Starting a Business in Singapore: A Comprehensive Guide

Starting a Business in Singapore: A Comprehensive Guide

Starting a Business in Singapore: A Comprehensive Guide

INTRODUCTION

Singapore is a global business hub renowned for its dynamic and business-friendly legal environment, making it an attractive jurisdiction to start a business venture. Whilst starting a new business venture is an exciting journey, it comes with a multitude of legal considerations. Therefore, understanding the Singapore legal landscape in relation to corporate law is crucial for the successful launch of your business venture in Singapore.
This guide is designed to provide you with a comprehensive overview of the legal process, corporate structure options, essential legal aspects, and key documentations required to commence your business venture on the right foot.
If there are any suggestions and/or legal queries, please feel free to contact the author, Waltson Tan,at: waltson@tjylaw.com.sg

CHOOSING THE RIGHT CORPORATE STRUCTURE

One of the first and most critical decisions to make is to select the appropriate corporate structure for your business. In Singapore, the following structures are commonly used:

  • Private company
    In general, a company is a separate legal entity which can sue or be sued in its own name, has the right to own property, and has perpetual succession. This corporate structure also offers limited liability protection for shareholders, as the liability of the shareholders to creditors of the company is limited to the capital originally invested by the shareholders.
    There are two types of private company structures in Singapore, which are as follows:
    (a) Exempt Private Company
    This is the most common type of company in Singapore. The names of such companies usually end with “Pte Ltd”. An exempt private company has a share capital, and can have a maximum of 20 shareholders but no shareholder shall be a corporation (i.e. shareholders can only be individuals).
    (b) Private Company Limited by Shares
    The names of such companies usually end with “Pte Ltd”. A private company limited by shares has a share capital, and can have a maximum of 50 shareholders and can have shareholders which are corporations.
  • Partnership
    A partnership is a business owned by a minimum of two partners. A partner can either be an individual, a company or a limited liability partnership. The maximum number of partners in a general partnership is 20, but this maximum does not apply to professional partnerships which are formed for the purpose of carrying on any profession which may be exercised only by persons who possess the qualifications laid down in written law for the purpose of carrying on that profession. Professional firms such as those registered by engineers, lawyers and architects may also choose to register their professional partnership under the Limited Liability Partnerships Act 2005.
    A partnership is not a separate legal entity from the business owners. Accordingly, the partners are personally liable for all the debts and losses of the partnership, and a partnership can sue or be sued in the partners’ names.
    On the other hand, a limited liability partnership (“LLP”) is a business vehicle that gives business owners the flexibility of operating as a partnership while having a separate legal identity like a company. An LLP has the right to own property, has perpetual succession and is a separate legal entity which can sue or be sued in its own name.
    Whilst the partners of an LLP will not be held personally liable for any business debts incurred by the LLP, a partner may, however, be held personally liable for claims from losses resulting from his own wrongful act or omission. The partners will not be held personally liable for such wrongful acts or omissions of any other partner of the LLP.
    Additionally, an LLP must submit to the Registrar of companies in Singapore (i.e. the Accounting and Corporate Regulatory Authority (“ACRA” or the “Registrar”)) an annual declaration of solvency or insolvency (i.e. being able or unable to pay its debts respectively) which will be made available to the public.
  • Sole proprietorship
    A sole proprietorship is a business that can be controlled and owned by an individual, a company or a limited liability partnership. There are no partners in the business. A sole proprietorship is not a separate legal entity from the business owner, therefore the business owner has unlimited liability (i.e. the business owner is personally liable for all the debts and losses of the sole proprietorship). It can sue or be sued in the name of the business owner. Because of the unlimited liability which the business owner takes on, business owners who are unwilling to take on such liabilities would prefer to use other types of business structures for their business ventures.
  • Public company
    Public companies usually have names ending with “Ltd”. They can have more than 50 shareholders and may raise capital by offering shares or debentures to the public. However, such companies must register a prospectus with the Monetary Authority of Singapore (MAS) before making any public offers, as required by the relevant legislation in Singapore, such as the Securities and Futures Act 2001 (“SFA”).
    As with private companies, the liability of the shareholders to creditors of the public company is limited to the capital originally invested by the shareholders.

Selecting the right structure depends on the objectives which you have for your business, including the size and nature of your business, and your long-term goals. We are able to assist you in making an informed decision based on your specific needs.

LEGAL CONSIDERATIONS

Upon selecting the business structure of your business venture, the following steps will have to be taken:

  • Register your business
    You should register your business with ACRA in Singapore. Our firm can guide you through the process and handle the necessary paperwork.
    Depending on the type of business which you register, there will be different types of ongoing compliance requirements. For example, if your business is registered as a company, it will have to maintain certain registers, such as the register of directors, register of members and the register of registrable controllers. The company will also have to file annual returns with ACRA on a yearly basis after incorporation.
    In addition, the Registrar must be notified whenever there are changes to the company name, registered office address, business activities, or the particulars of the officers of the company. The notification of change must be lodged electronically with the Registrar within 14 days from the date of any such changes. Whilst there is no fee payable when filing any of these changes, a penalty may be imposed for late filing.
  • Consider whether business licences are required
    Depending on the industry in which you intend to conduct your business, there may be requirements under Singapore law to obtain specific licenses or permits.
    An example would be that if you intend to register a privately-run school to operate academic classes leading to GCE examinations and courses in commercial/business studies, computer education, languages, fine arts, tuition schools, enrichment centres and foreign system/international schools (including foreign system kindergartens), you are required to apply for the Certificate of Registration of School with the Ministry of Education (MOE).
    Another example would be that if your company intends to deal in capital markets products, advise on corporate finance, or conduct fund management activities, the company must hold a capital markets services (CMS) licence to conduct such activities, which are regulated under the Securities and Futures Act 2001 (SFA).
    We are able to assist you to understand whether these are required for the operation of your business and if so, guide you in obtaining the necessary licences.

PROTECTING YOUR CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY AND
PROPRIETARY RIGHTS

  • Trademarks
    In general, trademarks are important for businesses. Our firm can assist you with securing your intellectual property rights and enforce them when necessary.
  • Intellectual Property Assignment Agreement
    At the incorporation of your business entity, it is best practice to assign all relevant intellectual property created by the founders to the newly-formed entity. Whilst it is not a legal requirement to do so, most external investors will request for such assignment prior to investing in your business, especially if most of the value of your business lies in its ownership of intellectual property.
    Further, if your product primarily depends on intellectual property assets, understanding your right to use such assets will be a central part of any investor’s due diligence. Accordingly, it is essential to speak to a qualified intellectual property lawyer in the early stages of your company’s life.
  • Patents and Copyrights
    If your business involves product innovation and / or content creation, we recommend that you apply for patent and copyright protections to protect such business assets as far as possible.
  • Confidential Information and Invention Assignment Agreement
    This agreement, when signed by employees, contractors, consultants and/or business partners, will better protect the intellectual property assets of your business, including trademarks, patents and trade secrets. Broadly, this agreement provides that all relevant intellectual property created and / or disclosed by the relevant persons and the business remains the property of the business.

SALIENT CONTRACTUAL AGREEMENTS TO PUT IN PLACE

  • Shareholder agreements (for companies) / partnership agreements (for partnerships)
    A shareholders’ agreement is a cornerstone private agreement between two or more shareholders of a company which serves to govern the legal relationship amongst them. Depending on the intention and objectives of the parties, the company may or may not be a party to the agreement. Broadly, this agreement sets out the rights and obligations of the parties, and which are typically in addition to those provided in the constitution (formerly known as the memorandum and articles of association) of the company. Regardless of whether the company is an established conglomerate or a budding startup, a well-drafted shareholders’ agreement should clearly set out the legal
    obligations of the parties. This would mitigate the risks of disputes and foster transparency.
    In the case of partnerships, the relevant agreement for partners to enter into is the partnership agreement.
    Our firm can draft bespoke shareholders’ agreements and partnership agreements specifically tailored to the requirements of the co-owners of your business.
  • Employment agreements
    If employees are hired to assist you with growing your business, the terms of employment of such employees will have to comply with the employment laws of Singapore, including the Employment Act 1968. Examples of employment law which will have to be complied with include the number working hours, annual and sick leave entitlements. Our firm can assist you with the drafting of a template employment agreement tailored to the requirements of your business.
  • Commercial contracts with clients and goods and service providers
    Commercial contracts which are well-drafted and well-negotiated would be helpful in advancing the interests of your business and reduce disputes with contractual counterparties. Our firm can assist you with drafting and reviewing template customer contracts, including standard terms and conditions, as well as more specific agreements such as franchise agreements, licence agreements, supplier agreements etc.
  • Independent contractor agreements
    If you wish to engage independent contractors to assist you with growing your business, you should enter into independent contractor agreements with such persons for the provision of services.
    A key difference between independent contractors and employees is that the former are not afforded the protections which are given to employees pursuant to Singapore employment law, such as maternity benefits and employers’ Central Provident Fund (CPF) contributions.

CORPORATE AUTHORISATIONS

If you incorporate a company to run your business, its directors and shareholders will make formal corporate decisions from time to time. These decisions should be documented by way of corporate authorisations (i.e. directors’ (or board) resolutions and shareholders’ resolutions, respectively).

Directors and shareholders of companies are required to sign these resolutions, which will be approved if the requisite approval thresholds (either as required by law or as stated in the company’s constitution) are met. Once approved, the directors and shareholders will have the requisite authority to conduct such approved corporate actions.

Some examples of corporate actions which should be documented by way of corporate authorisations include the distribution of dividends, the appointment and removal of directors, the issuance of new shares in the company, the borrowing of loans from lenders etc.

TAXATION

The key types of taxes which apply to Singapore businesses are: (a) goods and services tax (“GST”); and (b) (depending on the legal structure): (i) corporate tax; or (ii) tax on a partner’s share of the income from the partnership.

There may be tax advantages for choosing one form of business structure over the others (e.g. company vs partnership structure). Thus, it is recommended that you are well- cquainted with all the tax obligations of your new business based on its proposed legal structure prior to its registration.

  • GST
    As a general guideline, if the turnover of your business is more than S$1 million in the last 12 months or it is expected to be above this threshold within the next 12 month then GST registration is required by law.
  • Corporate tax
    In general, income derived by companies in Singapore is taxed at a flat rate of 17%.
  • Tax on a partner’s share of the income from the partnership
    In general, income from a partner’s share of income from a partnership is taxed based on the individual income tax rates, which is up to 22% for the Year of Assessment 2023 and up to 24% for the Year of Assessment 2024.

There is also a tax exemption scheme for new start-up companies for the first three (3) consecutive years of assessment (YAs), which are as follows: (A) 75% exemption on the first $100,000 of normal chargeable income; and (B) a further 50% exemption on the next $100,000 of normal chargeable income. “Normal chargeable income” means income which is to be taxed at the prevailing corporate income tax rate of 17%.

Whilst our firm does not provide specific tax advice, we are able to recommend you tax advisers whom we have worked with to provide you with tax advice.

CONCLUSION

Starting a new business venture is an exciting endeavour, but it is essential to adroitly navigate the complex legal landscape in Singapore. Choosing the right corporate structure, understanding and complying with Singapore laws and regulations, and having robust legal documentations in place are crucial steps toward attaining success.

Our firm will be able to guide you through every step of your journey in setting up your business in Singapore.
We specialise in advising companies and directors on corporate law and employment law- elated matters. We have experience in drafting shareholders’ agreements, company constitutions, employment agreements, and handling employment contract disputes.
The author, Waltson Tan, is a corporate lawyer based in Singapore. He is qualified as an advocate and solicitor in Singapore and has more than seven years of post-qualification experience, including advising clients of top international and local law firms on corporate law and employment law-related matters.
Waltson also practises in the areas of mergers and acquisitions, private equity, joint ventures, investment funds and other general corporate and commercial transactions. He has also represented numerous leading multinational organisations on a broad spectrum of corporate, regulatory, cross- border restructuring and employment matters.

Prior to joining the firm, Waltson practised at some of the top law firms in Singapore and thereafter, at a leading international law firm, which was the second largest law firm in the United States and one of the ten largest in the world.

Waltson Tan

Director
+65 8079 0028
waltson@tjylaw.com.sg

Office address:

101A Upper Cross Street
#13-11, People’s Park Centre
Singapore 058358

Starting a Business in Singapore: A Comprehensive Guide

Starting a Business in Singapore: A Comprehensive Guide

27 May 2024

INTRODUCTION

Singapore is a global business hub renowned for its dynamic and business-friendly legal environment, making it an attractive jurisdiction to start a business venture. Whilst starting a new business venture is an exciting journey, it comes with a multitude of legal considerations. Therefore, understanding the Singapore legal landscape in relation to corporate law is crucial for the successful launch of your business venture in Singapore.
This guide is designed to provide you with a comprehensive overview of the legal process, corporate structure options, essential legal aspects, and key documentations required to commence your business venture on the right foot.
If there are any suggestions and/or legal queries, please feel free to contact the author, Waltson Tan,at: waltson@tjylaw.com.sg

CHOOSING THE RIGHT CORPORATE STRUCTURE

One of the first and most critical decisions to make is to select the appropriate corporate structure for your business. In Singapore, the following structures are commonly used:

  • Private company
    In general, a company is a separate legal entity which can sue or be sued in its own name, has the right to own property, and has perpetual succession. This corporate structure also offers limited liability protection for shareholders, as the liability of the shareholders to creditors of the company is limited to the capital originally invested by the shareholders.
    There are two types of private company structures in Singapore, which are as follows:
    (a) Exempt Private Company
    This is the most common type of company in Singapore. The names of such companies usually end with “Pte Ltd”. An exempt private company has a share capital, and can have a maximum of 20 shareholders but no shareholder shall be a corporation (i.e. shareholders can only be individuals).
    (b) Private Company Limited by Shares
    The names of such companies usually end with “Pte Ltd”. A private company limited by shares has a share capital, and can have a maximum of 50 shareholders and can have shareholders which are corporations.
  • Partnership
    A partnership is a business owned by a minimum of two partners. A partner can either be an individual, a company or a limited liability partnership. The maximum number of partners in a general partnership is 20, but this maximum does not apply to professional partnerships which are formed for the purpose of carrying on any profession which may be exercised only by persons who possess the qualifications laid down in written law for the purpose of carrying on that profession. Professional firms such as those registered by engineers, lawyers and architects may also choose to register their professional partnership under the Limited Liability Partnerships Act 2005.
    A partnership is not a separate legal entity from the business owners. Accordingly, the partners are personally liable for all the debts and losses of the partnership, and a partnership can sue or be sued in the partners’ names.
    On the other hand, a limited liability partnership (“LLP”) is a business vehicle that gives business owners the flexibility of operating as a partnership while having a separate legal identity like a company. An LLP has the right to own property, has perpetual succession and is a separate legal entity which can sue or be sued in its own name.
    Whilst the partners of an LLP will not be held personally liable for any business debts incurred by the LLP, a partner may, however, be held personally liable for claims from losses resulting from his own wrongful act or omission. The partners will not be held personally liable for such wrongful acts or omissions of any other partner of the LLP.
    Additionally, an LLP must submit to the Registrar of companies in Singapore (i.e. the Accounting and Corporate Regulatory Authority (“ACRA” or the “Registrar”)) an annual declaration of solvency or insolvency (i.e. being able or unable to pay its debts respectively) which will be made available to the public.
  • Sole proprietorship
    A sole proprietorship is a business that can be controlled and owned by an individual, a company or a limited liability partnership. There are no partners in the business. A sole proprietorship is not a separate legal entity from the business owner, therefore the business owner has unlimited liability (i.e. the business owner is personally liable for all the debts and losses of the sole proprietorship). It can sue or be sued in the name of the business owner. Because of the unlimited liability which the business owner takes on, business owners who are unwilling to take on such liabilities would prefer to use other types of business structures for their business ventures.
  • Public company
    Public companies usually have names ending with “Ltd”. They can have more than 50 shareholders and may raise capital by offering shares or debentures to the public. However, such companies must register a prospectus with the Monetary Authority of Singapore (MAS) before making any public offers, as required by the relevant legislation in Singapore, such as the Securities and Futures Act 2001 (“SFA”).
    As with private companies, the liability of the shareholders to creditors of the public company is limited to the capital originally invested by the shareholders.

Selecting the right structure depends on the objectives which you have for your business, including the size and nature of your business, and your long-term goals. We are able to assist you in making an informed decision based on your specific needs.

LEGAL CONSIDERATIONS

Upon selecting the business structure of your business venture, the following steps will have to be taken:

  • Register your business
    You should register your business with ACRA in Singapore. Our firm can guide you through the process and handle the necessary paperwork.
    Depending on the type of business which you register, there will be different types of ongoing compliance requirements. For example, if your business is registered as a company, it will have to maintain certain registers, such as the register of directors, register of members and the register of registrable controllers. The company will also have to file annual returns with ACRA on a yearly basis after incorporation.
    In addition, the Registrar must be notified whenever there are changes to the company name, registered office address, business activities, or the particulars of the officers of the company. The notification of change must be lodged electronically with the Registrar within 14 days from the date of any such changes. Whilst there is no fee payable when filing any of these changes, a penalty may be imposed for late filing.
  • Consider whether business licences are required
    Depending on the industry in which you intend to conduct your business, there may be requirements under Singapore law to obtain specific licenses or permits.
    An example would be that if you intend to register a privately-run school to operate academic classes leading to GCE examinations and courses in commercial/business studies, computer education, languages, fine arts, tuition schools, enrichment centres and foreign system/international schools (including foreign system kindergartens), you are required to apply for the Certificate of Registration of School with the Ministry of Education (MOE).
    Another example would be that if your company intends to deal in capital markets products, advise on corporate finance, or conduct fund management activities, the company must hold a capital markets services (CMS) licence to conduct such activities, which are regulated under the Securities and Futures Act 2001 (SFA).
    We are able to assist you to understand whether these are required for the operation of your business and if so, guide you in obtaining the necessary licences.

PROTECTING YOUR CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY AND
PROPRIETARY RIGHTS

  • Trademarks
    In general, trademarks are important for businesses. Our firm can assist you with securing your intellectual property rights and enforce them when necessary.
  • Intellectual Property Assignment Agreement
    At the incorporation of your business entity, it is best practice to assign all relevant intellectual property created by the founders to the newly-formed entity. Whilst it is not a legal requirement to do so, most external investors will request for such assignment prior to investing in your business, especially if most of the value of your business lies in its ownership of intellectual property.
    Further, if your product primarily depends on intellectual property assets, understanding your right to use such assets will be a central part of any investor’s due diligence. Accordingly, it is essential to speak to a qualified intellectual property lawyer in the early stages of your company’s life.
  • Patents and Copyrights
    If your business involves product innovation and / or content creation, we recommend that you apply for patent and copyright protections to protect such business assets as far as possible.
  • Confidential Information and Invention Assignment Agreement
    This agreement, when signed by employees, contractors, consultants and/or business partners, will better protect the intellectual property assets of your business, including trademarks, patents and trade secrets. Broadly, this agreement provides that all relevant intellectual property created and / or disclosed by the relevant persons and the business remains the property of the business.

SALIENT CONTRACTUAL AGREEMENTS TO PUT IN PLACE

  • Shareholder agreements (for companies) / partnership agreements (for partnerships)
    A shareholders’ agreement is a cornerstone private agreement between two or more shareholders of a company which serves to govern the legal relationship amongst them. Depending on the intention and objectives of the parties, the company may or may not be a party to the agreement. Broadly, this agreement sets out the rights and obligations of the parties, and which are typically in addition to those provided in the constitution (formerly known as the memorandum and articles of association) of the company. Regardless of whether the company is an established conglomerate or a budding startup, a well-drafted shareholders’ agreement should clearly set out the legal
    obligations of the parties. This would mitigate the risks of disputes and foster transparency.
    In the case of partnerships, the relevant agreement for partners to enter into is the partnership agreement.
    Our firm can draft bespoke shareholders’ agreements and partnership agreements specifically tailored to the requirements of the co-owners of your business.
  • Employment agreements
    If employees are hired to assist you with growing your business, the terms of employment of such employees will have to comply with the employment laws of Singapore, including the Employment Act 1968. Examples of employment law which will have to be complied with include the number working hours, annual and sick leave entitlements. Our firm can assist you with the drafting of a template employment agreement tailored to the requirements of your business.
  • Commercial contracts with clients and goods and service providers
    Commercial contracts which are well-drafted and well-negotiated would be helpful in advancing the interests of your business and reduce disputes with contractual counterparties. Our firm can assist you with drafting and reviewing template customer contracts, including standard terms and conditions, as well as more specific agreements such as franchise agreements, licence agreements, supplier agreements etc.
  • Independent contractor agreements
    If you wish to engage independent contractors to assist you with growing your business, you should enter into independent contractor agreements with such persons for the provision of services.
    A key difference between independent contractors and employees is that the former are not afforded the protections which are given to employees pursuant to Singapore employment law, such as maternity benefits and employers’ Central Provident Fund (CPF) contributions.

CORPORATE AUTHORISATIONS

If you incorporate a company to run your business, its directors and shareholders will make formal corporate decisions from time to time. These decisions should be documented by way of corporate authorisations (i.e. directors’ (or board) resolutions and shareholders’ resolutions, respectively).

Directors and shareholders of companies are required to sign these resolutions, which will be approved if the requisite approval thresholds (either as required by law or as stated in the company’s constitution) are met. Once approved, the directors and shareholders will have the requisite authority to conduct such approved corporate actions.

Some examples of corporate actions which should be documented by way of corporate authorisations include the distribution of dividends, the appointment and removal of directors, the issuance of new shares in the company, the borrowing of loans from lenders etc.

TAXATION

The key types of taxes which apply to Singapore businesses are: (a) goods and services tax (“GST”); and (b) (depending on the legal structure): (i) corporate tax; or (ii) tax on a partner’s share of the income from the partnership.

There may be tax advantages for choosing one form of business structure over the others (e.g. company vs partnership structure). Thus, it is recommended that you are well- cquainted with all the tax obligations of your new business based on its proposed legal structure prior to its registration.

  • GST
    As a general guideline, if the turnover of your business is more than S$1 million in the last 12 months or it is expected to be above this threshold within the next 12 month then GST registration is required by law.
  • Corporate tax
    In general, income derived by companies in Singapore is taxed at a flat rate of 17%.
  • Tax on a partner’s share of the income from the partnership
    In general, income from a partner’s share of income from a partnership is taxed based on the individual income tax rates, which is up to 22% for the Year of Assessment 2023 and up to 24% for the Year of Assessment 2024.

There is also a tax exemption scheme for new start-up companies for the first three (3) consecutive years of assessment (YAs), which are as follows: (A) 75% exemption on the first $100,000 of normal chargeable income; and (B) a further 50% exemption on the next $100,000 of normal chargeable income. “Normal chargeable income” means income which is to be taxed at the prevailing corporate income tax rate of 17%.

Whilst our firm does not provide specific tax advice, we are able to recommend you tax advisers whom we have worked with to provide you with tax advice.

CONCLUSION

Starting a new business venture is an exciting endeavour, but it is essential to adroitly navigate the complex legal landscape in Singapore. Choosing the right corporate structure, understanding and complying with Singapore laws and regulations, and having robust legal documentations in place are crucial steps toward attaining success.

Our firm will be able to guide you through every step of your journey in setting up your business in Singapore.
We specialise in advising companies and directors on corporate law and employment law- elated matters. We have experience in drafting shareholders’ agreements, company constitutions, employment agreements, and handling employment contract disputes.
The author, Waltson Tan, is a corporate lawyer based in Singapore. He is qualified as an advocate and solicitor in Singapore and has more than seven years of post-qualification experience, including advising clients of top international and local law firms on corporate law and employment law-related matters.
Waltson also practises in the areas of mergers and acquisitions, private equity, joint ventures, investment funds and other general corporate and commercial transactions. He has also represented numerous leading multinational organisations on a broad spectrum of corporate, regulatory, cross- border restructuring and employment matters.

Prior to joining the firm, Waltson practised at some of the top law firms in Singapore and thereafter, at a leading international law firm, which was the second largest law firm in the United States and one of the ten largest in the world.