MrBlueandWhiteCup wrote:Hi Strong Eagle,
I reviewed your post on EntrePass and got to understand the process better. So, I am replying to my earlier post.
Thanks for helping out. Here is what I understand. Please correct if I am getting it wrong
1. Key Requirement to set up a company are:
a. At least one shareholder (individual or corporate entity)
b. One resident director. Can be a citizen, PR or an existing EP holder/Entrepass holder.
c. One company secretary
d. Paid up capital
e. Physical address
f. Company Bank account
2. The resident director need not be the shareholder. Full shareholding can rest with the foreigner. – STILL NOT CLEAR
Shareholders and directors are completely different entities. Shareholders own the company by purchasing shares. Your rights as a shareholder to the profits of the company are determined by the number of shares and the class of stock you own. All stock market investors own a part of the company but have absolutely no say in how the company is run... except for appointing directors.
Directors run the company. Directors are appointed to their positions by shareholders in a meeting called for that purpose. Depending upon the memorandum of incorporation, this usually requires a simple majority vote, sometimes a two thirds majority vote.
Directors can be shareholders or they can own no stock whatsoever. For small companies, the director and shareholder are often one and the same... the shareholder who has 100 percent of the stock and has been appointed director by himself as shareholder.
Singapore doesn't care whether the shareholders are local or foreign. For a non exempt private limited, foreign companies can also hold shares in a local Singapore company. Exempt private limited companies shareholders must all be real persons, foreign or otherwise, not legal entities.
Singapore also doesn't care if directors are local or foreign EXCEPT THAT there must always be one locally resident director. See more below.
3. An EP Holder can open a Pte Ltd and apply for EP in his company and become director. No need for any other local director or anything. Correct?
No, not correct. To qualify as locally resident director, you must be one of the following:
- Singapore citizen
- Singapore permanent resident
- An EP holder where the EP is issued by the company for which the EP holder is a director
Your problem is that you, as an EP are free to form a company and become its shareholder, but, because your EP is not with the company you just formed, you cannot be its director.
If you give up your EP in order to apply for an EP with your newly formed company, you cannot be a locally resident director because you have no EP that makes you locally resident.
Therefore, the only way to become a director of your company is to form the company with a locally resident director, and have that director apply for your EP for the company. Most people do not want the legal liability associated with being a director of a company they know nothing about, and therefore, you will probably have to rent a director from one of the companies that do this. It will not be cheap.
Technically, would that mean that I can form a company with another EP holder also? - EXISTING EP HOLDER DO NEED A RESIDENT DIRECTOR. ANOTHER EP HOLDER CANNOT BE USED AS A RESIDENT DIRECTOR AS BY DEFINITION BEING A DIRECTOR IS CONSIDERED A FULL TIME JOB
Again, you cannot be a local director of a company unless your EP is with that company, so YES... another EP holder in another company cannot be used as a resident director. Only a citizen or PR can be the initial director.
4. The founder or cofounders must have to be given salary from the new company accounts. This means that if they wished to sustain themselves on personal savings then those savings must be transferred in the company’s paid up capital. A FULL BUSINESS PLAN SHOULD DEFINE THE PROJECTED REVENUE AND EXPENSES
Your business plan should include pro forma financial statements for project profit and loss for at least 3 years, preferably 5. Everybody knows that the numbers are made up, and, if you make up ridiculous numbers, you'll be denied your EP. Consider: You invent a better toothbrush. In your pro forma financials you say you are going to sell 3 million into Singapore because they are so great. Everyone knows this is bullshit... you'll never get that kind of market penetration or your EP.
Your business plan needs a lot more information as well so that the authorities know you are competent. See http://www.herberts.org/miscdocs/Sample ... ntents.pdf
You have to remember that it used to be very easy to start a company in Singapore. Then all sorts of people started abusing the system by forming companies as an easy way to get a free ride into Singapore. They had no experience, they had no money, and once in Singapore, they tended to disappear, or find a job with another company.
So the authorities cracked down. If you cannot demonstrate a real business, and you cannot demonstrate experience, and you cannot demonstrate the likelihood of obtaining customers, you will not be approved for an EP. That's life these days.
5. The salary must match the minimum level set up MOM for EP, which is $3600. THIS IS THE MINIMUM SALARY LEVEL. FOR SUSTAINING A FAMILY OF 3, A SALARY LEVEL OF 6-7K IS IMPORTANT
Two things: First, you must pay enough to meet the minimum requirements or you can't qualify for an EP. Second, the authorities can easily see how much you are making right now. So, if you actually have savings to be able to live, then putting that money into the company and paying yourself is a way to show that you have sufficient resources.
If you're not going to pay yourself anything, and you don't have any medical insurance, then the gahmen is going to be real concerned that you will become a ward of the state, and they will probably prefer that you go do your startup in your home country. Again, it's because of past abuses... you must demonstrate adequate finances to be considered.
6. For a startup to apply for EP, a business plan is to be presented detailing the core business proposition, funding raised from any source. If a letter of intent can be arranged from any prospective client/customer mentioning that they would be interested in your product then it will help the business case. DETAILED DOCUMENTS AS MENTIONED IN PREVIOUS POSTS BY STRONG EAGLE ARE NEEDED
Yes - and as per this business plan summary - http://www.herberts.org/miscdocs/Sample ... ntents.pdf
7. There is no limit to the number of EP that the startup company can apply. If the business plan is good with strong paid up capital then 2-3 EPs can be approved. IF THE BUSINESS PLAN IS STRONG TO SHOW THST 2-3 EPs ARE REQUIRED TO GENERATE LOCAL EMPLOYMENT THEN MOM CAN GRANT
Technically, this is correct but MoM will be looking closely at why you are not hiring locals. So, if three or four of you are planning to create a new product, then it is essential that you business plan detail how you have been working together, how your team has the special knowledge to create the product, and why/how the local population lacks the skills for the project. Otherwise, it may look like you are just creating a company so your buddies can get an easy EP.
This is why a well thought out business plan is so important. Money, business sense, special knowledge.
Appreciate your comments on the following:-
1. It is like a chicken and the egg situation for me. I am on EP with a local company already. But I want to resign and fund my startup with my friend as a cofounder. Do I need to first resign from my local company and then open startup and immediately apply for new EP? OR I register my new company with ACRA first, and immediately apply for new EP. When the new EP is approved then resign from my local company? – OPEN PTE COMPANY WITH A LOCAL RESIDENT AND THEN APPLY FOR EP WITH STRONG BUSINESS PLAN? I STILL NEED ADVISE ON THE SHAREHOLDING PATTERN? WILL ALL SHAREHOLDING BE IN THE NAME OF THE RESIDENT DIRECTOR?
There is no "chicken and egg" situation. You would follow a process similar to this:
- Form your private limited with you as the single shareholder. You only need one dollar of paid up capital and unless there is a reason for more paid up capital (impress clients, mainly), that is all you will ever need. Do ensure that your memorandum of incorporation allows the company to issue several hundred thousand shares if it wishes to in the future.
- Hire your rented director. This rented director will perform several functions, including:
- Open a bank account. Your rented director will provide the directors resolution that will allow you to be the signatory on the account.
- Put some money into the account... the more the better. Update your financial statements to show that you have made loans to the company, that the company will eventually pay back from profits.
- Have your director file for an EP for you. File this manually so you can include your business plan and supporting documentation as there is no easy way to file all this stuff online. If your rented director does file online it will probably be rejected... then you appeal manually with all the documents.
- IF you are approved to become the director, you will get an IPA. Terminate employment with your current employer and go collect your new EP. You can't have two EP's at the same time, so make sure you're new one is approved, then resign and hand in old EP, then collect new EP.
- Register yourself as the new managing director of your company and fire your rented director.
- If your co-founders are going to dump money into the company, execute a loan agreement with them so that they become creditors to the company. Put their money in the bank and update your financial statements.
- Determine how you are going to participate in profits. For example, if you are going to divide everything 50/50, then your co-founder and you will have an equal number of shares. Have your co-founder buy in and put her/his one dollar in the bank.
- Now apply for an EP for your co-founder. With luck you'll be able to work with the same person that granted your EP, and, be prepared for justifications as I stated earlier.
- If your co-founder EP is granted, then she/he resigns from current company and picks up new EP just as you did.
- If your co-founder does not get EP, then pay back the loan, buy back the shares.
2. When do they ask to submit the business plan, angel funding details, letter of interest from prospective clients etc? Is it during the company formation with ACRA or during application for my EP as director? NEED CONFIRMATION IF THIS IS REQUIRED DURING EP APPLICATION?
They never "ask". They don't give a shit. They are setup to process EP's from established companies. You must submit your documentation with your EP, then work it through the system.
3. Can the angel investor’s address be used as the new company address? Alternatively, is the use of residential address allowed as a business address? Will residential address be viewed negatively? NEED CONFIRMATION
What angel investor? In any case, the answer is no, and investor's address ,aka, a shareholder, should not be used as the address. Residential addresses can be used, probably won't make a lot of difference... BUT... if you are a sole director, you are required by law to have an outside secretary... that would be the best address to use. Otherwise, use your address.
4. Since, it is startup the salary will be far less than what we are currently earning. Would MOM object to that? NEED CONFIRMATION
Not really... in fact, you could feature it in your business plan. Note your current high salary as evidence of how skilled and experienced you are. Note that you are taking the minimum salary necessary to support yourself in order to conserve cash in the company. Note that your salary will rise as profitability rises. Salaries of all people need to be in your pro forma statements.
5. Strong Eagle I saw that you put good emphasis on hiring a very experienced consultant and not a Muppet. Would you recommend some of them? CONFUSED AS IN SOME POSTS YOU (STRONG EAGLE) HAVE ADVISED AGAINST IT AND EVEN MENTIONED THAT THIS CAN BE VIEWED NEGATIVELY, WHILE IN OTHER POSTS YOU HAVE MENTIONED THAT THERE ARE SOME GOOD AGENCIES TO WORK THIS OUT
Thanks in advance!
They are ALL muppets. Your big problem is that you will need to find a director to get your company started up. It used to be that any CPA firm in town would provide a director, and for cheap. Not any more. You will have to rent a director from a firm that specializes in doing this.
You will pay for the director. They will make you use their accounting services so they can be sure that you are not doing anything illegal. They will want to file all your EP's to make sure you're not trying to pull a fast one. They will insist on filing all legal documents and tax returns. They will do all these things because they want to know that you will not screw the rented director and leave him/her civilly or criminally liable. You will have to pay for each of these services.
I don't recommend any of these services because I've never used one. My experience with them is that they are all barely functional... they know the process but will be pretty useless in handling appeals because they are actually pretty non creative in problem solving.