Establishment of a business entity in Singapore

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1 Establishment of a business entity in Singapore

2 Further information If you would like further information on any aspect of this client note, please contact a person mentioned below or the person with whom you usually deal. Contact Stephanie Keen Partner T stephanie.keen@lovellsleenlee.com Adrian Chan Partner T adrian.chan@lovellsleenlee.com Francis Lim Partner T francis.lim@lovellsleenlee.com Scott Calver Of Counsel T scott.calver@lovellsleenlee.com September 2009 This note is written as a general guide only. It should not be relied upon as a substitute for specific legal advice.

3 Contents EXECUTIVE SUMMARY 1 Licensing and registration 1 Types of business entities 1

4 Lovells Lee & Lee Corporate 1 Establishment of a business entity in Singapore EXECUTIVE SUMMARY Every business operating in Singapore must be registered with the Accounting & Corporate Regulatory Authority ( ACRA ), even if the business functions as a nominee, trustee or agent for any foreign corporation. Generally, there is no restriction on the types of businesses that may be set up in Singapore except for some which have to apply for special licences. Foreign investors who wish to establish a presence in Singapore have a choice of the following business entities: Representative Office Sole Proprietorship and General Partnership Limited Liability Partnership Limited Partnership Singapore company Foreign company. In addition, other considerations to note when determining whether to invest in Singapore are: Investment incentives The Singapore government provides various forms of financing schemes, grant schemes and tax incentive schemes to help businesses at different stages of growth Tax issues Income of a company (whether tax resident or not) that is accrued in, derived from Singapore or received in Singapore from outside Singapore is subject to income tax in Singapore at 18% 1. The rate of tax of 18% may be reduced under tax incentive schemes that offer concessionary rates of tax Manpower Singapore offers a globally top-ranked working population, recognised for its high level of productivity, technical proficiency and positive work attitude 1 17% from year of assessment 2010 onwards. Infrastructure issues Singapore is one of the best connected countries in the world, with all the air, sea and telecommunications links needed for business. It is convenient to get around Singapore with the Mass Rapid Transit system, bus and taxi services. In terms of business premises, there is a wide range of commercial complexes, conservation areas or specially structured industrial sites to choose from Legal framework Singapore has a reputation for fairness and impartiality in commercial law, and is a popular jurisdiction for arbitration in Asia. LICENSING AND REGISTRATION There is generally no restriction on the types/nature of businesses that may be set up in Singapore although the nature of the actual business activity may be subject to further control and regulation by other government agencies whose approval/licence are required before operations can commence 2. For example: banks, finance companies, insurance companies and other financial institutions must secure licences from the Monetary Authority of Singapore (the de facto central bank) companies involved in conducting any educational courses should obtain prior approval from the Ministry of Education if the company intends to provide professional engineering work or services, prior approval must be obtained from the Professional Engineers Board. TYPES OF BUSINESS ENTITIES Regulated by the Singapore Companies Act, Singapore s corporate regime is 2 Items such as rolled steel produces, beer, cigarettes, cigars, firecrackers and sponge iron are regulated by the Control of Manufacture Act. largely modelled after its British and Australian counterparts. Various business entities are available, their relative advantages and suitability will depend on the nature and size of the business activity envisaged. Representative office A foreign company can apply to International Enterprise Singapore or, in some cases the Monetary Authority of Singapore, to set up a Representative Office where it is keen on exploring the viability of doing business in Singapore, or is interested in using Singapore as a launch pad into the Asia Pacific or elsewhere. A Representative Office has the benefit of allowing a foreign company to test out the business environment in Singapore before committing to any investment decisions. A Representative Office does not have legal corporate status. A Representative Office should only be used for promotional and/or liaison purposes. Promotional work includes advertising and meeting with potential clients of the parent company; liaison work entails the coordination of activities between customers and the parent company. The Representative Office is not permitted to engage in business, conclude contracts, or open or negotiate any letters of credit. Applications to establish a representative office can be made online and are required to be accompanied by copies of the parent company s latest annual report, audited accounts for the preceding year and its Certificate of Incorporation. Sole proprietorships and general partnerships under the Business Registration Act A business includes every form of trade, commerce, craftsmanship, calling, profession or any activity carried on for the purpose of gain except for businesses specified in the First Schedule to the Business Registration Act. These exemptions are largely irrelevant to commercial enterprises and include activities such as licensed

5 Lovells Lee & Lee Corporate 2 hawking, certain businesses of craftsmen and taxi drivers. A business firm can either be a soleproprietorship or a partnership. Individuals and companies, being legal persons, may set up either entity. A business firm, itself not a legal entity, cannot register another business firm. A foreign company also cannot register a business firm unless it has registered itself first under the Companies Act as a branch of a foreign company. An individual may register his own business as a sole proprietor. Any number of persons (between two and 20) may register a partnership. Once a partnership, whose object is to realise profit or gain has more than 20 members, it must register as a company. Certain entities/individuals are exempt from business registration, such as registered societies, charitable institutions, persons carrying on any business consisting solely of the exercise of a profession regulated by law, and any foreign company which is registered under the Companies Act. An applicant must reserve a business name. Common pitfalls to avoid in reserving a business name include choosing names that are identical to or sound like that of another corporation/ business, names that suggest a connection with the Singapore or a foreign government, names which are misleading as to the nature, activities, resources or size of the business and names which are offensive, abusive or obscene. Individuals and companies need not be Singaporeans/incorporated in Singapore before they can register business firms. However, in cases where the owner is not ordinarily resident in Singapore, a local manager of the business firm must be appointed, being a Singaporean, a Singapore Permanent Resident, Employment Pass Holder or Dependant s Pass Holder. Sole proprietorships and partnerships are not corporate bodies and are therefore exempt from requirements of filing annual accounts. Their Certificates of Registration are renewed by payment of the appropriate fees before the relevant expiry date of the certificate. Carrying on business after such expiry date constitutes a criminal offence. Limited Liability Partnerships A Limited Liability Partnership ("LLP") must be registered with ACRA under the Limited Liability Partnerships Act (Chapter 163A). An LLP is essentially a partnership with limited liability. It is a body corporate and has legal personality separate from that of its partners. The partners of an LLP have limited liability for the debts and obligations incurred by the LLP. An LLP has perpetual succession and any change in the partners of an LLP will not affect its existence, rights and liabilities. An LLP can sue and be sued in its own name. It can acquire, hold and develop property and incur debts. To register an LLP, the following information must be submitted to ACRA electronically: the proposed name of the LLP, its proposed principal activities and registered address the name and personal particulars of each partner and if the LLP partner is a corporate entity, the name of the company, registration number, date of registration, registered office, country of incorporation/registration and personal particulars of the authorised representative the name and personal particulars of the resident manager. At least one resident manager has to be appointed and his role is prescribed by the LLP Act. He is answerable for the execution of all acts and matters as required to be done by the LLP relating to annual declaration of solvency/ insolvency, the publication of name and limited liability and the registration of changes in the particulars of the LLP. The manager is also personally liable for all penalties imposed on the LLP for any contravention of those sections unless he satisfies the court hearing the matter that he should not be liable. In addition, the manager is responsible for submission of the Partnership Tax Return to the Inland Revenue Authority of Singapore. Limited Partnership The Limited Partnership ( LP ) structure resembles a general partnership structure but it has an added feature of limited liability for the limited partners. A LP does not have a legal personality separate from the partners. A LP also enjoys lower registration and continuing compliance obligations. A LP is able to raise private equity/capital by allowing limited partners who are interested in investing in the firm, but do not wish or do not have the technical expertise to participate in the running of the business. A LP is tax transparent and the partners will be taxed on their share of the income or gains of the LP according to their personal income tax rates. Further, although a LP is required to keep proper accounting records that would enable true and fair financial statements to be prepared and audited, it is not required to have its accounts audited and filed with ACRA. A LP will be an attractive structure for persons who wish to conduct business as investors but who do not wish to take an active role in the management of the business or who prefer to entrust the management of the business to any one or more persons who have sufficient confidence to assume unlimited liability. LPs accord investors with limited liability, privacy (as the accounts are not publicly filed) and tax transparency (as the partnership is not treated as a distinct tax entity from the partners). Limited and general partners Every LP must consist of a minimum of one limited partner and one general partner. There is no upper limit on the total number of partners in a LP and a body corporate is allowed to be a general or limited partner. For the purposes of a LP, a general partner will

6 Lovells Lee & Lee Corporate 3 be liable for all debts and obligations of the LP incurred while he is a general partner whilst a limited partner will not be liable for any such debts and obligations beyond the amount of his agreed contribution. A limited partner also enjoys the benefit of being able to vary the amount of his agreed contribution with the approval of the general partners. However, a limited partner is unable to make management decisions or participate in the management of the LP and has no power to bind the LP. Further, in the event of disputes as to ordinary matters connected with the LP, such differences will be resolved by a majority of the general partners to the exclusion of the limited partner. In addition, a limited partner s consent need not be sought in appointing any person as a partner of the LP. Further, a limited partner is not entitled to dissolve the partnership by notice. It is to be noted that when a limited partner takes part in the management of the LP, he becomes immediately liable for all debts and obligations of the LP as if he were a general partner. Registration procedures Registration of a LP must be made with ACRA by a general partner of the LP. For the purposes of registration, the general partner is required to lodge a statement (the Statement ) with ACRA containing: details of the proposed name of the LP (which must contain the words limited partnership or the acronym LP ) an attestation that the partnership is limited the nature of the business that the LP proposes to undertake the principal and any other place of business of the LP the details of each proposed partner (name, address, identification/ passport number, identification type, nationality, the usual place of residence as well as an indication of whether he is to be a general or limited partner) the date of commencement of the LP. Where any partner is a corporation, the details relating to the corporate name, place of incorporation or registration, registration number and registered office of the corporation will have to be provided. In the event that all the general partners are ordinarily resident outside Singapore, a local manager has to be appointed. In such case, details of the local manager (name, address, identification/passport number, identification type, nationality and the usual place of residence) have to be included in the Statement as well. The Statement has to be filed electronically with the Registrar using the service provided by the Registry of Limited Partnerships. This statement has to be accompanied by a declaration by the general partner lodging the statement that each partner of the LP has consented to be registered as a limited or a general partner as well as an individual declaration by each general partner that he has consented to be registered as a general partner. Following lodgment of the Statement with ACRA and the payment of a prescribed fee, the Statement will, at the discretion of ACRA, be entered in the register and the applicant may then be issued with a certificate of confirmation of registration. The registration of the LP will only be valid for the duration specified by ACRA. Upon lapsing of the registration of the LP, renewal of such registration can be applied for. Companies incorporated under the Companies Act Singapore company Any person above the age of 18 years can, whether alone or together with another person, by subscribing his name or their names to a memorandum and complying with the requirements as to registration, incorporate a local company. A company may be either private or public. A company having a share capital may be registered as a private company if it does not have more than 50 shareholders. A public listed company may have more than 50 shareholders and can, subject to legal requirements, raise capital by offering shares and debentures to the public. Subject to certain exemptions, it must register a prospectus with the Monetary Authority of Singapore before making any public offer of shares and debentures. As for liability of the members, this can be limited, either by shares 3 or guarantee 4, or unlimited. Registration of company name The proposed company name must be approved and reserved before incorporation can be applied for. Common pitfalls to avoid in reserving names include choosing names that are identical to or sound like that of another corporation/business, names that suggest a connection with the Singapore or a foreign government, names which are misleading as to the nature, activities, resources or size of the business and names which are offensive, abusive or obscene. Every limited company must have the word Limited or the abbreviation Ltd as part of its name. If the company is a private one, the word Private or the abbreviation Pte must also be added. Capital structure There is no restriction on foreign shareholding and no prescribed maximum amounts exist for the issued or paid-up capital of a company. Subscribers/shareholders The company must have a minimum of one shareholder, who can either be an 3 4 Liability up to the amount paid and unpaid (if any) on shares held by members. Liability up to amount members individually undertake to contribute to the company's assets upon winding up.

7 Lovells Lee & Lee Corporate 4 individual of any nationality or a corporate person. In practice, nominees who are readily available to sign all the necessary statutory forms relating to incorporation are usually appointed as the initial subscribers/ shareholders to expedite the incorporation process. Registered office It is a statutory requirement for a company to maintain a registered office in Singapore. Legal and accounting firms can offer their own addresses. Such arrangements could, however, entail giving these firms the authority to open all correspondences from ACRA and to deal with them as secretarial agents of the company. Directors A company can have a minimum of one director who must be ordinarily resident in Singapore 5. An expatriate who has a valid employment pass would qualify as resident director. If necessary, nominee directors (persons of good standing such as professionals and retired senior civil servants) can be appointed through management service companies in Singapore to fulfill the residency requirement. Directors must be at least 18 years of age. A person 70 years of age and above may only be appointed as a director of a public company or of a subsidiary of a public company by an ordinary resolution passed at the company s general meeting. Certain persons, such as undischarged bankrupts, are disqualified from directorship. There is no requirement that labour be represented in management nor are there nationality requirements prescribed for management. 5 That is, a Singapore citizen, a Singapore Permanent Resident, a Singapore Employment Pass Holder, an Approval-in- Principle Employment Pass Holder or a Dependant s Pass holder. Secretary Every company shall have one or more secretaries each of whom shall be a natural person who has his principal or only place of residence in Singapore. The company secretary is responsible for maintaining statutory records, drafting of resolutions, preparation of minutes of meetings and filing of the necessary returns with ACRA. The office of secretary shall not be left vacant for more than six months at any one time. The company secretary of a public company must possess at least one of the following qualifications: has been a secretary of a company for at least three of the five years immediately preceding the date of his appointment as secretary of the company is a qualified person under the Legal Profession Act (Chapter 161) is an accountant registered with the Institute of Certified Public Accountants of Singapore is a member of the Singapore Association of the Institute of Chartered Secretaries and Administrators is a member of the Association of International Accountants (Singapore Branch) is a member of the Institute of Company Accountants, Singapore is, by virtue of certain prescribed academic or professional qualifications, capable of carrying out the functions of a secretary. Legal and accounting firms often offer the services of appropriate staff to act as company secretaries. Two nominee secretaries are usually appointed to ensure that at all times at least one is available to perform the statutory compliance functions, such as certifying board resolutions and the signing of statutory forms. If the company has only one director, the director and the company secretary cannot be the same person. Auditor One must be appointed within three months from the date of incorporation although a company which is exempt from audit requirements under the Companies Act is exempt from the requirement to appoint an auditor of the company. Memorandum and Articles of Association These have to be prepared and filed with ACRA. The Memorandum may specify the company s objects while the Articles contain the internal regulations in accordance with which the company is controlled and managed. The Memorandum and Articles have to be signed by the subscriber(s) of the company. Any alterations to the original Memorandum and Articles of Association are to be lodged with ACRA following special resolutions passed in favour of the alterations. Foreign companies registered under the Companies Act Foreign companies who have a place of business in Singapore or who carry on business in Singapore are required to register a branch in Singapore. Whether an overseas corporation is deemed to be carrying on business in Singapore will depend on the nature of the activities proposed to be conducted. It will not be regarded as carrying on business in Singapore by reason only that it maintains a bank account in Singapore, that it effects any sale through an independent contractor, that it invests its funds or that it holds any property. Every branch in Singapore is required to have a minimum of two agents who are natural persons resident in Singapore. A Singapore citizen, a Permanent Resident of Singapore and a person holding a valid employment or dependant s pass issued by the

8 Lovells Lee & Lee Corporate 5 Singapore Immigration authority are considered resident for this purpose. The agents are appointed for the purpose of accepting service of process or any notices required to be served on the foreign company. In addition, an agent is answerable for all acts required to be done by the branch under the Singapore Companies Act and is personally liable for all penalties imposed on the branch for any contravention of any of the provisions of the said Act. A person will continue to be an agent until the Head Office of the branch or the agent lodges a notice in writing of the cessation of his appointment as agent with ACRA. Where an agent ceases to be an agent resulting in the branch being left with only one agent, the company shall within 21 days appoint another agent in his place. The branch must have a registered office in Singapore which is open and accessible to the public during ordinary business hours on each working day. Again, legal and accounting firms can offer their addresses at nominal fees. The proposed company name must be approved 6 (process usually takes one working day unless the application requires an approval from another relevant government authority) before the branch can be registered. Information necessary for the application include the date and place of incorporation of the foreign company, its capital structure, its principal activities and the countries in which it is also registered as a branch. Upon approval of the proposed name, an application to register the branch must be done online only by a professional firm/company. In addition to the statutory forms, the following supporting documents, duly executed by officers of the foreign company, are required: a certified copy of the foreign company s certificate of 6 Form 14B incorporation or registration in its place of incorporation or origin or a document of similar effect a certified copy of the foreign company s charter, statute or memorandum and articles or other instrument constituting or defining its constitution a list of the foreign company s directors with their particulars memorandum of appointment or power of attorney under the seal of the foreign company or executed on its behalf in such manner as to be binding on the company and, in either case, verified in the prescribed manner, stating the names and addresses of two or more natural persons resident in Singapore authorised to accept on its behalf service of process and any notices required to be served on the company notice of the situation of the foreign company s registered office in Singapore and, unless the office is open and accessible to the public during ordinary business hours on each business day, the days and hours during which it is open and accessible to the public. A foreign company that is required by the law pursuant to which it is incorporated to hold annual general meetings shall (within two months of its annual general meeting) 7 file with ACRA the following documents: a copy of its balance sheet made up to the end of its last financial year in such form and containing such particulars and accompanied by copies of such documents as the company is required to annex, attach or send with its balance sheet by the law for the time being 7 Section 373 of the Companies Act governs the requirements pertaining to lodgement of such accounts and covers both Head Office and Singapore Branch accounts. A waiver from compliance with Section 373 can be sought from ACRA with respect to the form and content of either Head Office or Singapore Branch accounts. applicable to that company in its place of incorporation a set of its Singapore operations accounts consisting of a duly audited statement showing its assets and liabilities in connection with its operations in Singapore up to the date when the balance sheet is made up, and a duly audited profit and loss account which, as far as is applicable, complies with the requirements of the Companies Act relating to such balance sheet and which gives a true and fair view of the profit and loss arising out of the company s operation in Singapore for the last preceding financial year of the company. A foreign company that is not required by the law in which it is incorporated to hold annual general meetings shall (within seven months of its financial year end): apply to ACRA for relief from requirements as to the form and content of accounts and reports under Section 373 of the Companies Act, in the form of a Statutory Declaration in respect of the foreign company in its place of incorporation submit to ACRA a set of its Singapore operations accounts consisting of a duly audited statement showing its assets and liabilities in connection with its operations in Singapore up to the date when the balance sheet is made up, and a duly audited profit and loss account which, as far as is applicable, complies with the requirements of the Companies Act relating to such balance sheet and which gives a true and fair view of the profit and loss arising out of the company s operation in Singapore for the last preceding financial year of the company. The timeframe within which the foreign company must complete its annual filing of accounts may be extended (by up to two months) by submitting an

9 Lovells Lee & Lee Corporate 6 application for an extension of time to ACRA. If the Registrar is of the opinion that the balance sheet and other documents do not sufficiently disclose the company s financial position he may require further particulars to be disclosed. The need to prepare a branch s Singapore operations accounts may be waived if ACRA is satisfied that: it is impractical having regard to the nature of the company s operations in Singapore it would be of no real value having regard to the amounts involved it would involve expenses unduly out of proportion to the value of preparing such accounts, or it would be misleading or harmful to the business of the company or to any company which is deemed by virtue of section 6 of the Companies Act to be related to the company.

10 Lovells Lee & Lee Corporate 7 Notes

11 Lovells Lee & Lee Corporate 8 Notes

12 Lovells LLP and its affiliated businesses have offices in: Alicante Amsterdam Beijing Brussels Budapest* Chicago Dubai Dusseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong London Madrid Milan Moscow Munich New York Paris Prague Rome Shanghai Singapore Tokyo Warsaw Zagreb* Lovells is an international legal practice comprising Lovells LLP and its affiliated businesses. Lovells Lee & Lee is a joint law venture corporation with limited liability incorporated in Singapore with company registration number E. Lovells Lee & Lee is an affiliated business of Lovells LLP, a limited liability partnership registered in England and Wales. The word "partner" is used to refer to a member of Lovells LLP, or an employee or consultant with equivalent standing and qualifications, and to a partner, member, employee or consultant in any of its affiliated businesses who has equivalent standing. New York State Notice: Attorney Advertising Copyright Lovells Lee & Lee All rights reserved. SNGLIB01/81699 *Associated offices