Ultimate Guide to Board Meetings

board meetings

#1. What are Board Meetings?

A board meeting is an important event where the company’s Board of Directors discuss issues that will have a significant impact on the business. These issues might involve decisions to hire/fire the CEO, acquire a new company, divest a portion of the company, declare dividends, and many more key actions.

#2. Why are Board Meetings held?

Some common reasons why board meetings are held include:

  1. Board meetings, with their meeting minutes, provide a written record of the discussions held and reasons in support of key business decisions. This documentation is important for compliance purposes. Having a written record can also protect Board directors from potential lawsuits later on (e.g. lawsuits filed by shareholders) if the Board decisions negatively impact the company.
  2. The Board wants to declare dividends.
  3. The Board wants to review major strategic plans by management that will significantly affect the business as a whole.
  4. The Board wants to set specific KPIs for management to meet. These KPIs may come with incentives for meeting those goals, and clawbacks for failing those goals.
  5. The Board wants to set compliance and reporting standards that the business must adhere to.
  6. The Board wants to fire the CEO.
  7. The Board wants to select a new CEO.
  8. The board wants to adjust compensation for the CEO.
  9. The Board wants to acquire or merge with another company (M&A activity).
  10. The Board wants to acquire or sell IP (intellectual property) rights.
  11. The Board wants to raise additional capital by selling some of the company’s shares.
  12. The Board wants to approve annual budgets and contracts (typically large contracts).
  13. The Board wants to expand the company, e.g. into overseas markets.
  14. The Board wants to implement or adjust the employee stock option plans (ESOPs).
  15. The Board wants to downsize the business/conduct retrenchment, as the company is performing poorly.

If the Board has made a decision on an issue and they want to formalize this decision, they will pass what’s known as a Board resolution. A Board resolution is basically a proposal to do something (e.g. hire a new CEO). The directors will then cast votes on whether to support or reject the resolution. If a majority of the directors vote in favour of the resolution, the resolution passes. The Board will then take the steps outlined in the resolution.

#3. Can shareholders attend board meetings?

Yes, but only if the shareholders are invited to board meetings. If shareholders are not invited, then they do not have a legal right to demand entry into a board meeting. Shareholders have a legal right to shareholders/general meetings, but they do not have this same right to board meetings.

#4. How should I hold a Board Meeting? What are the procedures?

Board meetings are governed by your company’s Constitution. The company Constitution is a document that sets out the responsibilities, rights, and powers of the company’s directors and shareholders. It also specifies procedures on holding board meetings.

Unlike many other aspects of running a company, board meetings are not governed by the Companies Act. The Companies Act is the law governing all companies in Singapore. The Act does not specify regulations on board meetings. Therefore, the procedures, powers, and other obligations of directors in Board meetings will be ruled by your Constitution. This gives companies maximum flexibility in conducting their board meetings as they see fit.

We’ll outline how to hold board meetings in accordance with the Model Constitution. This will apply if your company has adopted the Model Constitution, which is one of the most commonly used company constitutions in Singapore. The steps here can also be found in paragraphs 83 to 94 of the Model Constitution.

Step 1: Director requests for the company secretary to schedule a board meeting

Any director may command the company secretary to hold a board meeting. Unlike with shareholder meetings, board meetings do not need to be held at least 14-21 days in advance. Board meetings can be held anytime, as long as directors are given ample advance notice of the meeting, along with sufficient time to prepare and review the agenda and any documents for the meeting.

Can a director be excluded from board meetings?

No. By law, you must notify all directors of upcoming board meetings. If you don’t, any decisions made during that board meeting will be invalid. The Singapore Courts have previously ruled that board meetings are only valid if notice is provided to all board directors. If you fail to notify to notify some directors, whether deliberately or not, that would be against the law, and that board meeting would be void.

Step 2: Board meeting must satisfy quorum requirement

A quorum of 2 directors is mandatory (unless your company’s constitution requires a higher quorum). A quorum is the minimum number of company directors who must be present at a board meeting, in order for the meeting to be considered valid.

If the number of directors who show up at the meeting is less than the quorum, then no decisions can be made. Any actions taken by directors at a meeting where a quorum is not met is invalid.

Who serves as chairman for the board meeting?

Usually, the chairman of the meeting is the chairman of the Board of Directors. However, if the chairman of the board is not present, the directors may elect another person to serve as chairman solely for the meeting.

Step 3: Discuss issues and, if needed, pass board resolutions

The Board of Directors can pass board resolutions during meetings. A board resolution is basically a formal decision undertaken by the Board of Directors. For instance, board resolutions are passed to declare dividends. To pass a resolution, simply hold a vote amongst the directors. If a majority of the directors agree, then the resolution is passed.

Some company constitutions may specify different voting thresholds to pass board resolutions. For instance, some constitutions may require 75% of all directors to support a resolution before it can be passed. Refer to your company constitution when in doubt about the exact % of votes needed to pass a resolution.

Important: Directors must declare vested interests/conflict of interests

If a director has a vested interest in any transaction, or proposed transaction, they must declare their interests. They also cannot vote on that matter in which they have a vested interest.

For instance, let’s say you are a director of Company A. A board meeting is held to discuss the possibility of Company A acquiring of Company B. You happen to own shares in Company B. Since you have an interest in this proposed transaction, you must take the following actions:

  • Declare to the board that you own shares in Company B
  • Abstain from voting on any board resolutions related to acquiring Company B

It is a crime for directors to not declare an interest in transactions. Under the Companies Act, offenders can be jailed and/or fined!

What happens if there is a tie in votes?

If the votes for the board resolution come to a 50-50 stalemate, then the chairman of the meeting will cast the final vote. This will be the tie-breaking vote.

What happens if there is only one director in the company?

Sole directors can simply hold board meetings themselves, and pass board resolutions by themselves.

Constitutions other than the Model Constitution

If you’re using a company constitution that’s different from the Model Constitution, you’ll have to follow your own procedures to conduct board meetings as outlined in your constitution.

However, any well-drafted constitution will almost always set standards on the following points for conducting board meetings:

  • Giving proper notice of board meetings to all directors
  • Specifying the quorum required for valid board meetings
  • Voting threshold required to pass board resolutions
  • Procedure to appoint a chairman for the board meeting
  • Recording minutes of board meetings

#5. Keeping minutes of board meetings

Minutes are a summary of the key issues and actions taken during a meeting. Keeping a comprehensive and accurate list of minutes for all your board meetings helps to provide clarity into what decisions were made, who made those decisions, and why they were made. Minutes therefore serve as important tools for ensuring compliance, and also help to protect boards from legal action if other parties were to make accusations that improper decisions were made.

Keeping minutes of board meetings is a legal requirement in Singapore. Under Section 188 of the Companies Act, all board meetings must have minutes recorded. These minutes are to be recorded and filed within 1 month of the board meeting. The company secretary is usually the one responsible for recording minutes. After minutes are recorded, they will be signed off by the chairman of that meeting, and then entered in the company’s records for safe-keeping.

It is a crime to not record minutes for board meetings. Both the company itself and company directors can be fined up to S$2,000 each.

Sample board meeting minutes template

Board Meeting Minutes

Administrative Details
Meeting date:
Meeting time:
Meeting called by:
Meeting chairman:
Timekeeper:
Note taker:
Directors in attendance:
Meeting Minutes
Agenda item 1
Discussion notes:
Conclusions:
Agenda item 1 list of action items Action item description Person responsible Deadline
Action item 1:
Action item 2:
Action item 3:

#6. What are some good ways to limit potential legal liabilities of board directors during board meetings?

#1. Directors should perform due diligence before board meeting and when reviewing proposals:

Prior to the board meeting, all directors should conduct due diligence on the issues set out in the agenda. This is to ensure that directors have the depth of background knowledge on the set of issues being discussed to make good decisions. Making decisions without having done proper due diligence can lead to lawsuits against the directors, if those decisions turn out poorly for the company.

#2. Director must declare potential conflicts of interest:

It’s critical that directors declare any potential conflicts of interests they have in matters that come up in board meetings. Conflicts of interest are a real legal minefield. You don’t want to fail to disclose (whether deliberately or accidentally) a potential conflict of interest, only to have it surface later. This can be cause for lawsuits (e.g. from shareholders alleging that you were serving your own interests, rather than the company’s interests). It also happens to be a criminal offence, with penalties including a prison term of up to 2 years, or a fine of up to $100,000.

What legal consequences can directors face if board meetings are not conducted properly?

If board meetings are not properly held, and mistakes are made by the directors that cause the company to suffer losses, then you can expect to get hit by lawsuits. Such lawsuits are often filed by shareholders, who ultimately are the ones who elect and remove directors. When directors are sued personally, there is no limitation of liability (that means that even if you’re a director at a Private Limited, limitation of liability protections will not apply). Directors who are sued personally will have their all personal assets (e.g. your house, car, money in your bank) fully exposed to legal claims.

#7. Protecting your business and board directors:

It’s critical that you protect your business and your board of directors comprehensively! Remember that when business lawsuits happen, it’s too late get lawsuit insurance protection. The best time to get protected is right now, before anything unfortunate happens.

Provide is the easiest way for businesses to get insured in Singapore. Simply click the links below to purchase your cover online, in just 3 minutes!

Coverage Explanation Premium
Professional Indemnity Insurance Covers a wide variety of business lawsuits: customer lawsuits, business partner lawsuits, negligence lawsuits, errors & omissions lawsuits, IP infringement lawsuits, breach of confidentiality lawsuits, etc. From $42/month
Directors & Officers (D&O) Liability Insurance Covers a wide variety of lawsuits against board directors & officers: customer lawsuits, business partner lawsuits, employee lawsuits, shareholder lawsuits, etc. From $42/month
Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month

 

Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker

6 MUST-Knows about Certificates of Incorporation Singapore

certificate of incorporation

A Certificate of Incorporation is a basic legal document that’s issued when you form a company in Singapore. In this comprehensive guide, we’ll go over the 6 most important things that every business owner should know about these certificates, namely:

  • What is a Certificate of Incorporation?
  • Who issues the Certificate of Incorporation?
  • What information does a Certificate of Incorporation contain?
  • Why is the Certificate of Incorporation important?
  • How do I get a Certificate of Incorporation in Singapore?
  • How do I verify the authenticity of a Certificate of Incorporation?

#1. What is a Certificate of Incorporation?

A Certificate of Incorporation is an official document that proves your company has been legally registered and formed in Singapore. It is legal proof that your company has met all the regulatory requirements to form a company.

Sample Certificate of Incorporation:

Here’s a sample certificate that you would receive if you had started a Private Limited in Singapore.

sample certificate of incorporation

Source: ACRA Sample Certificate of Incorporation

#2. Who issues the Certificate of Incorporation?

The certificate is issued by ACRA (Accounting and Corporate Regulatory Authority). ACRA is the government body responsible for regulating formation and compliance matters of all companies in Singapore.

You will get 1 free copy of your Certificate of Incorporation when you first register your company. This Certificate of Incorporation will be emailed to the contact person, and company officers, that you submit to ACRA during the company incorporation process.

#3. What information does a Certificate of Incorporation contain?

The Certificate of Incorporation will state:

  • Company name
  • Unique Entity Number (UEN)
  • Incorporation date
  • Type of company (e.g. Private Limited, LLP, Sole Proprietorship, etc.)
  • Former names of your company, if applicable (only the 5 most recent names will be listed)
  • Authentication number and QR code for other parties to verify your Certificate of Incorporation’s authenticity

#4. Why is the Certificate of Incorporation important?

Some business transactions will require you to provide your company’s Certificate of Incorporation.

Here are some common examples:

  • Opening corporate bank accounts
  • Taking on contracts with government agencies
  • Applying for grants from government agencies
  • Applying for certain business services, like specialised insurance coverage (e.g. performance bonds or foreign worker security bonds)
  • Entering into contracts with clients who need to verify your company’s legitimacy

#5. How do I get a Certificate of Incorporation?

When you first register your company, you will receive 1 free copy of your Certificate of Incorporation via email. This is emailed to the officers of the company and the contact person who’s handling the incorporation process.

This free Certificate of Incorporation will be unsigned. Some business transactions may require you to show a signed copy of your Certificate of Incorporation. For instance, some banks may require a signed Certificate of Incorporation to open a company bank account for you. To get a signed certificate, you’ll need to purchase a Certificate of Incorporation from ACRA.

Also, if you need to download an updated copy of your Certificate of Incorporation, or if you’ve somehow lost your certificate, then you can purchase your Certificate again.

It only takes 3 steps to buy your Certificate of Incorporation:

Step 1: Log in to BizFile+

BizFile+ is an online portal managed by ACRA, which provides various business services for companies.

Step 2: Go to “Buy Information”

Step 3: Make payment

The fee is SGD $50.

Step 4: Download signed Certificate of Incorporation

You’ll get an email within 15 minutes with a link to download your signed Certificate of Incorporation.

Who is allowed to buy the Certificate of Incorporation?

You cannot just ask anyone in your company to purchase the certificate. Only the following individuals in your company are allowed to purchase the certificate:

  • Company officers
  • Business owners
  • Authorised representatives
  • Authorised corporate secretaries
  • Goup secretary
  • For LLPs and LPs: partners or managers

These restrictions are meant to avoid potential fraudulent use of your certificate. For example, you wouldn’t want any of your employees purchasing your certificate, and then using it to surreptitiously open a bank account under your company’s name for malicious purposes.

What is the fee to buy the Certificate of Incorporation?

It costs SGD $50 for each Certificate of Incorporation.

I’ve lost my incorporation documents – how do I find my Certificate of Incorporation?

If you incorporated your company after 31st May 2018, your Certificate of Incorporation would have been emailed to you. Search your inbox or spam folder for it.

If you incorporated your company before 31st May 2018, and previously had a hard copy of your certificate, you can purchase a new copy of your certificate.

Can I purchase a hard copy of the Certificate of Incorporation?

No. ACRA has stopped issuing hard copies of the Certificate of Incorporation since 31st May 2018. All Certificates of Incorporation are now issued electronically only.

Some other sites may advise you that there are hard copy services available –this is outdated information, unfortunately.

What’s the processing time to receive my certificate?

After you’ve made payment, you’ll get an email from ACRA within 15 minutes. This email will contain a link to download your certificate. It’s a fairly quick process.

#6. How do I verify the authenticity of a Certificate of Incorporation?

Sometimes when dealing with another business, you may want to find their incorporation certificate as part of your due diligence process. Or you may also have business partners who want to verify your certificate’s authenticity. There are 2 methods to verify a Certificate of Incorporation:

Method 1: Scan the QR code on the certificate. If it’s real, this will send you to a page verifying its legitimacy.

Method 2: Enter the UEN and Authentication Number (both found on your Certificate of Incorporation) at this Product Authentication page. The results will tell you whether it’s fake or real.

Verifying a certificate’s authenticity is 100% free.

Protecting your business:

After you incorporate your company, make sure you protect it! Provide is the easiest way for businesses to get insured in Singapore. Simply click the links below to purchase your cover online, in just 3 minutes!

Coverage Explanation Premium
Professional Indemnity Insurance Covers a wide variety of business lawsuits: customer lawsuits, business partner lawsuits, negligence lawsuits, errors & omissions lawsuits, IP infringement lawsuits, breach of confidentiality lawsuits, etc. From $42/month
Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month

 

Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker

4 Easy Steps to Make Company Loans for Directors/Shareholders in Singapore

company loan

Why do companies make loans to directors?

Companies may lend money to directors as a gesture of goodwill. Directors can apply for company loans to obtain more favourable interest rates than what financial institutions, like banks, could offer them. Company loans, if approved, also will likely have less stringent underwriting requirements compared to banks. Directors may also need loans in case of personal emergencies, or require the money to meet expenses in order to carry out their directorial duties (e.g. transport expenses).

What is considered a company “loan”?

The definition of company loans do not just include standard loans – i.e. a sum of money handed over with a promise for repayment. Singapore law also defines company loans to include:

#1. Quasi loans:

This is a transaction where the company pays expenses incurred by the director, with the understanding that the director will reimburse the company later on.

#2. Credit transactions: 

Examples of credit transactions include:

  • Renting out housing or land to directors (e.g. a bungalow for the director to live in), in exchange for payments
  • Providing goods and services to directors (e.g. chauffeur service, grocery hampers, laptops, etc.) in exchange for payments

Basically, this involves the company providing goods, services, or property/land use in return for payments from the director.

#3. Guarantees to directors:

These refer to the company providing a guarantee or security for a loan, quasi-loan, or credit transaction made for the benefit of a director. For instance, if the company agrees to act as a corporate guarantor for a personal loan that the director takes on, that would count as a guarantee to a director.

Can a company make loans to its directors?

It depends on whether the director is a shareholder, or not.

If the director is not a shareholder: Generally, no. Company loans are only allowed under 4 specific circumstances (outlined below). All other company loans that do not meet these 4 requirements are not allowed.

If the director is a shareholder: Yes, company loans are generally allowed, subject to some requirements.

Company loans to directors who are also shareholders

Companies may make loans to directors who are also shareholders. Some requirements that you must bear in mind are:

  • You must hold a Board meeting, and pass a Board resolution to approve the company loan to the director-shareholder. This means that a majority of the Board of Directors must agree to the loan. You must document that the company loan provided to the director-shareholder has been given because of their status as a shareholder.
  • Company loans cannot be made in order for the director-shareholder to reduce their tax liabilities (e.g. as opposed to paying the director-shareholder a director’s fee, director’s salary, etc.)
  • There must be an IOU or some other official document to record the company loan, with a repayment schedule. You must create a debtor-creditor relationship. You cannot just make a company loan knowing that the director-shareholder has no intention of paying back the money.
  • If the company has previously extended loans to other shareholders, then the loan terms (e.g. interest rate, any collateral, repayment schedule etc.) should be similar. Loan terms should not be biased in favour of director-shareholders just because the have a seat on the Board.

Restrictions on company loans to directors include the directors’ family members

Restrictions on company loans to directors include not only the directors, but also the director’s family members, who include the director’s spouse, children (including adopted children) and step-children.

Why are there strict restrictions on company loans to directors?

These safeguards exist because directors are supposed to represent the interests of the company, and shareholders. Company loans that are made to directors (particularly generous loans, at zero or very low interest rates) may adversely influence the objectivity of directors. Unscrupulous management teams may use company loans to buy favour from directors. It is therefore a matter of good corporate governance and public policy to ensure that company loans are only made to directors under a strict set of guidelines. This helps to protect shareholder interests, and minimises the possibility of directors being bought over by management.

What are the requirements to make company loans to directors?

Company loans made to directors who are not shareholders are only allowed under a narrow set of 4 reasons.

The 4 reasons where company loans to directors are allowed are:

Reason 1: Loan to pay director’s necessary expenses

The company  loan is made to the director to pay expenses needed to fulfill the director’s duties. This loan must be approved in a shareholder’s meeting.

Reason 2: Loan to purchase housing for director

If the director is a full-time employee of the company or a related company, and the loan is specifically for the director to purchase a house to live in. This loan must be approved in a shareholder’s meeting.

Reason 3: Loan as part of employee benefits scheme

If the director is a full-time employee of the company or a related company, and the company loan is part of a company-wide employee benefits scheme. This means that company loans must also be made available to other employees, and not just the directors. Company loan benefit schemes must be approved in a shareholder’s meeting.

Reason 4: Loan as part of money lending business

If the company’s primary business involves money-lending, and the loan to the director is made by the company conducting its primary money-lending activities. Money lenders must have the relevant licenses from the authorities. This loan does not need to be approved in a shareholder’s meeting, since it is simply the company conducting its primary business.

How do I approve a company loan to directors?

Step 1: Arrange a shareholder meeting

Arrange a shareholder meeting at least 14 days in advance. If you receive at least 95% approval from shareholders, you can do away with this 14-day-advance-notice requirement, and you can hold the meeting earlier.

Step 2: Pass an ordinary resolution authorising the company loan to directors

An ordinary resolution is basically a shareholder vote. You must receive over 50% of shareholders’ votes in order to pass the ordinary resolution to make the company loan. During this meeting, you must disclose the purpose and amount of the loan.

Step 3: Disburse the company loan

Once shareholder approval has been granted, the loan can be disbursed to the directors.

Additional conditions for company loans

If shareholder approval has not been obtained for the company loan, then the loan must be repaid in full within 6 months of the next Annual General Meeting.

Also, if shareholder approval was not sought before the company loan was made, then the directors who receive the loan become personally liable for any losses the company suffers as a result of making the loan. For instance, if the loan amount was particularly large, and the company was unable to meet its expenses (e.g. payroll, marketing, R&D, etc.) and suffered a loss, the directors must repay the company for these losses.  

What happens if directors do not adhere to these rules on company loans?

There are strong penalties in place to punish directors who make company loans illegally. It is a criminal offence for any director who authorises a company loan that does not meet the requirements explained above. According to the Companies Act, such directors can be jailed up to 2 years, or fined up to $20,000.

Interest rates on company loans to directors

There is no legal requirement for interest to be charged on company loans to directors. You can have 0% interest, or charge any other interest rate you wish.

Tax implications for company loans to directors

If the company loan is interest-free, or has an interest rate lower than the average prime-lending rate, then such company loans may be taxable. Whether or not such a loan is taxable depends on whether the director receiving the loan is a shareholder of the company.

Director receiving loan is NOT a shareholder:

For income tax purposes, company directors are considered as company employees, even if they don’t hold full-time employee positions. Therefore, any interest benefits that such directors receive from company loans are viewed as an employment benefit, and are therefore taxable. 

The formula for calculating the value of the interest benefit: 

Amount of loan outstanding (at end of each calendar year) * Average prime-lending rate of each calendar year

Director receiving loan is a shareholder:

If a company loan is made to a director-shareholder in their capacity as a shareholder, then they would not be deemed to be employees for income tax purposes. As such, no taxes need to be paid on interest benefits for company loans.

Making company loans to shareholders 

There are no restrictions in Singapore law for companies making loans to their shareholders. 

With that being said, company directors have a fiduciary duty to serve the best interests of the company. Directors must properly evaluate whether company loans to shareholders will serve the best interests of the firm. 

Interest rates for company loans to shareholders

The company has discretion over what interest rate to charge shareholders. There is no legal requirement to charge interest. The company is free to provide interest-free loans, or to charge whatever rate they see fit.

Tax implications for company loans to shareholders

Shareholders receiving company loans do not need to pay tax on any interest benefits they receive.

Directors must act honestly and exercise due skill, care, and diligence when taking company loans

Directors also have a fiduciary duty to act with due skill, care, and diligence. This means that they must not take company loans if they can reasonably expect these loans to harm the best interests of the company. For instance, if a director knows that the company will need all the money it can muster for R&D in the next 12 months, then the director should wait till a later point in time before applying for a company loan.

Directors who breach this duty to act honestly and with due skill, care and diligence can be sued by their shareholders. Furthermore, directors can have criminal charges filed against them – punishments include being jailed for up to 12 months, and/or being fined up to $5,000.

Beware of shareholder lawsuits against directors for company loans

Shareholders may sue directors for improper loans. Loans don’t even have to actually be improperly disbursed for lawsuits to occur – shareholders can allege that improper loans were made, and initiate legal action against company directors. Defending such legal action is extremely expensive and stressful. It’s therefore important to carry Directors and Officers (D&O) Liability Insurance to protect directors against potential lawsuits. Directors & Officers Insurance would protect directors against such lawsuits. This type of insurance would pay for lawyer’s fees and damages/settlement amounts, which can easily add up to several hundred thousand (or even millions!) of dollars.

Protecting your company:

Provide is the easiest way for businesses to get insured in Singapore. Simply click the links below to purchase your cover online, in just 3 minutes!

Coverage Explanation Premium
Professional Indemnity Insurance Covers business-related lawsuits From $42/month
Directors and Officers (D&O) Liability Insurance Covers lawsuits personally targeting directors and officers of the company. From $49/month

 

Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month

 

Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker

3 Easy Steps to Start an LLP in Singapore: Ultimate Guide

start llp

What is an LLP?

An LLP (Limited Liability Partnership) is a type of business that is owned by at least two partners. Partners can be private individuals, or corporate entities (e.g. a Private Limited company). Corporate entities can either be local companies or foreign companies.

Is an LLP a separate legal entity?

An LLP possesses its own separate legal entity from its partners. This is somewhat similar to Private Limited companies. This separation of legal entities means that partners in an LLP are generally protected from legal liability if the LLP is sued. Partners in an LLP are protected from liabilities incurred by other partners in the partnership. This is particularly important because you don’t want to be caught in a situation where one of your partners makes a mistake and gets sued and then drags you into the lawsuit. The major exception to this limitation of liability is for a partner’s own mistakes, negligence, omissions, and debts incurred, which we discuss in greater detail later on. 

This limitation of liability is a critical factor in why many entrepreneurs who are thinking of incorporating a partnership will choose an LLP, instead of a plain-vanilla Partnership.

What types of businesses typically incorporate as an LLP?

Usually, only certain types of licensed & highly specialised professional services will incorporate as an LLP. These businesses include accounting/auditing firms, architectural firms, and legal practices. Most other services will incorporate as Private Limiteds.

In other countries like the US, it’s standard practice for investment funds, like Venture Capital funds, to incorporate as LLPs. This is because when dividends are distributed from profits that the fund makes, partners in an LLP are only taxed once (at their personal income tax rate). If the investment fund had been incorporated as a Private Limited entity, they would be double-taxed – taxed once at the corporate tax rate, then taxed another time at the personal income tax rate when paying out dividends. This is not a concern in Singapore, however, since dividends are not subject to personal income tax.

What are the pros and cons of LLPs?

Pro #1. Limitation of liability for other partners’ mistakes:

Partners in an LLP are not responsible for liabilities incurred by other partners. For instance, let’s say you are a partner in an Accountancy LLP. Two of your partners are working on a major client account, and they end up making major mistakes in an auditing project. The client sues the LLP for losses incurred due to these mistakes. You are not liable for the liabilities that your two other partners have incurred. If you had been part of a regular Partnership, then you would have become equally liable, and your personal assets (e.g. bank savings, house, car, etc.) would be fair game for litigants. However, in an LLP, you are protected from this liability, and your personal assets would remain safe in this example.

Pro #2. Perpetual existence:

An LLP, just like a Private Limited, will continue to exist forever, unless it is wound up, or becomes insolvent. This characteristic of perpetual existence makes it easier to pass the business on to other owners. For example, a family-owned LLP can pass ownership of the business on to the next generation. This is quite different from a partnership or a sole proprietorship, which ceases to exist when the owner(s) pass(es) away.

Pro #3. Relatively simple compliance requirements:

LLPs only need to lodge a Declaration of Solvency with ACRA each year. Also, LLPs will need to keep accurate accounts of all transactions made and their financial position, which any properly-functioning business would have anyway. These statements must be kept for at least 7 consecutive years, but they do not need to be filed yearly with ACRA. 

Compliance requirements for an LLP are therefore simpler compared to a Private Limited entity. Compared to Private Limiteds, LLPs do not need to appoint company secretaries, hold AGMs, file annual returns with ACRA, have their accounts audited, etc. This saves the partners in an LLP both time and money when managing their business. Of course, given how simple requirements are for running a Private Limited, these cost and effort savings for compliance are not tremendously huge.

Con #1. Limitation of liability does not extend to mistakes made by you:

The limitation of liability only applies to liability incurred by other partners in the LLP. This limitation of liability does not include errors, omisssions, negligence, mistakes, or other liabilities incurred by you.

Con #2. No corporate tax benefits:

Partners in an LLC are taxed at their personal income tax rate. LLPs do not benefit from corporate tax rates which in Singapore 10 to be lower than personal income tax rates.

Con #3. Must always maintain at least 2 partners:

You must maintain a minimum of 2 partners in the LLP at all times. If you only have 2 partners, and you end up having a major disagreement with your sole partner and they threaten to leave, that could pose an existential problem unless you can find a replacement partner.

Con #4. Partners can enter into contracts without the consent of other partners: 

Individual partners in an LLP can enter into contracts or other business agreements with others, without the need to first obtain consent from other partners in the LLP. This can be quite dangerous if the interests of the LLP partners are not aligned properly, and a partner potentially goes rogue.

Con #5. More difficult to transfer ownership or sell the company:

It is more difficult to transfer ownership in an LLP because any business assets, IP, licenses, permits, etc., must be transferred on an individual basis. The entire LLP, and all its assets, cannot simply be sold as one whole entity. This is quite different from a Private Limited, where the entire entity can simply be sold in one go, as long as sufficient shareholder consent is sought. If you want the flexibility to gain a nice exit from your company later on, incorporating an LLP may not be the most suitable option for you.

3 Steps to Register an LLP in Singapore

Step 1: Reserve your LLP name

Login to BizFile+. Apply to reserve your name. The name reservation fee is SGD $15.

In order to make sure that your name application is approved as quickly as possible you should bear the following points in mind:

  • Do not use vulgar, sexually suggestive, or rude names
  • Do not use reserved names, like “Temasek”
  • Do note use names that are the same or very similar to existing company names, or names that are already reserved
  • If you use certain words in your name (for example, “school” or “bank”), then your name application will be referred to the relevant Ministries for further approval. This will delay your name reservation

Once your name has been approved, it will be reserved for you for 120 days. You must then incorporate your LLP within this 120-day time frame. If you do not incorporate your LLP within this timeframe, your reserved name will be released. You will have to go through the whole reservation process again (and that includes paying the $15 fee once more). 

A note on naming of LLPs

All LLPs in Singapore must have either the words “Limited Liability Partnership” or “LLP” in their name.

Step 2: Register your LLP

Log on to BizFile+ to register your LLP. The registration fee is SGD $100.

You will require the documents discussed earlier (under the section “What documents are required for registering an LLP). To save you from scrolling up, here are the required documents:

  • Approved LLP name
  • Personal particulars of all the LLP’s partners (name, identification/passport number, residential address, phone number, email)
  • If the partner is another company, you must have the company name, company registration number, country of registration, and company address
  • Declaration of compliance
  • Registered business address for the LLP
  • Signed consent to act as manager and statement of non disqualification to act as manager

 ACRA will take about 15 minutes to process your LLP incorporation.

Step 3: Download your business profile

Upon successful registration, ACRA will email the appointed contact person with a free copy of your ACRA business profile. You’ll need this business profile to set up a corporate bank account, amongst other things.

FAQs on LLPs

Is there a limit on the number of partners in LLP?

No. There is no limit to the number of partners you can have in an LLP.

How can a new partner join an LLP?

Admitting a new partner to an LLP requires the consent of 100% of all existing partners. 

How are decisions made in an LLP?

Decisions are governed by the Limited Liability Partnership Agreement. Most Limited Liability Partnership Agreements will state that decisions are to be made via a first-past-the-post vote (i.e. majority votes). Some partnerships may set varying standards for decisions to be made,  for instance requiring 2/3 votes for certain major decisions.

Can a partner leave an LLP?

Yes. Methods of leaving an LLP are generally governed by the Limited Liability Partnership Agreement, if there is one. If the partners did not sign such an agreement while operating the LLP, then a partner can give 30 days written notice to other partners  informing them of their decision to leave. 

Can foreigners register LLPs in Singapore?

Yes. However, foreigners who want to incorporate an LLP must appoint a locally resident LLP manager (e.g. Singapore citizen, PR, or EntrePass/Employment Pass holder) to do so. Also, foreigners must appoint a registered filing agent (such as a corporate secretarial company, or law firm), to complete the incorporation process for them.

Can foreigners be partners in an LLP?

Yes. There are no restrictions on foreigners joining Singapore LLPs as partners.

Must I renew my LLP registration?

No. Once you’ve incorporated your LLP you do not need to renew your incorporation. Your LLP will exist forever unless you choose to wind it up, or the LLP becomes insolvent.

Must an LLP file corporate income taxes?

No. LLP profits are not taxed at corporate rates, so there is no need to file an LLP annual tax return. Instead, each partner in an LLP will file their own personal income taxes for payments/profits they received from the LLP.

Can an LLP apply for a bank loan?

Yes. However, LLPs are generally not viewed as favourably as Private Limiteds. This may potentially affect the terms of any bank loans you apply for.

Can an LLP own property?

Yes. Just be aware that if you buy a property under an LLP, that property’s ownership now rests with the LLP. If you want to sell that property later on, you will have to get the consent of a majority of partners. Getting this consent may not be so easy if the partners have differing views on what to do with the property.

Does an LLP have shares?

No. An LLP does not have shares in the way a Private Limited company does. However, it is possible to have partners receive varying levels of profit. Let’s take a simple example. An LLP providing architectural services has 3 partners. Partner A invests $600,000, Partner B invests $300,000, and Partner C invests $100,000. Partner A would therefore be entitled to 60% of the LLP’s profits, Partner B would be entitled to 30% of the profits, and Partner C would be entitled to 10% of the profits. Such an arrangement for differentiated profit sharing must be set out clearly in a Limited Liability Partnership Agreement, to minimise disputes later on.

It’s also best to speak with a lawyer to draft out a good Partnership Agreement. This is because in the absence of a Partnership Agreement, Singapore law sets out a default list of rules governing profit-sharing and voting power in LLPs. This is found in the First Schedule of the Limited Liability Partnerships Act. The Act specifies that profits are to be equally split amongst partners. Also, each partner is entitled to one vote. Under these default rules, this equal splitting of profit and one-person-one-vote arrangement stands regardless of the quantity of initial investment. This means that if you invested more than your other partners, the default rules would not reward you. If you don’t want to have these default rules in place, have a Partnership Agreement in place before you start your business!

Can other partners vote to kick out a partner?

Yes, but only if such a power has been agreed upon in a Partnership Agreement. If you have a Partnership Agreement, and the Agreement states that a majority of partners can vote to expel a partner, then you can proceed to do so.

However, if no such power has been granted in the Partnership Agreement (or if there isn’t even a Partnership Agreement), then other partners cannot vote to remove a partner. This is true even if a majority of partners agree to such a removal. In such a scenario, you’re pretty much stuck. You can choose to either buy out the troublesome partner, or start a new partnership.

What are the compliance requirements for LLPs?

Filing annual Declaration of Solvency

You will have to file a Declaration of Solvency with ACRA within 12 months after you first incorporate your LLP. Thereafter, you must file a Declaration of Solvency at least once every 15 months.

Keeping accurate financial records

Financial records of all transactions must be kept for at least 7 consecutive years. You should hire a bookkeeper to ensure your accounts are all in order.

Partners must pay taxes on payments received from LLPs

The profits that each partner in an LLP receives are taxed at their personal income tax rate. There is no corporate tax for LLPs. 

Appointing an LLP manager

All LLPs must appoint at least one partner to be a manager. Managers are responsible for ensuring that the LLP maintains compliance with all relevant laws in Singapore.

A manager must be:

  • At least 18 years old
  • A natural person (i.e. an individual, and not a company)
  • Ordinarily resident in Singapore

 If there are any compliance breaches, LLP managers will face personal liability for these breaches. They must answer for these lapses to the relevant authorities.

Maintain official business address

All businesses in Singapore must maintain an official business address. Now, you don’t actually need to rent an office just to meet this requirement. There are plenty of virtual offices that you can use who will provide you with an address. These companies also usually offer additional business services such as mail forwarding, mail scanning, etc. Some of these virtual offices will even have meeting rooms for you to book so you can host clients or business meetings. 

Clearly state company name and UEN on all business communication

As with all businesses in Singapore, LLPs must state their official business name and UEN on all business communications. This includes letters, invoices, quotes, and other correspondences. 

Alert ACRA promptly if any changes are made to the LLP

If there are any changes to the LLP (e.g. change in partners’ details, change in business address, etc.), these changes must be reported to ACRA within 14 days from the date of change.

How do I close/wind up an LLP?

You can go on to BizFile+ and complete an application to wind up the LLP.

Protecting your LLP in Singapore:

Provide is the easiest way for businesses to get insured in Singapore. Simply click the links below to purchase your cover online, in just 3 minutes!

Coverage Explanation Premium
Professional Indemnity Insurance Covers business-related lawsuits From $42/month
Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month

 

Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker

Ultimate Guide to GST Registration Singapore

GST registration

What is the Goods and Services Tax (GST)?

The Goods and Services Tax (GST) is a consumption tax that must be paid on nearly all kinds of goods and services in Singapore. GST is payable on consumer goods, industrial goods, personal and business services, imported goods, and more.

GST is alternately known as VAT (Value-Added Tax) in places like the EU, or Sales Tax in places like the US. 

How much is GST?

The current GST rate is 7%. GST is set to rise to 9% by 2025.

When does a business need to register for GST?

There are two situations where you have to register for GST.

Situation 1: Annual sales > $1 million in last 12 months

You have to register your business for GST if your annual turnover was more than SGD $1 million in the last 12 months.

Situation 2: Annual sales expected > $1 million in next 12 months

You will also have to register for GST if you are certain that your annual turnover will exceed SGD $1 million dollars in the next 12 months.  

This expectation of annual sales exceeding $1 million should be supported by the following documents/financials:

  • Signed contracts/invoices/quotations with customers
  • Financial statements that show annual sales of close to $1 million, and annual sales likely to exceed $1 million in next 12 months

If you’re only forecasting annual sales of more than $1 million without the above documents (e.g. forecast based solely off a business plan), then you don’t have to register for GST.   

When can I be exempted from GST registration?

You can apply to the Comptroller of GST to be exempted from GST registration if you provide international services or export goods that do not carry GST, and these services or export of goods form over 90% of your total annual revenue. The practical effect of this is that businesses which are based in Singapore, but who primarily serve clients overseas, will not need to charge GST to their clients.

Also, you don’t need to register for GST if you made over $1 million annual revenue in the last 12 months (Situation 1), but you expect to make less than $1 million in sales in the next 12 months (Situation 2). Such situations are common if, for instance, you are downsizing your business, or if your business is generally not doing well. You will need to keep detailed forecasts and documentation to prove that you expect to make less than $1 million in revenue. For instance, you should be able to show a significant drop in signed contracts, invoices, etc.

Voluntary GST registration

You can voluntarily register for GST.

To do so, you have to pass two eLearning courses.

You do not have to pass these two courses if:

  •  You have previously managed other businesses which were GST-registered, OR
  •  The individual preparing your GST returns has completed the e-learning courses, and this person is an accredited tax advisor

What is the deadline for GST registration?

You must register for GST within 30 days from the date when you become liable to register. For instance, if you have strong evidence that your sales will exceed $1 million, you must register within 30 days from the date you make that forecast.

What happens if I’m late in registering for GST?

Your total GST liability starts from the date you become legally required to register for GST. For instance, if your sales crossed $1 million in January of last year, but you only registered for GST 12 months later, you have to pay back the 12 months of GST that you didn’t pay. 

You will need to pay GST on all sales starting from the date of liability, even if you had not started collecting GST from your customers then. Depending on the amount of sales that you generated this can make out to be quite a significant amount. It’s therefore important to keep on top of when you need to register for GST!

Businesses who register late for GST may be fined up to $10,000. Also, they may face a penalty of up to 10% of the GST amount that was due.

What happens if I’m late in paying GST?

You have to pay GST within 1 month from the end of your accounting period. Businesses that don’t pay GST by the due date will have a 5% penalty levied on the amount of unpaid GST.

If you go past 60 days from the due date, you’ll incur an extra 2% penalty charge for every month your GST remains outstanding. The maximum penalty is 50%.

Example: A successful restaurant chain has $1,000,000 in GST liabilities. The restaurant chain fails to pay their GST liability for 6 months after their GST payment due date. The total penalty they will incur is 5%, plus 8% (2%/month times 4 months). This is a total penalty is 13%, or $130,000. The final GST owed will be $1,130,000. Lesson of the day – pay your GST on time.

What are the responsibilities of a GST registered business?

File your GST returns

GST registered businesses must file returns on the GST that they’ve charged for the goods and services. These annual GST returns must be submitted online on IRAs’ myTax portal, within one month from the end of the business’ accounting period.

You will need to submit both your output GST (this is the GST collected from your clients,  end the input GST (this is the GST pay to suppliers). If your output GST is higher than your input GST,  you must pay the difference between the two amounts to IRAS. On the other hand, if your input go see is higher than your output you see, IRAS will refund the difference between the two amounts to you.

Pay GST in a timely fashion

You have to pay GST within 1 month from the end of your accounting period. For instance, if your accounting period ends on 31st December of each year, you have to pay your GST to IRAS by 30th January.

Clearly display GST charges to customers

Any prices, product brochures, invoices, etc. that are shared with the public or with customers must display GST. You cannot hide GST charges. Businesses that do not display their GST charges can be fined up to $5,000.

The only exception to this rule are for F&B companies, or hotel businesses. F&B and hotel businesses can display prices that are exclusive of GST. However, they must clearly state that all listed prices are subject to GST and service charge. This explains why you’ll see such statements frequently when dining out at restaurants, cafes, and the like.

When must I cancel my GST registration?

You must cancel your GST registration if you:

  • Stop producing goods or services which are subject to GST, OR
  • Shut down your business, OR
  • Transfer your business to another person, OR
  • Change the type of business you run (e.g. converting your business from a Pte Ltd into some other entity)

You have to cancel your GST registration within 30 days of any of the above happening. You can cancel your GST registration online, by going to IRAS’ myTax Portal.

If you convert a sole proprietorship into a partnership (or vice versa), IRAS will automatically cancel your GST registration. upon learning from ACRA that. You will not need to apply for cancellation in these circumstances. However, the new entity will need to decide whether or not to apply for GST registration.

Cancelling GST registration if you volunteered to be GST-registered

If you voluntarily registered for GST, and you do not meet the criteria for compulsory GST registration (i.e. annual sales < $1 million), then you must remain GST-registered for 2 years before you can cancel your GST registration.

You can cancel your GST registration IRAS’ myTax Portal.

Example: ABC Company voluntarily registers for GST on 1 Jan 2022. ABC Company can only cancel their GST registration from 1 Jan 2024 onwards.

No charging of GST after cancelling GST registration

When you cancel your GST registration, IRAS will inform you of the effective date of cancellation.

After you have cancelled your GST registration, you must adhere to the following:

  • You cannot charge your customers GST. Doing so is a criminal offence.
  • You cannot issue tax invoices.
  • You must continue to pay GST to the Singapore Customs for importing goods.

What are the benefits of being GST registered?

The main benefit is that you can claim back GST on your business purchases. For instance, whenever your business procures services or products from vendors (e.g. IT services, consulting services, etc.) that charge GST, you can claim back the GST on these expenses. Also, if you purchase commercial properties through your business, you can claim back the GST on the property purchase. That can result in some really significant savings. Being able to claim back GST basically saves you 7% on your expenses, whenever you buy from GST-registered vendors.

The second benefit is that your customers who are GST-registered themselves can also claim back GST on their purchases made from you. Some businesses may therefore raise their own prices when selling to GST-registered customers, since clients can claim back the GST you are charging.

Remember to protect your business:

While you’re going through the process of registering for GST, don’t forget to protect your business! It’s crucial that you protect your business from the many risks that could cost you serious sums of money. A business lawsuit could cost you hundreds of thousands to millions of dollars. A fire at your business premises could wipe out hundreds of thousands of dollars in investment. A slip and fall by a customer while in your business premises could result in expensive personal injury claims. You should also protect your company directors and officers – any lawsuit targeting them would immediately expose their personal assets (a real nightmare scenario!)

Provide is the easiest way for businesses to get insured in Singapore. Simply click the links below to purchase your cover online, in just 3 minutes!

Coverage Explanation Premium
Professional Indemnity Insurance Covers business-related lawsuits From $42/month
Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month

 

Directors & Officers Liability Insurance Covers lawsuits targeting Directors & Officers of the company (such lawsuits happen frequently when the company itself is also being sued). From $42/month
Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker

Best Guide to Dividend Payments for Singapore Entrepreneurs

how to pay dividends

If you run a business in Singapore you have probably thought about paying yourself dividends. The process can be a little confusing, so we’ve put together a step-by-step guide on how to pay yourself and other shareholders corporate dividends. There are also some important rules that you need to follow when paying dividends in Singapore. If you breach these rules, you can incur serious legal liability and even imprisonment.

We’ll explain:

  • When can I pay dividends?
  • What types of dividends are there?
  • How do I declare dividends?
  • What are the implications of declaring a dividend?
  • Important facts about declaring dividends
  • How are dividends taxed in Singapore?
  • Do dividends create a corporate tax shield?

When can I pay dividends?

You can only pay dividends if your company makes a profit.

You cannot pay dividends if your company has made a loss. Doing so is a crime, which can create both criminal and civil liabilities!

Criminal liability for illegal dividend payments:

Under Section 403(2) of the Companies Act, the illegal payment of dividends is punishable by up to 1 year in prison, and/or a fine of up to $5,000.

Civil liability for illegal dividend payments:

On top of criminal punishments, directors who approve dividend payouts when there are no profits can also be liable to their company’s creditors for any debts owed. Directors can be held personally liable for these debts, meaning that creditors can claim the directors’ personal assets (e.g. house, car, bank savings, etc.) to repay money that’s owed.

Also, shareholders can also sue directors who approve illegal dividend payments. These lawsuits can allege breach of fiduciary duty or negligence. If the director(s) being sued lose their case, their personal assets can be claimed by shareholders to repay damages that are awarded by the Courts.

These riminal and civil liabilities can follow directors even after directors leave their positions. Unless you want to pay huge sums of money from your own pocket, don’t declare dividends illegally!

What types of dividends are there?

The two types of dividends in Singapore.

Final dividends:

These are dividends declared during the company’s AGM, after the company’s financial statements have been shared, and annual profits have been confirmed for the year. Once a final dividend has been declared, it cannot be canceled or modified in any way.

Interim dividends:

These are dividends declared before a company’s AGM is held, which also means that animal financial statements have not been confirmed for the year. Interim dividends can be declared any time between two AGMs.

How do I declare dividends?

Step 1: Have the board of directors declare a dividend payment

The Board of Directors should declare that dividends should be paid in this particular year, and state exactly how much in dividends should be paid.

Step 2: Pass an ordinary resolution to approve the dividend payment

Prepared a written resolution stating how much dividends are to be paid out. Organise a shareholders meeting at least 14 days in advance. If you receive at least 95% shareholder approval you may hold the meeting at a date earlier than 14 days in advance.

At the meeting, put the resolution to pay dividends to a vote. Since this is an ordinary resolution, you must receive at least 50% of all shareholders’ votes. If you receive at least 50% of the votes the ordinary resolution has passed. You may now proceed to pay out the declared dividends.

Step 3: Prepare the dividend voucher, and pay the dividend

A definite voucher is basically a dividend receipt. It helps shareholders and the company keep documentary evidence that dividends were paid and received. Dividend vouchers should state:

  • Name of shareholder receiving dividend
  • Address of shareholder receiving dividend paragraph name of company issuing dividend
  • Address of company issuing giving you paragraph date of dividend paid
  • Never shares held by shareholder receiving do you paragraph dividend payment cash a
  • Total dividend paid
  • Signature of official company officer usually a bold director

Send the dividend voucher to each shareholder who is receiving a dividend when you make the payment.

What are the implications of declaring a dividend?

The implications differ, depending on whether you’re declaring a final dividend, or interim dividend.

Declaring a final dividend creates a legal obligation to pay shareholders. A final dividend is a debt. Therefore, if you’ve declared a final dividend, you cannot simply renege on your declaration. You also cannot reduce the final declared dividend.

Only final dividends create a legal debt. Interim dividends do not create debts so interim dividend can be Revolt canceled all modified without the same degree of legal entanglement. of course changing declared and trim dividends can leave shareholders quite upset so it is best to stick to declared interim dividend amounts.

Additional facts about declaring dividends:

Shareholders and their right to receive dividends:

Shareholders do not have the right to demand dividends. Unless the company’s Constitution allows shareholders to demand dividends (which would be a very strange exception), shareholders cannot force a company to pay them dividends. For instance if a shareholder has a 10% ownership stake, that shareholder cannot simply demand 10% of the company’s profits simply because he owns a portion of the company. The Board must first declare dividends, and then a majority of shareholders must agree to pay out dividends, as outlined in the steps above.

Availability of profits:

Profits only need to be available on the date that the dividends were declared. Profits do not need to be available at the time that dividends are paid.

Dividends and liquidation:

If the company is insolvent and is being liquidated, dividends cannot be paid. Paying out dividends would prejudice the rights of debt holders while favoring Equity holders.

How are dividends taxed in Singapore?

Dividends are generally exempt from tax in Singapore. This makes running a business in Singapore particularly attractive.

Do dividends create a corporate tax shield?

No. Dividends are paid out of net income after tax. Dividends are not an expense line item, so they do not reduce your Earnings Before Interest and Taxes (EBIT). Therefore, dividends do not reduce your corporate tax burden.

Remember to protect your business and directors:

It is vital that you protect your company from the myriad of business risks that exist. A business lawsuit could cost you hundreds of thousands to millions of dollars. A fire at your business premises could wipe out hundreds of thousands of dollars in investment. A slip and fall by a customer while in your business premises could result in expensive personal injury claims. You should also protect your company directors and officers – any lawsuit targeting them would immediately expose their personal assets (a real nightmare scenario!)

Provide is the easiest way for businesses to get insured in Singapore. Simply click the links below to purchase your cover online, in just 3 minutes!

Coverage Explanation Premium
Professional Indemnity Insurance Covers business-related lawsuits From $42/month
Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month

 

Directors & Officers Liability Insurance Covers lawsuits targeting Directors & Officers of the company (such lawsuits happen frequently when the company itself is also being sued). From $42/month
Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker

Best Guide to Start a Private Limited Company in Singapore

how to start pte ltd company

Singapore is an excellent place to start a business, and private limited companies are one of the most popular types of companies that entrepreneurs will start here. Are you thinking of starting your own private limited company in Singapore? We’ve written this guide to walk you through the entire process from start to finish.

What is a private limited company?

A private limited company is a separate legal entity from its shareholders. It is a company “limited by shares”, meaning that, in most cases, the liability of shareholders is limited to the value of their shares (i.e. the amount of money they’ve invested in the company).

This limitation of liability is a crucial point because it protects shareholders from legal liability incurred by the company. The personal assets of a private limited company’s owner are kept separate from the company’s. This is one of the key reasons why most entrepreneurs choose to start a private limited company, compared to other forms of companies like sole proprietorships or partnerships. 

In other countries like the US, private limited companies are alternately known as corporations, incorporated entities (“Inc.”), or  limited liability companies (LLCs). 

What are the pros and cons of a private limited company?

Pros of private limited companies:

Limited liability:

This is the most important advantage of starting a private limited company. The personal assets of shareholders are generally protected from lawsuits that target the company. This is quite different from other types of businesses like sole proprietorships, where the company’s assets and the owner’s personal assets are fully exposed to any legal claims. However, these limitations of liability have their own restrictions, which we discuss shortly in the next section on the “cons” of private limited companies.

Easy to set up:

You can set up a private limited company with just 1 shareholder. This is much easier than the 7 shareholders required for public limited companies.

Easy to transfer shares:

You can easily transfer shares from one shareholder to another. This ease of ownership transfer also makes it easier to raise funds from investors, and provides greater liquidity for shareholders.

Perpetual existence:

A private limited company is Will exist forever unless it is shut down it is therefore relatively easy to pass on ownership of the company EG to your family members if you no longer wish to run it or if you pass on 

Cons of private limited companies: 

Limited liability protections are not absolute:

It’s worthwhile to note that the limitation of liability is not absolute. Limited liability protections can be cast aside by the Courts (called “piercing the corporate veil”, in legal terms) in cases that involve dishonesty. This includes actions by shareholders such as fraud, running the company while insolvent, taking on debts with no intention of repayment, and more. 

Limited liability protections do not extend to lawsuits filed directly against directors & officers:

Limited liability protections only cover the company. They do not cover directors and officers against lawsuits filed personally against them. That’s why Directors & Officers Liability Insurance is so important.

What are the key requirements to start a private limited company in Singapore?

  • At least one shareholder (either a private individual or a corporate entity)
  • At least one company director ( ordinarily resident in Singapore)
  • One company secretary
  • Paid up capital of the least SGD $1
  • A business address in Singapore

What are the steps to register a private limited company in Singapore?

Step 1: Reserve your company name

You will need to reserve a name with ACRA. Choose a name that will help to build a great and memorable brand with your clients. The reservation of a name with ACRA will cost you SGD $15.

ACRA will take some time to review your chosen name. If it clears their compliance department, your name will be reserved for you for the next 120 days.

Here are some helpful tips to ensure your chosen name gets approved quickly, and on the first try:

  • Do not include vulgarities, innuendo, or rude words
  • Do not use restricted words like “Temasek”
  • Do not use a name that is the same or very similar to existing company names, or names that are already reserved
  • If you use special words like “bank” or “school”, your name approval process will take longer. This is because ACRA will refer your chosen company name to the relevant government ministries for further approval.

You must complete the incorporation of your private limited company (i.e. reach step 10 of this guide) within this 120 day timeframe. If you don’t incorporate your company by this deadline, your reserved name will be released to the public. You’ll then have to go through the whole name reservation process again, and pay the $15 name reservation fee once more.

Step 2: Confirm your business activity

You will need to select a business activity code from the Singapore Standard Industrial Classification Code (SSIC). The SSIC is a list of over 500+ different codes representing all kinds of business activities in Singapore, ranging from F&B to engineering to manufacturing to consulting services. For instance, the SSIC code 56112 is the code for the operation of cafes. 

You may supplement your chosen SSIC code with a brief write-up of your specific business activities. 

Step 3: Issue company shares

When you start a private limited company, you must issue one or more subscriber shares to your initial company shareholders. You can increase the number of shares later on, but at the point of starting the company, you must issue at least one share. You can start a private limited company in Singapore with a minimum paid-up capital of just SGD $1 (equivalent to about $0.33 USD).

You can choose to issue varying types of shares, such as Ordinary Voting Shares, Preference Shares, Super-Voting Shares, Non-Voting Shares, etc.

Step 4: Confirm the shareholders agreement

It is critical to have a well-drafted shareholders agreement to avoid disputes between company shareholders. A shareholder agreement sets out the relationship between shareholders, dispute resolution mechanisms that shareholders have access to, and the duties and rights of all shareholders, amongst other things. It is advisable to engage a lawyer to draft a shareholder agreement before the company’s members each sign it.

Step 5: Confirm details of shareholders

Private limited companies in Singapore must have at at least one shareholder.

A shareholder can be either a:

  • Private individual (e.g. yourself)
  • Company (e.g. another Private Limited that you operate)

You will need to collect the following information from each shareholder:

  • Full name
  • Identification number (e.g. NRIC, passport no., etc.)
  • Phone number
  • Email address
  • Residential address

The above information will need to be submitted when you incorporate your private limited company.

Are foreign shareholders allowed in Singapore?

Yes. Singapore allows 100% foreign ownership of companies. This makes it easy for foreigners to set up companies and invest in the country.

There are no special processes or permits required to have 100% foreign ownership (or in fact any level of foreign ownership) of a private limited company.

Step 6: Appoint company director(s) 

Your private limited company must have at least one company director who is ordinarily resident in Singapore. Other directors can be based outside of Singapore. However, at least one director must live in the country.

An ordinarily resident person can be a:

  • Singapore citizen living in Singapore
  • Singapore permanent resident living in Singapore
  • A foreigner who holds an Employment Pass or EntrePass or Dependents Pass, living in Singapore

Note that Employment Pass holders must first get consent from the Ministry of Manpower before they can become directors of a company here.

Some additional criteria for being a company director are:

  • At least 18 years old
  • Not be disqualified from being a company director (e.g. not be an undischarged bankrupt, no criminal record of fraud/dishonesty, etc.)

Can a shareholder be the sole director of the company?

Yes, that’s perfectly fine. You just need to have at least one director in private limited companies. If you only have one shareholder, that shareholder can also be the sole director of the company. 

Step 7: Confirm the registered business address

You must have a registered business address when incorporating a private limited company. This address must be an actual physical address. It cannot be a P.O. Box.

You don’t need to go out to rent an office just to get a business address. There are plenty of virtual offices in Singapore that will provide you with business addresses that you can use for starting and running your company. Check out our article on the 5 cheapest virtual offices in Singapore for more information.

You are allowed to use your own residential address as your business address under the following schemes:

HDB Home Office Scheme: Apply for permission from HDB if you live in a flat, and you wish to use your flat as your registered business address.

URA Home Office Scheme: Apply for permission from URA if you live in a private property, and you wish to use your private property as your registered business address.

Using your house address as your business address may be convenient, but do remember that your business address is public information. Anyone can simply look up your business profile on ACRA’s website and they will know where you live. Consider using a virtual office if privacy is important to you, or if you plan on borrowing heavily from loan sharks.

Stop 8: Confirm your Company Constitution

Your Company’s Constitution is a document that lays out how your company will be operated, the various rules that regulate your company, and the rights and responsibilities of each shareholder. It is similar to a corporate version of a country’s constitution. You must have a Company Constitution when you submit your application for incorporation.

Before 2014, it used to be that you would have to submit 2 documents, called the Memorandum of and Articles of Association. After 2014, ACRA streamlined these two documents into one document, which we now know as the Company Constitution. 

In Singapore, it is most common to use the Model Constitution. The Model Constitution makes it easy for first-time entrepreneurs to quickly have this requirement fulfilled without putting too much thought into the Company Constitution. You can download the Model Constitution here.

Step 9: Confirm your financial year-end (FYE)

You must decide on a date on which your financial year will end. Your FYE is when your corporate filings are due to the relevant authorities. Commonly chosen FYE dates include the last day of March, the last day of June, the last day of September, or the last day of December. 

You must also confirm whether your accounting period will be over 12 months or 52 weeks. A 12-month accounting period is more popular.

Step 10: Submit your application via BizFile+

Go to BizFile+ to submit all the information from steps 1 to steps 11. You must have the transaction number of your approved company name in order to file a successful application.

Emails will be sent to the appointed company offices all of the company’s directors shareholders and your company secretary must provide their consent online via the link contained in the email this will redirect them to bits while plus they must provide their consent within 60 days of receiving the email. 

The BizFile+ application will cost you SGD $300 (approx. USD $100). Accepted payment modes include: debit/credit card (Mastercard, Visa, Amex), PayPal, Google Pay, and Apple Pay.

Once you’ve completed Step 10, it’s time to pop open a nice bottle of champagne. You’ve just incorporated your private limited in Singapore! Congratulations!

Step 11: Open a company bank account 

Once you’ve incorporated your company, you should open a corporate bank account in Singapore so that you can start sending and receiving payments.

Have at least one company director be physically present in the bank in order to sign the required paperwork. If you are unable to be present in Singapore, some banks may accept signed documents at the bank branch in your country, or document verified by a notary public.

What should I take note of after I’ve incorporated my company?

Hold an AGM every year

All private limited companies in Singapore must hold an AGM every calendar year.

File annual returns

All companies must file their annual returns with ACRA within one month of their FYE.

File corporate taxes

All companies must file their corporate income tax returns with IRAS by 30th November every year.

Appoint your company secretary

All private limited companies must appoint a company secretary within 6 months of their incorporation. In Singapore, it is very common to use corporate secretarial companies instead of hiring an individual person to serve as a company secretary.  Many incorporation companies will offer corporate secretarial services at relatively affordable rates (e.g. between SGD $300 to $600/year). The corporate secretary is responsible for managing the company’s corporate filings, ensuring that the company complies with relevant regulations, and other general compliance requirements.

Appoint a company auditor, unless exempted

The audit exemption criteria in Singapore is crafted to ensure that most companies do not have to appoint an auditor. Only medium-sized enterprises and larger will need to appoint auditors to certify their accounts. 

The audit exemption requirements are:

  • Total number of employees under 50
  • Annual revenue under SGD $10 million 
  • Total assets under SGD $10 million

If you meet all 3 of the above criteria, then you do not need to appoint a company auditor. As you can see, the criteria are all quite generous. If, however, you have the good fortune of exceeding these criteria (e.g. you have annual sales of SGD $15 million) then you would have to appoint a company auditor.

Obtain licenses and permits if necessary

Some businesses in Singapore are required to apply for specific licenses and permits. For example, if you wish to run a massage parlour, you’ll have to apply for a Massage Parlour license from the Singapore Police Force. If you wish to run a restaurant, you must obtain a Food License from the Singapore Food Authority. 

Make sure you familiarise yourself with the various permits required for your type of business.

Maintain a minimum number of registered office hours

Your office at your registered business address must be open to the public for a minimum of three hours a day, during normal working days. If you use a corporate secretary with a virtual office, they will be able to fulfill this requirement for you.

Display your UEN correctly

Your UEN must be displayed clearly on all your letterheads, invoices, and other official company documents/communications.

Customs registration:

If your business is involved in the import and export of goods, then you will need to register your company with the Singapore Customs. The Singapore Customs will issue you a Customer Registration Number for use during your import/export activities.

Goods and services tax (GST) registration

If your annual turnover is more than SGD $1 million, then you must register for the Goods and Services Tax (GST). GST is currently 7%, and is set to increase to 9% by 2023. GST is charged on the services and products that you provide to your customers.

You can choose to voluntarily register for GST. Being a GST-registered business does have some advantages. The key benefit is that you can claim back the GST which you pay on your company’s expenses.

For instance, if you are a GST-registered business and you purchase a commercial warehouse oh, and the purchase price included 7% GST you can actually claim back the 7% of the purchase price.

Register for Central Provident fund (CPF) contributions

CPF is a national savings fund. Employers are required to contribute between 7.5% to 17% of the employee’s monthly salary into the CPF accounts. CPF is mandatory for all employees in Singapore who are Singapore Citizens or Permanent Residents, as long as they earn over $50 a month.

CPF contributions are not required for foreign employees. 

Apply for government grants for newly incorporated companies

The Singapore government is highly vested in promoting entrepreneurship. If you are a newly incorporated business, one popular grant that you can apply for is the Startup SG Founder scheme. The Startup SG Founder scheme allows business owners to receive matching investments of up to $30,000 from SPRING Singapore. SRING Singapore will match $3 for every $1 raised by the founder, as long as the investment is raised from an Accredited Mentor Partner (AMP). There are currently 48 AMPs approved by SPRING Singapore.

Qualifying criteria for Startup SG Founder scheme:

  • Singapore-registered company
  • Company must not have been incorporated for more than 6 months
  • Applicant must be a key decision-maker in company
  • Applicant must be Singapore citizen or permanent resident
  • Applicant must hold at least 30% of shares in company
  • At least 51% shareholding owned by locals (Singapore citizens or permanent residents)

Remember to protect your new private limited business:

It is vital that you protect your company from the myriad of business risks that exist. A business lawsuit could cost you hundreds of thousands to millions of dollars. A fire at your business premises could wipe out hundreds of thousands of dollars in investment. A slip and fall by a customer while in your business premises could result in expensive personal injury claims.

Provide is the easiest way for businesses to get insured in Singapore. Simply click the links below to purchase your cover online, in just 3 minutes!

Coverage Explanation Premium
Professional Indemnity Insurance Covers business-related lawsuits From $42/month
Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month

 

Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker

Best Guide for Buying Commercial Properties Singapore: 8 Must Knows

buying commercial property singapore

Commercial properties are a hot area for real estate investors in Singapore. Commercial properties are exempt from the ABSD (Additional Buyer’s Stamp Duty), which can significantly impact returns for residential real estate investments. There are some intricacies to this process, so it’s important you familarise yourself with the process first before sinking a large sum of money into a commercial property. We’ve written this comprehensive guide to purchasing commercial properties in Singapore.

We’ll explain:

  • What is a commercial property?
  • What are the different types of commercial properties available?
  • Can foreigners buy commercial properties in Singapore?
  • Should I buy a commercial property as an individual, or via a company?
  • What taxes do I have to pay when buying commercial properties?
  • What are the key factors to consider before purchasing commercial properties in Singapore?
  • What are the most frequently asked questions on commercial properties?
  • How should I protect my commercial property from damage?

1. What is a commercial property?

A commercial property is a building designed for business purposes. It is not meant for residential use. Commercial properties are purchased to earn returns through both rental income and/or capital gains.

2. What are the different types of commercial properties available in Singapore?

There are 4 main types of commercial properties here:

Retail Commercial Property:

Examples include shopping malls, stores (e.g. clothing stores, convenience stores, electronic stores, etc.), F&B premises, salons, spas, gyms, shophouses, etc.

Industrial and Commercial Properties:

Examples include offices, warehouses, and factories.

These properties are classed into two sub-categories:

  • B1 Commercial Property: Offices, warehouses
  • B2 Commercial Property: Factories

Hotel Commercial Properties:

Examples include hotels and hostels of all types. These could be 2-star budget hostels all the way up to 5-star hotels.

Take note that hotels require specific permits to run. For starters, you will need a valid hotel licence from the Hotels Licensing Board (HLB) to operate a hotel. You will also need various permits from the Fire Safety Bureau, National Environment Agency (NEA), and Building ad Construction Authority (BCA).

Depending on how many services you offer in your hotel, you may need to apply for a fair number of permits. If your hotel has F&B outlets within the hotel that are run by you, you will also need Food and Beverage licenses for each eating establishment. If you have a bar, you will need a Public Entertainment License. If you offer massage services, you’ll need a Massage Parlour License.

Parking Lots:

You can purchase car park lots. Singapore does not have strata-titled parking lots. This means you can’t just buy a few individual lots for investment. Rather, you have to buy the entire parking lot. This means you should set aside at least a few million dollars if you’re considering investing in a lot, given high land prices in Singapore.

3. Can foreigners buy commercial properties in Singapore?

Yes, foreigners can certainly purchase commercial properties here.

In Singapore, there are some restrictions for foreigners who wish to purchase residential properties. For example, foreigners can generally only buy non-landed private homes (i.e. condominiums). Foreigners can only buy landed residential properties subject to governmental approval. However, there are no such restrictions for commercial properties. Foreigners can buy landed commercial properties without having to apply for government approval.

Under the Residential Property Act, foreigners can buy the following commercial properties:

  • Shophouses
  • Industrial and commercial properties (e.g. retail spaces, factories, warehouses, etc.)
  • Hotels

Can a Permanent Resident (PR) buy commercial property in Singapore?

Yes. See above – there are no restrictions for PRs investing in commercial properties here.

Can a foreign company buy commercial property in Singapore?

Yes. If you have a company that’s registered outside of Singapore (e.g. a US-based LLC, a British Virgin Islands, company, etc.), you can use this company to purchase commercial property here. There are no restrictions. You can buy retail shops, shophouses, factories, warehouses, hotels, etc.

4. Should I buy a commercial property as an individual, or through a company?

It can be advantageous to consider purchasing commercial properties through a corporate entity, rather than buying it as a private individual.

Here are some key benefits of buying commercial properties via a company:

i. Limitation of liability

If you rent your commercial space out, tenants can hold you liable for negligence in maintaining your property. For instance, if you neglect to properly maintain fire suppression systems, and a fire breaks out and destroys your tenant’s business and causes injuries, you can be sued for negligence. If you get sued as a private individual, almost all your personal property can be exposed to legal claims. This includes your house, your savings in your bank account, your car, your jewellery and clothes, and almost all other belongings.

However, if you were to purchase a commercial property via a company, then the limitation of liability would be capped at the assets that your company holds. Your personal assets would be kept separate from the company’s assets, which protects your private belongings from being claimed by aggressive litigants.

ii. Lower taxes

Depending on your income bracket, corporate taxes can be lower than personal taxes in Singapore. Buying a commercial property through a local Singapore company can therefore reduce your tax burden.

When operating a commercial property via a company, you can also reduce your taxable rental income via valid claims for business-related expenses, such as property upkeep costs.

If your company is GST-registered (you can voluntarily register for GST!) you can claim back the 7% GST that you pay on commercial properties, subject to certain relatively straightforward conditions laid out by IRAS (Inland Revenue Authority of Singapore). You cannot claim back GST if you buy a commercial property as an individual. If you buy a $2 million commercial property with GST included, that means you can claim back a whopping $140,000!

iii. Ease of ownership transfer

It is easier for companies to transfer asset ownership compared to individuals.

iv. Potential exemption from Total Debt Servicing Ratio (TDSR) limitations

If you buy a commercial property as an individual, you will be subject to the Total Debt Servicing Ratio (TDSR). The TSDR in Singapore is 60%. This means that you can only take on a loan that results in annual mortgage payments that are 60% or less of your yearly income.

For example, if your annual income is $100,000, you can only take on a loan with a mortgage of up to $60,000/year. This basically limits the type and size of commercial properties that you can invest in, unless you have a particularly high income.

However, corporate buyers who can demonstrate strong financials (e.g. positive cash flow, clean balance sheet, good operating history, etc.) can be exempted from the TDSR. This allows you to purchase more expensive commercial properties that can potentially get you higher returns.

5. What taxes do I have to pay when buying commercial properties?

Annual property tax: 10%/year

Commercial property owners pay a flat rate of 10% of the annual value (AV). The AV is calculated based on the gross annual rent if your property were to be rented out.

Property taxes for commercial properties purchased for investment tend to be lower than residential properties whose owners don’t live in them. For such residential properties, the tax rates can be as high as 20% if you don’t live in the unit and rent it out. This is another plus point for investing in commercial properties.

Capital gains tax: 0%

Singapore does not have a capital gains tax. That means when you sell your commercial property, you do not need to pay any capital gains taxes. This is in stark contrast to other countries like the US, which depending on the specific state, can levy capital gains taxes of up to 37% on real estate sales.

This helps real estate investors maximise their gains when buying and selling commercial real estate in Singapore.

6. Key factors to consider when buying a commercial property in Singapore:

Factor 1: What type of commercial property should I buy?

This is the first question that most investors will ask themselves. Should I buy a retail commercial property in a CBD-area shopping mall? How about an HDB shophouse in a heartland district? Or perhaps I should invest in an industrial warehouse? Different types of commercial properties will have varying expected rates of return, different price points, and their own unique strengths and risk factors.

For instance, let’s take a look at purchasing heritage shophouses. These shophouses are quite limited in supply. They command a premium over other shophouses, and over other commercial properties in general, because they are officially conserved by the government. Many of these shophouses are also located in the Central Business District (CBD), which makes them popular choices to rent amongst small companies and trendy startups. Areas like Chinatown and Telok Ayer are lined with these conserved heritage shophouses, many of which are rented out for princely sums to eateries, yoga studios, startups, and other businesses.

Since these shophouses are in high demand, you can usually expect to earn relatively good rental yields. With their conserved status, limited supply, and popularity amongst investors, such shophouses also hold their value well. Depending on your entry price point, investors typically can also typically expect to earn attractive capital gains.

However, the quantum (total purchase price) for such heritage shophouses are high. For instance, a 5,000 square foot heritage shophouse in an area like Chinatown can easily fetch $10 million or more. In 2020, The Business Times reported on a trio of shophouses, sporting about 10,000 square feet of built-up space, that went up for sale for $30 million.

Also, depending on the specific shophouse you intend to purchase, there may be restrictions on their usage according to urban zoning plans. Some shophouses are designated for commercial use only, while others can be both residential and commercial.

It’s important to properly evaluate the pros and cons of each type of commercial property. It’s a good idea to do up a comparison table of prices for different types of commercial properties, and see what the historical and projected returns are for each type of commercial property. If you already know which type of commercial property you want to buy, make sure to do comparisons of prices-per-square foot for a few properties in the areas you’re interested in. This helps you establish a market price, which will allow you to analyse whether the property you’re intending to purchase is trading for below or above market value. Don’t jump into a purchase before you’ve done lots of homework!

Factor 2: Location, location, location. Where is your property located?

Location will have a vital role in determining the returns you make from your commercial property. It will also influence the kinds of leaseholds that your commercial properties will have.

Here are some key factors you’ll want to bear in mind when evaluating the location of a commercial property:

  • Transportation: How easy is it to access the MRT? Is it within walking distance? If not, , are there nearby bus stops, and how far is the nearest stop? Does the property have on-site parking? If not, how far is the closest car park, and is it easy to get parking spaces?
  • Corner units: Commercial properties situated at corners of intersections (whether these are road intersections, or intersections in shopping malls) tend to be more valuable because more people will pass by the shop.
  • Traffic: How many people will walk by the property on an average day? Is the property situated right by a busy street or road? Do lots of vehicles pass by the property every day? If so, you can command higher rentals because such properties have higher visibility.
  • Surrounding developments: Is the property situated in a well-developed neighbourhood? Are there shopping malls, or office spaces, or lots of attractions nearby that will draw a natural amount of regular foot traffic? For instance, Paya Lebar Quarter is an integrated working-living-lifestyle hub that has offices, malls, eateries, and residences packed into one location, which draws large numbers of people there. Rental yields in such a location will therefore be high since commercial shops are in high demand. For example, if there’s an en bloc sale or if the government decides to redevelop the land, it could potentially affect human traffic and therefore also your business.

Factor 3: Can you change your commercial property’s intended use?

Commercial properties are zoned according to their intended use. Zoning rules are implemented by the URA (Urban Redevelopment Authority). If you purchase a commercial property and wish to change its intended use to something different from its original use, you may need to apply for planning permission from the URA first.

For example, let’s say you purchased a nice commercial retail shop unit. Instead of running it as a shop, you decide you want to convert the place into a commercial music school. You’ll need to first check with the URA whether the guidelines allow for this change in use. If not, you’ll need to apply for permission from the URA before you embark on your conversion project.

Factor 4: What’s the leasehold period?

Leaseholds for commercial properties typically range from 30 to 60 years. This is much shorter than that of residential properties, which range from 99 year leases to freehold properties.

New commercial property launches are usually 30 year leaseholds. This is in line with the government’s announcement of more commercial property sites with shorter tenures (and smaller lot sizes) being released for purchase. This helps make industrial sites more affordable for business owners in Singapore. It also gives flexibility for the government in terms of redevelopment of land

Factor 5: Can I get sufficient financing to purchase my commercial property?

Most buyers will apply for bank loans when buying their commercial property. The loan amount you can take out will be limited by your Total Debt Servicing Ratio (TDSR).

If you’re buying as an individual, the TSDR is capped at 60% of your monthly income. For instance, if your income is $10,000/month, then your maximum mortgage is $6,000/month.

If you’re buying through a company, your bank will evaluate your TDSR based on your company’s annual net operating income. Banks will also consider your company’s debt, if any.

Factor 6: Ensure you have sufficient cash to pay GST (Goods and Services Tax) on commercial properties

You have to pay GST (currently 7%) on the sale and lease of commercial properties in Singapore. Only sales/leases of residential properties are exempt from GST.

If you purchase a commercial property via a company that is GST-registered, you can claim the GST portion on the purchase. You can voluntarily register your company for GST if you wish to claim the GST back on commercial property purchases.

7. Frequently asked questions on purchasing commercial properties

i. Do I need to pay ABSD when buying commercial properties?

No. You do NOT have to pay ABSD when buying a commercial property. This applies even if you already own a residential property. This means you’ll save between 12% to 20% on ABSD, which is a huge amount for property purchases.

ii. Do I need to pay Seller’s Stamp Duty (SSD)?

No. You do NOT have to pay SSD for commercial properties, except when buying industrial properties. Industrial properties include factories and warehouses (basically buildings intended for industrial activity like manufacturing, storage, chemical refining, etc.). The SSD amount you have to pay depends on the number of years that you’ve owned the property before selling it (a.k.a. the “holding period”).

Here’s a breakdown of SSD rates:

Sellers’ Stamp Duty for Commercial Properties in Singapore

Number of years you’ve owned the property before selling it (holding period) SSD rate (based on sale price)
1 year 15%
1-2 years 10%
2-3 years 5%
Over 3 years No SSD payable

 

SSD encourages buyers to hold onto their properties for the longer-term, and discourages short-term flipping or rapid-fire speculative purchases.

iii. How much can I borrow to buy commercial properties?

You can take a bank loan of up to 80% of the loan-to-value (LTV). This is higher than residential properties, where loans are capped at 75% of the loan-to-value ratio.

You’ll need to fork out at least 20% of the down-payment in cash. Remember, you can’t touch your CPF money to pay for commercial properties.

LTVs can be lower than 80% if you are buying a commercial property strictly for investment purposes, without living in the property. For instance, if you purchase a warehouse, or a commercial shophouse (and you declare to the bank you won’t be living there), the bank may cap your LTV amount at less than 80%.

Also, interest rates on loans for commercial properties tend to be higher than loans for residential properties. This reflects the relatively higher risk that comes with purchasing commercial properties.

iv. Must I pay GST on commercial properties?

Yes. You have to pay 7% GST. You can’t use your bank loan to pay for the GST. It has to come from your own pocket.

This means that your minimum cash outlay will be around 27% (20% down-payment + 7% GST) of the property’s purchase price, if you buy a commercial property that has GST attached to it.

You may wish to consider purchasing  a commercial property through a company. If you make a purchase made through companies that are GST-registered, you can claim back the GST portion of the purchase.

v. Can I use my CPF to finance the purchase of commercial properties?

No. You cannot use your CPF savings in your CPF account to pay for commercial properties.

CPF savings can only be used for residential properties.

vi. Where can I find data on commercial properties?

URA’s website has a list of useful data on commercial properties. You can view:

  • Supply of commercial properties
  • Major commercial projects to be launched
  • Recent commercial projects launched each quarter
  • Median rental prices
  • Available office and retail space for rent

vii. How do I find upcoming commercial property land sites for sale?

Twice a year, the URA will announce Government Land Sales (GLS) sites that are up for sale. These GLS’ will contain a mix of both residential and commercial sites. The land will be sold via an open tender process.

viii. How long are the leaseholds for commercial properties?

Commercial properties usually have leases between 30 to 60 years. This is much shorter than residential properties, which have leases from 99 years all the way to freehold.

ix. Are there freehold commercial properties?

Yes. There does exist a small quantity of freehold and 999-year leasehold commercial properties in Singapore. However, many of such freehold commercial properties are usually not located within prime areas, which can affect your capital gain potential, and make it harder to find tenants to earn rent. The freehold commercial properties that are located within the CBD also command a significant premium relative to non-freehold commercial properties in the same area.

x. Can I buy a commercial property for residential use?

If your goal is to live in a commercial property, then your best choice is to purchase a commercial shophouse. This will have a retail space on the first floor that you can rent out for monthly income. It will also have a home on the second floor for you to live in.

Unfortunately, you cannot live in other types of commercial properties. For instance, you can’t buy a warehouse and then convert it into a massive loft residence. As much as that would exude massive amounts of hipster cool, that would violate zoning regulations. If you want a home, you’ll have to either invest in a shophouse, or purchase a residential unit.

xi. Do commercial properties have higher rental yields than residential properties?

On average, commercial properties in Singapore earn a rental yield of around 5%/year. This is higher compared to residential properties, which usually earn around 2% to 3%/year.

8. How should I protect my commercial property against fire, water damage, and other physical damage?

Commercial properties in Singapore don’t come cheap. Many investors rely on their commercial properties to provide a steady source of income to grow their wealth, or to tide them over through retirement. Since you’ve invested so much of your hard-earned money into your property, you need to make sure that your investment doesn’t go up in smoke – literally.

Commercial property insurance protects your property against an extremely wide variety of damage, including but not limited to:

  • Fire
  • Explosions
  • Certain types of water damage
  • Lightning
  • Sudden structural collapse
  • …and much more

Get Commercial Property Insurance from $12/mth now. Buy online in 3 mins!

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