For an entrepreneur, having a world changing creative idea is a great thing. But equally important is to find a way to execute and turn that idea into a reality. In Singapore, a corporate entity is the most common vehicle for an entrepreneur to launch and execute his or her idea. In order for the new venture to be successful, an entrepreneur must ensure that the corporate entity is set up properly and in a timely manner.
What Type of Business Entity to Incorporate?
One of the first decisions for you as an entrepreneur is the type of business structure (i.e. legal entity) you should choose for your business. Your decision can affect how much you pay in taxes, the image and perception of your business among your clients and suppliers, the amount of paperwork your business is required to do, the personal liability you face, the ability to borrow money, and the ability to expand your business.
As a new startup, your choices are a limited liability company (“company” to be short), a limited liability partnership, or a sole proprietorship. Of these choices, a limited liability company is the most advanced, flexible, and scalable structure in Singapore. It is also the preferred form of Singapore business entity for serious entrepreneurs. Some of the key advantages of this structure include:
- Limited Liability. A company is a separate legal entity, which means your personal assets are protected from your business liabilities.
- Tax Benefits. There are significant tax advantages for companies in Singapore. For example, your new company will pay no tax on the first S$100,000 taxable income for each of the first three tax filing years and only about 8.5% on the first $300K profits each year. You can also claim tax deductions on your R&D expenses.
- Professional Image. A company conveys a professional image to your potential business partners, employees, and investors and creates a stable and strong base for future investment and growth.
- Perpetual Existence. Since a company is considered a separate legal entity from its owner, it will continue on perpetually, even if the owner passes away thus ensuring continuity of the business.
There are many other benefits of using a limited liability company as your startup structure. To learn more, please refer to this article about incorporation choices in Singapore.
Why Incorporate Early?
Once you have decided on the type of business structure for your startup, you should proceed with its incorporation at the earliest. There are several advantages to such early action:
- Name Protection. Early incorporation helps to seal and protect your company name. After incorporation, you can protect the business name further by registering it as a trademark.
- Legal Agreements. Many types of legal agreements (such as a commercial lease for office space) can only be signed by a properly established business entity.
- Intellectual Property Ownership. You can avoid future disputes about ownership of assets or intellectual property through timely incorporation. Otherwise, your prior employers or colleagues may be able to assert claims against you.
- Equity Ownership. By incorporating early, you can establish a larger equity stake for yourself in the business before value has been built into it. A late incorporation may involve multiple parties, which is likely to dilute your equity stake in the business.
- Raising Capital. Securing funding can sometimes be a challenge for new business owners, but it may be necessary to ensure growth. Investors will only provide funds to a business that has been properly incorporated. Additionally, many banks in Singapore have SME financing services and products, and are willing to lend to new companies but not to individuals.
Why Incorporate in Singapore?
Increasing numbers of entrepreneurs, corporations and ventures of all sizes across the world are using Singapore as the incorporation jurisdiction for their business. Their reasons for choosing Singapore are manifold and include:
- Singapore is ranked #1 in the world by World Bank for ease of doing business
- Singapore is ranked #2 in the world and 1st in Asia for having the best protection of intellectual property by The Global Competitiveness Report 2011
- Singapore is ranked #1 in the world as the city with the best investment potential in BERI Report 2011
- Singapore is ranked #1 for having the most open economy for international trade and investment by The Global Enabling Trade Report 2010
- Singapore is ranked #1 in the world for best business environment by Economic Intelligence Unit
- Singapore is ranked the third wealthiest nation in the world by Forbes magazine
- Singapore has been ranked as the third most globalized economy among 60 of the world’s largest economies in the recently released Ernst and Young 2011 Globalization Index
- Singapore is rated #1 as the most politically stable country in Asia
- Singapore is rated #1 as the best labor force in the world
- Singapore is rated #1 in Asia for quality of life
- Corporate tax rates are about 8.5% up to $300K profits and a flat 17% above that
- There are no dividend or capital gains taxes in Singapore
- There is no estate/death/inheritance tax in Singapore
- Personal tax rates start at 0% and max out at 20% above $320K
The only drawback to incorporating is that it requires you to complete some paperwork. You will need to complete annual meeting minutes, file an annual report with the state and keep your corporate records in line. Fortunately, the task of setting up the company and its on-going compliance can be outsourced to a professional company such as Janus. To learn more about the requirements procedure for incorporation, refer to this Singapore company incorporation guide.
About The Author
This article was contributed by Janus Corporate Solutions – a leading Singapore-based firm that provides cost-effective company incorporation, accounting, tax, and on-going compliance services to startups and mid-size businesses. For more information, visit their website at www.GuideMeSingapore.com.