pass an ordinary resolution (50% agreement) or a special resolution (75% agreement) as required to decide on various matters, based the type of resolution required by the Companies Act depending on the matters to be resolved.
Variations in statutory requirements
Private limited companies are further divided into two categories, namely an exempt private company (EPC) and a private company. Most companies fall under the category of an EPC, which has simplified procedures relating to its accounts (financial statements) and ability to provide loans to its directors.
The illustration below is an example of the differences, as well as the conditions of a small company to be exempt from audit requirements.
Exempt Private Limited Companies are no longer required to file their accounts with ACRA, although they may elect to do so. However, this does not mean that the Company need not prepare its financial statements, as it is still a legal requirement to do so.
Dormant Companies are however not required to prepare nor audit their financial statements, if it fulfils the criteria set out in the Companies Act. More details can be found here.
Companies can engage our services to prepare their financial statements if they qualify as a small company/ group. Otherwise, they will have to engage an auditor to prepare and audit their financial statements.
ACRA compliance requirements
The Companies Act (Cap. 50) has recently been amended and will affect the compliance requirements of all companies from 31 August 2018.
1) Changes to AGM/AR requirements
Key changes include changing the requirements of how companies conduct Annual General Meetings (AGM) and file Annual Returns (AR). Up to 31 August 2018, AGM and AR dates are derived based on 3 different rules:
Section 175: AGM must be held not more than 15 months from last AGM
Section 201: AGM date must not be more than 6 months from date of accounts
Section 197: AR to be filed within 1 month from AGM
AGM held within 6 months from financial year end (FYE)
AR to be filed within 7 months from FYE
Allows company to dispense with holding AGMs if a resolution has been passed and its financial statements are sent to members within 5 months from FYE
Effectively, should the company be compliant with the preceding legislation, their AGMs and ARs will also be up to 6 and 7 months from their FYE, resulting in no changes. The new legislation simply gives a easier way of determining dates and compliance, based on a fixed schedule.
Our take on the new legislation and its impact to companies: While the new legislation simplifies the process, companies are now pushed to have their accounts ready earlier, with an incentive given if the accounts are ready within 5 months from FYE. However, should the accounts be late, such as being ready after 8 months from its FYE (2 months late), the new rules will result in a greater penalty, as shown below.
Under the old ruling, if the accounts are late by 2 months, it will have to pay a penalty under section 201. AGMs can still be held within 15 months (12+2), and ARs can still be held within 1 month from AGM. This results in 1 penalty.
Under the new ruling, should the accounts be prepared 8 months after the FYE, it would have already missed both the 6 month deadline to hold AGM and 7 month deadline to file the AR. This will result in more penalties.
Thus, the new legislation promotes greater compliance with timelines and simplifies the process for compliant companies.
2) Changes to FYE requirements
Key changes include alteration of requirements pertaining to changing a companies FYE. Up to 31 August 2018, regulations relating to a company's FYE are as such.
Company to hold AGM within 18 months from incorporation, FYE made known to ACRA upon filing of annual return
Company can change their FYE without ACRA's approval
Company must inform ACRA of FYE upon incorporation
Changes in FYE must be approved by ACRA if
It results in a financial year of more than 18 months
A change of FYE took place within the last 5 years
Note: A typical financial year is 12 calendar months. If a company has an accounting period of more than 12 months and does not wish to change its FYE every year, they should inform ACRA during the transaction to change its FYE. FYE can be changed for previous or current financial year, but only if the deadline for the holding of AGM, filing of AR or sending of financial statements for the current financial year have not yet passed.
An illustration below shows the compliance timeline of a typical company (based on new 2018 regulations)
Previous revisions to the regulations require companies to keep a register of nominee directors and register of controllers. Beneficial ownership of each company must also be obtained. There are no changes in the requirements in how a company must inform ACRA (typically within 14 days) of any changes to the company.
Stay compliant by engaging Programming as your company's secretary!
Tax compliance (IRAS)
Tax is assessed on a company's profit at a fixed rate of 17%, after tax exemptions and rebates.
For private limited companies, the typical tax dates and tax requirements can be found on this publication by IRAS. Click on the links on each category to find out more about their requirements and details.
To find out more about Singapore's corporate tax rate, exemptions and rebates, click here.
Tax is assessed on a basis period, being the financial year of the company. Tax is assessed in the year following the basis period, I.E. for companies with FYE in 2017, it is assessed under year of assessment (YA) 2018 for tax.
New companies, however, have a different approach of accounting for tax in certain scenarios, which is the reason why we encourage new companies to have its first financial year within 12 months, not 18, unless it is dormant. Should the first financial year be longer than 12 months, it will have to split its profit and submit its first ECI for 2 YAs. This effectively "wastes" a year's tax exemptions for new companies, as new companies are entitled to 3 YA's of additional income exemption. It is thus wise to choose an appropriate FYE to maximise the tax exemptions.
Dormant companies have no income and will not be affected by taxes. An illustration is set out below for the 2 scenarios upon incorporation based on its FYE.
Note: any subsequent changes to the FYE does not necessarily mean profits must be proportioned between 2 YAs if the financial year is more than 12 months. The 12 month limit only applies to new companies, where after the first year, as long as the changes in FYE does not affect/ cross over the current YA, it will not have to proportion its profits (i.e. if a company's FYE was changed to 31/12/2018 from 31/7/2018, it is still assessed under YA2019 and will not require to split its profits under 2 YAs). Refer to this link for more information.
Other useful links
ACRA - Find out more about company related information. Click here.
IRAS - Find out more about corporate taxes, GST registration and requirements. Click here.