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Opening Pvt. Ltd. on EP

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Opening Pvt. Ltd. on EP

Postby bananapunks » Wed, 11 Jun 2014 1:44 pm

Hi oracle forum members! I realise this question has been asked before and I have looked through many threads, there's a lot of good info by Strong Eagle. However I wanted to ask your opinion on this specific example before I dig myself a hole.

I'm an EP holder, been here for 4 years. I'm planning to open either an Exempt Private Limited or Sole Proprietorship company. From the info I have gathered it seems that as an 'ordinary resident of Singapore' I'm eligible to be a director. I can also nominate another EP holder as secretary. HOWEVER I'm also aware that as an EP holder I'm not supposed to perform any work outside of my EP sponsoring company (I have done small freelance/lectures work before with an approval letter from my employer).

My questions are:
-Is the above mentioned correct or did I miss something?

-Since my EP regulations state I can't work, I can be an outside director as long as I appoint a local acting director, correct? I wouldn't draw any salary, instead, IF company becomes profitable I'd receive dividends or a loan.

-If I appoint another EP holder as secretary, wouldn't it mean that they're performing 'work' outside of their EP, therefore breach their EP regulations?

-If I appoint a local acting director and secretary, are they considered employees I have to pay CPF for? Can they be one and same person?

-and Lastly, opening sole proprietorship is easier, but is it even an option?

It would be great if any of you could answer these questions, I have consulted a local CPA, but like with most of the dealings in Singapore, seems like they don't really know their sh*t :). Thanks in advance for any help.

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Re: Opening Pvt. Ltd. on EP

Postby ecureilx » Wed, 11 Jun 2014 2:09 pm

bananapunks wrote:Hi oracle forum members! ....

It would be great if any of you could answer these questions, I have consulted a local CPA, but like with most of the dealings in Singapore, seems like they don't really know their sh*t :). Thanks in advance for any help.


oracle I am not

anyway local CPAs may not know sh*t because in my 2 cents opinion you will be in violation of one law atleast

as a director if you get director fees from somebody other than your employer per the EP, that's one violation

plus that your employer gave approval in the past to freelance, .. means, again, from my bits of law speak, is illegal unless the consent came from MOM.

maybe the residents here can affirm my words ... if I am right ...

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Postby bananapunks » Wed, 11 Jun 2014 2:15 pm

Can I not draw any director fees at all? I'm not short on cash, just trying to start a company and see where it takes me. Maybe if it generates profit I'll issue myself an EP and quit my current employer. And for the freelance part, from what my HR tells me they're authorised to give me permission to freelance. I work for Lucasfilm, pretty big corporation, but maybe I should double check this with outside sources.

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Postby ecureilx » Wed, 11 Jun 2014 2:36 pm

bananapunks wrote:. I work for Lucasfilm, pretty big corporation, but maybe I should double check this with outside sources.


why not check with MOM directly ?

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Postby bananapunks » Wed, 11 Jun 2014 2:42 pm

good call. But this is just a sidetracking issue, the main questions are the other ones i have asked :)

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Re: Opening Pvt. Ltd. on EP

Postby Strong Eagle » Wed, 11 Jun 2014 10:24 pm

bananapunks wrote:Hi oracle forum members! I realise this question has been asked before and I have looked through many threads, there's a lot of good info by Strong Eagle. However I wanted to ask your opinion on this specific example before I dig myself a hole.

I'm an EP holder, been here for 4 years. I'm planning to open either an Exempt Private Limited or Sole Proprietorship company. From the info I have gathered it seems that as an 'ordinary resident of Singapore' I'm eligible to be a director. I can also nominate another EP holder as secretary. HOWEVER I'm also aware that as an EP holder I'm not supposed to perform any work outside of my EP sponsoring company (I have done small freelance/lectures work before with an approval letter from my employer).

My questions are:
-Is the above mentioned correct or did I miss something?

-If I appoint another EP holder as secretary, wouldn't it mean that they're performing 'work' outside of their EP, therefore breach their EP regulations?


You can form a company. You can be a shareholder. More on the director issues below. It is very questionable whether or not someone on EP could be your secretary as there is a specific requirement in the companies act which states:

"The secretary or secretaries shall be appointed by the directors and at least one of those secretaries shall be present at the registered office of the company by himself or his agent or clerk on the days and at the hours during which the registered office is to be accessible to the public."

Also, there is actually work that has to be performed by the secretary for which a CPA will charge $500 to $1500 for a small company. Beyond the fact that the secretary actually needs to know what to do to avoid violating the companies act, I don't see how someone on an EP could perform this work without being in violation of the EP rules. Pay for a secretary.

-Since my EP regulations state I can't work, I can be an outside director as long as I appoint a local acting director, correct? I wouldn't draw any salary, instead, IF company becomes profitable I'd receive dividends or a loan.

-If I appoint a local acting director and secretary, are they considered employees I have to pay CPF for? Can they be one and same person?


Your problem with outside directors is this. Normally, you find outside directors in larger companies or companies that have been funded as growth opportunities. So, you might find a VP from a bank acting as an outside director to a tech company, where she would be advising on financial matters. Or maybe an economics guru from a local university who advises on regional markets.

This brings up the question: Why would you need/want to be an outside director except in an attempt to do an end around the rules? If you hire a nominee director, she/he won't be doing any work in actually managing the company, you will.

MOM does not inform me of their inner workings, and I suspect that if ACRA passes information to MOM, this entire setup will be suspect. You may rest assured that every trick in the book has been tried at one time or another, and it would be your burden of proof to show that you were indeed an outside director, acting in an advisory capacity only. But how are you going to do that when you've rented your managing director?

And what about things like a bank account? It would be unusual for an outside director to have signatory rights to the company bank account. How will you handle that? Who will be making customer contact? Who prepares the company's branding, website, proposals, etc? If there's only you and a rented director, it becomes pretty clear what is going on.

As for CPF, etc... normally secretaries and nominee directors are hired on a contract basis so they are not your employees and therefore you are not subject to any payroll rules. Note that a "nominee director" is not some special case of a director, this is a person who has agreed to be a director of your company for money, who has all the rights and responsibilities of a director, who can screw you over, and whom you can screw over by committing unlawful acts, including fraud. It is quite possible that no one will want to be your director, given the questionable arrangements you are proposing. You may get only, "EP cannot work, lah!"

If there is only one director in a company, then you must have an outside secretary. With more than one director, one of the directors can be secretary, but again, unless you know what you are doing, you still need outside services. Do you know how to file notice of AGM's/EGM's, agendas, resolutions, minutes, annual reports, and financial statements?

As a director, you can receive a salary or directors fees. Both are taxable income. A loan is a very bad idea, as you have to pay it back, you must pay interest, and in general, although allowed by the companies act for small private limiteds, this will come under scrutiny.

Dividends are paid to shareholders, not directors. Dividends must be paid equally to all shares for a given class of stock. If you are the sole shareholder, then, no problem.

-and Lastly, opening sole proprietorship is easier, but is it even an option?

It would be great if any of you could answer these questions, I have consulted a local CPA, but like with most of the dealings in Singapore, seems like they don't really know their sh*t :). Thanks in advance for any help.


Technically, you can form a SP but the question again becomes, "who is going to actually run and manage it?" You can't, legally, so you'd need to have someone as the manager, someone who handles finances, someone with access to the bank account, someone who runs the business on a day to day basis... if you do any of these things then you are working for the company, which you cannot.

Bottom line: It's pretty obvious that your intent is to try and circumvent the rules regarding EP. I think you will get a lot of pushback from the gahmen because you certainly aren't the first to dream up this scheme.

You really only have two viable options. a) Become a PR... with four years you might qualify, in which case you can open all the businesses you want, or b) change your relationship with your employer to that of a contractor... then you can legitimately open your own private limited, and take the steps to becoming the managing director. With a guaranteed contract in hand from your previous employer, your chances might be pretty good but there is still risk.

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Postby bananapunks » Thu, 12 Jun 2014 9:42 pm

Thanks a lot for the in depth analysis, great advice Strong Eagle!

I was thinking of one more option. To have someone trusted, living in another country (like my brother) be the main director. Then nominate a local director and secretary. I would be the sole shareholder. I'm not planning to do any physical work anyway, as for the first year or so my business would be doing mostly R&D and prototyping, which I would hire local part timers to do.

The question with this setup is- can I limit the responsibilities of the acting/nominee director in order to prevent them from clearing company's bank account? I would nominate a local friend for this position, but you never know. I realize it's tricky, because the other director would be abroad. But is it possible to require for 2 signatures on all transactions of this kind?

And lastly, would the foreign director have to travel to Singapore in order to incorporate and set up corporate bank account? Or could I set up the company myself and then resign and nominate a foreign director?

PS. I'm applying for PR as well, so it will become a lot easier, but I need to open a company now, not in a year.
thanks a lot

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Postby Strong Eagle » Fri, 13 Jun 2014 5:34 am

bananapunks wrote:Thanks a lot for the in depth analysis, great advice Strong Eagle!

I was thinking of one more option. To have someone trusted, living in another country (like my brother) be the main director. Then nominate a local director and secretary. I would be the sole shareholder. I'm not planning to do any physical work anyway, as for the first year or so my business would be doing mostly R&D and prototyping, which I would hire local part timers to do.

The question with this setup is- can I limit the responsibilities of the acting/nominee director in order to prevent them from clearing company's bank account? I would nominate a local friend for this position, but you never know. I realize it's tricky, because the other director would be abroad. But is it possible to require for 2 signatures on all transactions of this kind?

And lastly, would the foreign director have to travel to Singapore in order to incorporate and set up corporate bank account? Or could I set up the company myself and then resign and nominate a foreign director?

PS. I'm applying for PR as well, so it will become a lot easier, but I need to open a company now, not in a year.
thanks a lot


The ACRA web page has changed since I last looked at it. It now specifically says that a citizen or PR has to set up the company and that an Entrepass is required for an EP to set up a company.

On the other hand, nothing has changed in the companies act which states that anyone (with the exception of certain felons and bankrupts) can start up a company.

The only way you will know whether or not you can log into ACRA Bizfile and register a company is to try it... to find out if they actually distinguish your EP from others. If it doesn't work, you'll need a PR or citizen to log into Bizfile and register the company. You could use a CPA for this.

When registering, you set up your directors, shareholders, secretary, etc and within three days they are required to log into Bizfile to confirm that they accept their appointments. I'm not sure about a foreign director... I believe that they need to send a written standard boilerplate document that is signed, but you need to confirm this with ACRA. So, the foreign director would not need to be present in Singapore for company formation.

Bank accounts are another story. All the banks I have ever done business with in Singapore (and Malaysia, Thailand, and Hong Kong) require that the signatory to the account be physically present in front of a bank officer when signing the signature cards. They will not take one that is mailed in. I have previously seen posts here that allege that banks like HSBC will permit someone to sign a signature card in front of the remote bank officer, then have the card sent to the Singapore bank but I have never seen confirmation of this. Be prepared to have your director come to Singapore to sign.

All bank accounts must be set up via a director's resolution which is usually the bank's signed boilerplate, in which director's agree to follow all the bank rules, plus your custom resolution. Your custom resolution specifies who can sign (it can be anybody). You can also set limits on the amounts by signatory and can require multiple signatures. For example, you could specify two signatories, allow either one to sign checks for X dollars or less, and require two signatures above X dollars.

With respect to limiting the actions of directors, you are free to place limitations upon directors so long as none of your limitations contravene a director's responsibilities as enumerated in the companies act. For example, you couldn't prohibit a director from reading the audited financial reports.

In the companies act, the only things a director cannot do without shareholder approval is issue more shares of stock or sell assets of significant value without shareholder approval. They can hire and fire employees, open bank accounts, rent office space, virtually anything to run a company. They don't need shareholder approval. Also, directors fees, salaries and other remuneration must be approved by shareholders... they cannot set their own remuneration.

If you want to limit directors actions, you must specify in the Memorandum and Articles of Association. For example, you could say, "bank accounts can only be opened when approved by a majority of shareholders in a general meeting called for such purpose." Make a list of everything you don't want them doing without your approval. Bear in mind, though, that this means that every directors resolution, such as opening a bank account will need to be accompanied by the notice of meeting and approval of shareholders for the action.

Be aware that if you intend to pay anything to the foreign director, there is a mandatory 20 percent income tax that must be withheld by the company and remitted to IRAS at tax time. So, if you pay the foreign director $1000, she gets $800 and IRAS gets $200.

Useful website: http://www.acra.gov.sg/components/wiref ... ageid=1666

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Postby bananapunks » Fri, 13 Jun 2014 9:26 am

Thank you, I think this clarifies everything now. Can you please link me to the ACRA's website section that states you need Entrepass to open a company?

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Postby bananapunks » Fri, 13 Jun 2014 9:31 am


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Postby bananapunks » Fri, 13 Jun 2014 9:46 am

I found some more information for those interested:

http://www.acra.gov.sg/components/wiref ... ageid=1241

"A foreigner, who would like to set up his own company and be present in Singapore to actively manage its operations, should apply for an EntrePass from the Ministry of Manpower (MOM)."

I think they mean foreigners who are just coming to SG to set up a company, not someone who already is an "ordinary resident of Singapore". Also notice 'actively'.

However:
"A company must have at least one director who is ordinarily resident in Singapore. [...] A Singapore Citizen, Singapore Permanent Resident, an EntrePass holder or an Employment Pass holder issued with such a pass to work in the company concerned"

So it states that the EP holder eligible to be the director must be not just on any EP but EP issued by this company specifically.

*ENTREPASS
If a company has 50k in the bank account and fulfils one of the requirements listed, I'd be eligible for Entrepass. One of them is:

"Holds an Intellectual property (IP) that is registered with an approved national IP institution"

Have anyone here had experience registering an IP? Seems straight forward, especially that I'm trying to open a design company.

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Postby Strong Eagle » Fri, 13 Jun 2014 10:31 pm

You really don't want to go the Entrepass route. Read my thread on the topic and then check the MOM website.

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Postby bananapunks » Sat, 14 Jun 2014 7:23 pm

you're right, i just checked, even though it's relatively easy to get, the requirement's thereafter are crazy. Gotta show progress in half a year, and invest 100k in the company etc...

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Spouse, dependant pass?

Postby Neon09 » Mon, 16 Jun 2014 12:11 am

Keeping the main idea of the topic intact, my wife, who has just arrived to Singapore wants to start a retail outlet here. I have an EP, like bananapunks (we might be in the same company heh).

I was wondering if the same rules apply to her? Or, do dependant visa has some special treatment?

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Postby bananapunks » Mon, 16 Jun 2014 9:32 am

you could go the same route as me, but there's a bunch of threads on this forum in detail describing how you can set up a company on dependant's pass, probably a better idea.


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