Why entrepreneurs should incorporate early in Singapore

In Singapore, a corporate entity is the most common vehicle for an entrepreneur to launch and execute his or her idea.

For an entrepreneur, having a world changing creative idea is a great thing. But it is equally important to find a way to execute and turn that idea into a viable business. 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 you need to make as an entrepreneur is to decide the type of business structure (i.e. legal entity) for your business. Your decision can affect how much you pay in taxes, the image and perception of your business that you portray to your clients and suppliers, the amount of paperwork your business is required to do, the personal liability you face, and your ability to borrow money and  expand your business.

As a new startup, you may choose between a Limited Liability Company (“company” to be short), a Limited Liability Partnership, or a Sole Proprietorship. Of the three 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. This company structure 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 $300,000 profits each year. You can also claim tax deductions on your research and development (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 to setting up a limited liability company as your startup structure. To find out more about other incorporation options, see the incorporation choices in Singapore guide.

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 secure 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 former 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 #2 in the world by World Bank for ease of doing business in 2018
  • Singapore is ranked #4 in the world for having the best protection of intellectual property by The Global Competitiveness Report 2017-2018
  • Singapore is ranked #1 for having the most open economy for international trade and investment by The Global Enabling Trade Report 2016
  • Singapore is ranked #1 in the world for best business environment by Economic Intelligence Unit in its 2017 report
  • Singapore is ranked the third wealthiest nation in the world by Forbes magazine
  • Singapore is rated #6 in the world for country with least corruption perception by Transparency International in its 2017 report
  • Singapore is rated #1 for global talent competitiveness by INSEAD
  • Singapore is rated #4 in the world for quality of life for expats
  • Corporate tax rates are about 8.5% up to $300,000 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 $320,000

However, one thing to note about incorporating is that you will need to complete some essential paperwork. Specifically, you will need to complete annual meeting minutes, file an annual report with the state and keep your corporate records in order. Fortunately, the task of setting up the company and its on-going compliance can be outsourced to a professional company such as Hawksford To learn more about the requirements and procedure for incorporation, please refer to Singapore company incorporation.

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