Shareholding Structure Options you need to know in Singapore

Shareholding structure refers to the way in which shares are distributed among shareholders. There are used are used to protect and manage company assets, liabilities and ownership rights. They can be complex, but this article will serve as a guide for you to understand the basics of shareholding structure options in Singapore.

What are shares?

A share is simply a slice of a company that has been issued. In essence, shares represent ownership of the company and shareholders can vote and receive dividends.

They can be purchased by investors and held in the investor’s name or they can be transferred from one person to another. In this case, it is important to note that shares can only be transferred between parties who have been approved by the company.

In Singapore, companies issue different types of shares:

Companies issue different classes of shares to accommodate their growing number of stakeholders. There are no legal definitions for share classes, and shares with the same name can have different rights in different companies. Some typical classes of shares and their rights are described below:

#1 Ordinary Shares

Overview: Ordinary shares represent the most prevalent class and serve as the foundation of ownership in a company.

Rights:

Carry one vote per share.
Receive equal dividends.
Distribute residual assets among shareholders after settling all debts in case of liquidation.

#2 Non-voting Shares

Overview: Non-voting shares grant no rights to vote or attend general meetings, often issued to employees or members of shareholders’ families.

Rights:

No voting rights.
Remuneration paid as dividends, offering potential tax efficiency.

#3 Redeemable Shares

Overview: Redeemable shares are issued with the understanding that the company will buy them back at a future date, commonly associated with non-voting employee shares.

Rights:

Buyback at a fixed or director-determined future date.
Often tied to non-voting shares for employee compensation.

#4 Preference Shares

Overview: Preference shares, often non-voting, provide guaranteed dividends and come in cumulative or non-cumulative forms.

Rights:

Guarantee dividends, with variations in cumulative or non-cumulative entitlement.
Cumulative preference shares grant priority in receiving payments.

#5 Management Shares

Overview: Management shares carry additional voting rights designed to maintain control within specific hands.

Rights:

Extra voting rights, achieved through methods like conferring multiple votes per share or having a smaller nominal value.
Used to retain control after issuing shares to external investors.

#6 Employee Share Options

Overview: Employee share options are tools to attract and compensate employees, aligning their financial interests with the startup’s performance.

Rights:

Rights to purchase shares at a predetermined price within a specified timeframe.
Motivational tool linking employee performance with startup success.

In general there are three key shareholder rights:

1. Voting Rights: The Pillar of Control

Overview: Voting rights are the cornerstone of a shareholder’s influence in the decision-making processes of a company. Typically, ordinary shares carry one vote each at general meetings, providing a democratic representation of ownership.

Flexibility Through Ownership Classes: Companies, as exemplified in the Google case, have the flexibility to modify voting rights. This may involve the issuance of non-voting shares, shares with multiple votes (e.g., 10 votes per share), or shares with limited voting rights. Founders, in particular, should prioritize this right as it directly impacts their ability to steer the company’s direction.

2. Profit-Sharing Rights: Dividends and Diversity

Overview: Profit-sharing rights revolve around the distribution of a company’s profits in the form of dividends. The amount allocated per share is a crucial aspect of shareholder returns.

Ownership Class Influence: The company’s Articles of Association play a significant role in dividing shares into different classes, allowing for varied dividend allocations. Directors or shareholders may have the authority to distribute different amounts of dividends to distinct classes of shares. This flexibility accommodates diverse shareholder preferences and company strategies.

3. Liquidation/Winding-off Rights: Ensuring Fair Distribution

Overview: In the event of a company’s liquidation, shareholders look to the division of remaining assets after settling all debts. Generally, residual assets are distributed proportionally based on each shareholder’s interest in the company’s share capital.

Ownership Class Dynamics: When shares are divided into different classes, the company’s Articles can outline priority rights in the distribution of residual assets. This ensures a fair and structured process, offering certain classes of shares precedence in the division of remaining assets during liquidation.

November 11, 2023February 18, 2024

A Comprehensive Guide to Setting up an Offshore Company in Singapore

Setting up an offshore company in Singapore can be an attractive option for small business owners looking to expand their operations into a tax-efficient and financially stable environment. With its flexible tax system, streamlined incorporation process, and supportive business environment, Singapore offers numerous benefits for entrepreneurs. In this comprehensive guide, we will explore the key advantages of incorporating a Singapore offshore company and provide a step-by-step checklist for the incorporation process. So, let’s dive in and discover how you can navigate the process of setting up your offshore company in Singapore.

What is an Offshore Company?

An offshore company is a business that is registered and operated in a jurisdiction different from its principals and investors or primary business operations. Typically, offshore companies are incorporated outside the country of central business operations, often in regions that offer specific business regulations, low tax schemes, and asset protection. These offshore regions make foreign company incorporation an attractive prospect for entrepreneurs seeking to expand their businesses internationally.

Why Set Up an Offshore Company in Singapore?

There are several compelling reasons to consider setting up an offshore company in Singapore. Let’s explore some of the key benefits:

1. Less Taxes

Singapore’s flexible tax system and appealing incentives for foreigners make it an attractive destination for offshore company formation. The country boasts one of the lowest standard corporate tax rates in Asia, standing at a flat rate of 17%. This low tax rate provides significant cost savings for businesses and encourages foreign investment.

2. Easy Incorporation Process

One of the major advantages of setting up an offshore company in Singapore is the simplicity and efficiency of the incorporation process. With no red tape and a focus on efficiency, the entire process can be completed digitally within a matter of days. Singapore is known for being one of the easiest places to do business, making it an ideal choice for entrepreneurs looking for a hassle-free incorporation experience.

3. Political and Economic Stability

Singapore is renowned for its political and economic stability, making it an attractive destination for offshore company formation. The country has a transparent and corruption-free government, a reliable legal system, and a reputation for being one of Asia’s least bureaucratic nations. These factors contribute to a conducive business environment and reduce the risks associated with setting up a Singapore offshore company.

4. Eligibility for Foreigners to Own a Company

Foreigners and individuals residing outside Singapore are eligible to set up an offshore company in the country. There are no restrictions on the permitted fields of business activity, and prior approval from authorities is not required. With 100% foreign shareholding allowed and the option to have corporate bodies or individuals as shareholders, Singapore offers a liberal and open environment for foreign business owners.

5. Credible Image for Your Company

Incorporating a Singapore offshore company lends credibility and stature to your business. Singapore is internationally recognized as a trusted and reputable place for running and incorporating businesses. Having a Private Limited company in Singapore can enhance your company’s image, attracting prospective investors and facilitating future business growth and expansion.

6. Modern Banking Facilities

Singapore’s leading financial center status ensures that setting up a Singapore offshore company comes with access to modern, efficient, and accessible banking services. The country boasts an extensive selection of reputable local and foreign banks, offering features such as multi-currency accounts, credit and trade financing, internet banking, and more. Some banks even allow remote account setup, eliminating the need for physical visits or paperwork.

7. Strong and Stable Singapore Dollar

The strength and stability of the Singapore dollar make it an advantageous currency for businesses operating internationally. As one of the top 15 most-traded currencies globally, the Singapore dollar provides businesses with a solid trading position and opens up opportunities for investments and growth in the future. Singapore’s consistently low inflation rate further instills confidence in businesses considering offshore ventures in the country.

8. Venture Capital and Funding Options

Singapore offers various options for venture capital and funding, making it an attractive destination for startups and businesses seeking financial support. These financing options include private equity funding, angel investors, private funds, and venture capital. Each funding option has its own benefits and considerations, allowing businesses to choose the most suitable approach based on their specific needs and growth potential.

Now that we’ve explored the key benefits of setting up an offshore company in Singapore, let’s delve into the steps involved in the incorporation process.

How to Set Up an Offshore Company in Singapore

Setting up an offshore company in Singapore involves several key steps and considerations. By following this step-by-step checklist, you can navigate the process efficiently and effectively.

1. Company Name Approval

The first step is to acquire approval for your company name from the Accounting and Corporate Regulatory Authority (ACRA). The name should be unique and not conflict with any existing company’s name or any sensitive phrasing. ACRA will review and approve the name based on these criteria.

2. Company Structure and Profile Submission

Next, you’ll need to decide on the type of company structure you want to establish. Singapore offers various options, including sole proprietorship, private/public limited liability company, or subsidiary/branch/representative office. It’s essential to understand the differences between these structures and choose the one that aligns with your future plans and goals.

Private Limited Company (Pte Ltd): The most popular choice, providing limited liability for shareholders
Limited Liability Partnership (LLP): Suitable for service-oriented businesses
Branch Office: Ideal for foreign companies looking to establish a presence in Singapore

For offshore companies, private limited companies are commonly preferred due to their ease of raising capital, limited liability protection, credibility as a corporate structure, and tax benefits available in Singapore.

3. Meeting Business Requirements

Fulfilling the regulatory requirements is a crucial step. Ensure that you:

- Have a Local Registered Address: Every Singapore company must have a local physical address.
- Appoint a Director: At least one director must be a Singapore resident.
- Appoint a Company Secretary: Within six months of incorporation, appoint a qualified company secretary.
- Minimum Share Capital: While there is no specific requirement, a minimum paid-up capital is necessary.

4. Register your Company and Open a Corporate Bank Account

Engage the services of a professional firm or use the online services provided by the Accounting and Corporate Regulatory Authority (ACRA) to register your company.

Submit the necessary documents, including the company’s constitution, particulars of directors and shareholders, and the registered address.

You may also consider professional assistance by engaging the services of a professional firm or corporate service provider to streamline the process and ensure compliance with local regulations.

November 8, 2023February 18, 2024

The Role of ACRA: Singapore’s Company Registrar

In Singapore, every business must adhere to regulations set by the Accounting and Corporate Regulatory Authority (ACRA), the country’s national regulator of business entities and public accountants. ACRA plays a vital role in overseeing and monitoring companies’ activities, ensuring compliance with the Companies Act, and promoting a trusted and attractive business environment in Singapore.

Understanding ACRA

ACRA, also known as the Registrar of Companies (ROC), is responsible for the registration, regulation, and development of companies in Singapore. Established to ensure the proper functioning and transparency of businesses, ACRA facilitates the incorporation of new companies, maintains corporate records and business profiles, and monitors ongoing compliance requirements.

ACRA BizFile and BizFile+

ACRA operates an online filing and information portal called BizFile, which has been upgraded to BizFile+ to provide a wider range of services and improve processing times. BizFile+ offers over 300 online services, including the submission of statutory documents, retrieval of business information, name reservations, changes to corporate structure, and annual returns.

The ACRA BizFile portal serves as a centralised platform where companies can make electronic submissions and applications, saving them time and effort compared to manual processes.

Through BizFile, companies can easily update their information, such as details of directors, shareholders, officers, and registered office address. They can also make submissions for name reservations and incorporation. The portal provides a user-friendly interface that allows companies to navigate through the different sections and complete their submissions efficiently. By leveraging technology, BizFile streamlines the process of interacting with ACRA, making it more convenient for businesses to fulfill their ongoing compliance requirements.

Checking Company Registration with ACRA

To verify if a company is registered with ACRA, you can use the ACRA company search tool. Simply enter the company name or registration number to obtain information about the registered entity.

Foreigners and Company Registration

Foreigners cannot self-register a company with ACRA as they are not eligible to obtain a SingPass, the digital ID required for accessing BizFile+. Foreign entrepreneurs and corporations seeking to establish a company in Singapore often engage professional corporate service providers who can access BizFile+ on their behalf and assist with the registration process.

ACRA Documents and Certificates

Upon successful company registration, ACRA sends an official email confirming the incorporation. This email serves as the official certificate of incorporation and includes the Unique Entity Number (UEN) assigned to the company. ACRA no longer issues physical copies of the certificate, but a print copy can be requested online through BizFile+.

Accessing ACRA’s Services

ACRA’s services are accessible to the public, allowing anyone to obtain general information about registered companies. However, to engage in company registration and access certain services, individuals must use their SingPass credentials to log in to BizFile+.

ACRA Filing Requirements

Under the Companies Act, all companies in Singapore are required to file an Annual Return with ACRA within 30 days of holding an Annual General Meeting (AGM). The Annual Return includes the company’s financial statements and updated information about directors and shareholders.

ACRA’s Power to Enforce Compliance

ACRA has the authority to enforce compliance with ongoing obligations. Failure to comply with reporting requirements and timely submission of financial information may result in penalties or legal action. ACRA can issue warnings, strike off non-compliant companies, disqualify directors, impose fines, or prosecute companies in court.

Public Availability of ACRA Information

Basic company information, such as name, address, and activities, is publicly available on ACRA’s website. More detailed information can be obtained by purchasing a Business Profile, which provides comprehensive data on a company’s registration details, principal activities, shareholders, and paid-up capital.

Notifying ACRA about Changes

It is crucial for companies to keep ACRA updated on changes to their information, such as company name, business activities, and appointments or removals of directors and secretaries. Failure to notify ACRA within 14 days may result in penalties. A professional corporate service provider can assist in ensuring timely updates to ACRA.

Navigating the Name Reservation Process on Bizfile: Tips and Considerations

When it comes to submitting a name reservation application on Bizfile, there are a few important tips and considerations to keep in mind. The first step is to choose an appropriate Standard Industrial Classification (SSIC) code for your company’s principal activities. The SSIC codes determine the nature of your business and are used by ACRA to categorize companies.

It is crucial to select the correct SSIC code that accurately represents your company’s main activities. Choosing the wrong code can potentially impact the approval of your name reservation application. For example, certain SSIC codes may require approval from specific government entities, such as those related to medicine, architecture, or financial advisory services. Additionally, selecting certain principal activities like investment holding may restrict your company from enjoying certain tax incentives or benefits.

To ensure a smooth name reservation process, it is advisable to consult with a professional corporate services provider who can guide you in choosing the most suitable SSIC code for your business. They can also assist you in preparing and submitting the application accurately, minimising the risk of any errors or delays.

How We Can Help

Establishing and managing a business in Singapore requires compliance with ACRA’s regulations. Our team of experts can guide you through the company registration process, help with ongoing compliance obligations, and ensure timely submissions to ACRA. With our assistance, you can focus on growing your business while we handle the administrative tasks.

Conclusion

ACRA plays a pivotal role in Singapore’s business landscape, regulating and monitoring companies’ activities to ensure compliance with the law. By understanding ACRA’s functions, accessing its services through BizFile+, and meeting filing requirements, businesses can operate smoothly and maintain a positive reputation in the Singaporean business community.