When should I Incorporate my company in Singapore?
Starting a business in Singapore is easy. Today, many choose to grow their business by starting from a home based business. Currently, home based businesses are allowed to operate without incorporating or registering their business as long as they fulfill certain guidelines.
However, when should you officially incorporate your company?
There are several factors that can influence the timing for your incorporation.
1. Validation of your Business Idea
If you have a good idea for your company and you plan to pursue it seriously, you should consider incorporating your company in Singapore.
There are many benefits of incorporating your business, such as:
a) Tax Benefits and access to grants and loans
Singapore is a prime location for starting a business because of the many tax relief benefits and grants available for newly incorporated companies. If you incorporate your company earlier, you will be able to make use of all these benefits to kickstart your business.
b) Protection against Financial Risk
A private limited company is recognized as a separate legal entity in Singapore. This means that unlike a sole proprietorship, the financial liabilities of the company will not fall under the responsibility of the shareholders. This means that all debts and losses of the company will be the responsibility of the company itself and not the shareholders.
Incorporating your company earlier would then protect you from the financial risks that your company may need to undertake in its earlier stages of operation.
However, it is to be noted that the shareholders and directors will still be held responsible for the criminal liability of the company.
2. Number of Shareholders Involved
If your business involves more than one owner, a sound argument can be made for incorporating before they start working on the business idea.
In a private limited company, the number of shareholders and the number of shares they each hold will be determined and recorded in the company register.
The company will also have a company constitution (Memorandum and Articles of Association). This is a set of rules and procedures that ensures governance of the company.
As such, the incorporation of a pte. ltd. company will go a long way toward preventing misunderstandings and disagreements down the road between the shareholders of the company.
3. Intellectual Property Protection
A business that involves any intellectual property should incorporate immediately. Intellectual property developed before incorporation is the property of the person who developed it. Intellectual property developed after the startup is incorporated belongs to the company. Failing to incorporate before unique products, processes, applications and other creative components are developed can leave ownership open to question. This ownership question leads to disputes if the person who created the intellectual property decides to leave the startup and wants to take the intellectual property with him or her. Incorporating before the intellectual property is developed obviates the need to clear up ownership issues, which can be expensive and time-consuming.
4. Other operational activities
The startup should be incorporated before you enter into any contracts, such as office, equipment and vehicle leases or agreements for services with clients. If you are not incorporated, you will be entering into those contracts personally and will face personal liability if you cannot make good on them. Moreover, others will perceive an unincorporated startup as less established and will likely offer your worse terms in the contract to compensate for the added risk of dealing with an unsophisticated business. Finally, corporate taxes often allow deductions on expenses that are not permissible under tax schemes for individuals or unincorporated businesses.
Before you business takes in any revenue from sales, you must set up an appropriate business structure by law.
5. Raising capital
If you’re looking for investment, angel investors, venture capitalists and other investors generally will refuse to work with a business that has not been incorporated. Sole proprietors and partnerships look unattractive to investors, do not offer them the ability to own and transfer shares and do not provide them with limited personal liability.
Unincorporated businesses cannot get a business loan from a bank. Any loan would be a personal loan to the founders and would be based on the founders’ personal creditworthiness. To obtain the loan, the founders may have to stake their houses or personal vehicles as a form of loan security.
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