During a panel discussion organized by Asia Law Network, with partners General Assembly, e27 and WeWork Beach Centre, Daniel Ho (Director, Summit Law Corporation), Lau Kah Mei (Managing Director, LKM Law Corporation), and Kelvin Tan (Director, Vicki Heng Law Corporation) shared their thoughts on starting a business in Singapore.
What structure should I adopt for my business?
The panellists touched on the various business structures to choose from, including a sole proprietorship, partnership and company.
In terms of a sole proprietorship, Kelvin noted that the registration process is fairly easy and straightforward. However, there are certain drawbacks of a sole proprietorship. First, there is unlimited personal liability. As elaborated by Daniel, this means that the sole proprietor can be held liable for the company’s debts and his own personal assets are implicated. Second, the tax obligations are high. As observed by Kah Mei, everything the sole proprietorship earns is attributed to the sole proprietor’s personal income tax. Unlike companies in Singapore, there are also no tax benefits for sole proprietorships.
In contrast to both a sole proprietorship and partnership, a company is a separate legal entity. As such, the shareholders of the company will not be held personally liable for the company’s debts.
Kelvin pointed out that choosing a business structure ultimately depends on your needs. However, he suggested that startups should adopt the long term view and adopt a structure that helps them in the long run.
At which point should I incorporate a company?
Kah Mei shared that when startups are at the ideation stage, they do not necessarily need to incorporate a company. However, when the founders agree to pursue something more concrete and start fund raising, they should consider incorporating a company. It is always more ideal to incorporate a company to take advantage of the first $100,000 tax free exemption.
What are the key requirements and processes for setting up a company in Singapore?
When incorporating a company, Kelvin shared that founders must prepare a few key items, including the list of shareholders as well as the names of directors. The share capital of the company must also be specified when founders file their paperwork with the Accounting and Corporate Regulatory Authority (ACRA).
What is paid-up capital and how much paid up capital is required to incorporate a company in Singapore?
Paid up capital is the amount of money a company has received from shareholders in exchange for shares. As pointed out by Kah Mei, this is also the amount the shareholders hold themselves to be liable for. The minimum amount of paid-up capital is S$1.
However, startups in certain industries may require a higher minimum paid-up capital. As highlighted by Daniel, construction projects are usually only awarded to companies with a minimum paid-up capital amount. If you are a company with a smaller amount of paid-up capital, you may be required to get professional liability insurance to cover potential suits and claims.
Besides the basic fees for registration, as set out by ACRA, Kelvin pointed out that additional costs might be incurred if you require a professional company secretary. Every company must appoint a company secretary within 6 months of its incorporation. There might also be further costs when getting professional advice from an auditor or lawyer.
Should I engage corporate secretarial firm?
The company secretary is responsible for administrative and reporting tasks. Kah Mei pointed out that engaging a corporate secretarial firm is not strictly necessary if you are running a smaller operation. In such circumstances, you can just appoint someone internally to do up the company’s minutes and resolutions. However, if you are a big company with more complex reporting requirements, it might be better to outsource it to a professional corporate secretarial firm.
If I am already running a company and want to start another company, can I plug my new company under the ownership of my existing company?
Yes, your new company can be owned and controlled by your existing company in a parent-subsidiary relationship. However, as cautioned by Kelvin, if the directors of the two companies are the same people, it is very important for them to be clear on what hat they are wearing when entering into transactions. This affects which company is legally responsible. Hence, directors should be clear about where the lines are to be drawn.
If I am a student holding a student pass, will I be able to start up my own business?
As pointed out by Kah Mei, the minimum age of starting a business in Singapore is 18 years old. Hence, students who want to set up a business must ensure that they meet the legal requirements. Furthermore, Kah Mei also observed that much would depend on the conditions of your student pass and whether you are allowed to work.
I am a foreigner who runs a business overseas and wants to start a similar business in Singapore. Am I allowed to do so?
Yes you can. As pointed out by Daniel, it is possible for a non-resident foreigner to set up a local company by appointing a nominee resident director to satisfy the legal requirements. Kelvin also highlighted the need for foreign companies to get their intellectual property registered in Singapore, in order to obtain protection.
What are the common mistakes made by startup founders in Singapore?
Kelvin pointed out that a common mistake is for two co-founders to split the shares evenly (50/50), with both co-founders having a board seat. Although everyone starts out with the best of intentions, there is a need to prepare for potential disputes and conflicts. If both co-founders hold the same number of shares and are co-directors, this may end up causing deadlock when disagreements occur.
As a startup in Singapore, do I need to be PDPA Compliant?
Your startup needs to comply with the Personal Data Protection Act (PDPA) if you collect, use or disclose personal data in Singapore. As Daniel commented, the PDPA does not make a distinction between startups and companies. Kelvin also noted that the Personal Data Protection Commission (PDPC) runs courses and has good training materials online. Startups who are interested to learn more can visit the PDPC’s website.
What are the legal documents that startups should have in place?
A Shareholder’s Agreement is useful for startups looking to manage potential disputes. As Kelvin explained, the Shareholder’s Agreement is a document that outlines the rights and obligations of each shareholder. It can also contain deadlock resolution mechanisms.
Prevention is better than cure: Get legal advice early
The panellists all agreed that it is important for startups to get legal advice early, especially if your startup’s operation is more complex. While templates may be useful, Kelvin noted that it is important for startups to have documents that are tailored to their specific circumstances. Daniel also pointed out that if you are a foreigner looking to set up in Singapore or a minority shareholder in a company, it may be useful to get legal advice in order to better protect your rights.
You may wish to see the live feed of the video here:
Join our LIVE Q&A session on Startup Law Academy: Starting up a business in Singapore and its legal implications. We have Daniel Ho from Summit Law Corporation, Lau Kah Mei from LKM Law Corporation, and Kelvin Tan from Vicki Heng Law Corporation, who will share with us their thoughts on the best way to navigate and protect your startup journey.A big shout out to our partners General Assembly, Asia Law Network and WeWork Beach Centre for co-organising this event! Remember to post your questions in the box below and we will attend to them in this session and after! Keep them coming!
Posted by e27 on Thursday, 1 February 2018
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This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.