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How to Determine Paid Up Capital

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Strong Eagle
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How to Determine Paid Up Capital

Post by Strong Eagle » Sun, 14 Apr 2019 12:15 pm

This question was sent to me privately. I do not generally respond to questions sent privately.
Hi Strong Eagle, Can I ask you a quick question regarding paid up Capital for an EP application from a new subsidiary company in SG?

So once I have incorporated the company, have a nominee director in place with a corporate bank account, we then need to apply to MOM for the EP, for me then to become the resident Director.

We're getting different opinions from various accountancy companies that recommend $50k - $100k should be deposited into the bank account as paid up capital in order to demonstrate that the company has enough money to pay my salary. It seems strange for a company to pay a salary 12 months in advance and to have money sitting there. We were wondering if a contract between the UK company and the SG company that commit each month, SG company will invoice UK company with $8k - $10k per month for services, would suffice? Or would a combination of this plus some paid up capital be enough? or is it all about $$ in the bank?

We're just trying to understand what the magic number is to get the EP over the line.
Your accountancy firm should read my somewhat dated, but still mainly relevant, post on the Entrepass. Much of the advice there is applicable to non EntrePass company formation.

Historically, forming a company was seen by a substantial number of foreigners as an easy way to land a work pass to stay permanently in Singapore. They had no experience, no skills, and no money. After a few years of this abuse, the government clamped down, hard, on both Entrepass and non Entrepass applications.

So now, besides proving up that you have the skills and experience, you'll want to prove that you have sufficient assets to tide the company over until break even. So how much is that?

Consider what some of the idiot accounting firms in Singapore that specialize in setting up expats, have told their clients. Oh, we'll apply for an EP stating that you'll make $9,000 per month, and then tell them you have $5,000 in the bank. You know what happened? Tossed. Insufficient revenue to support the salary. The accountants over at Bozo and Bozo were stunned. They thought a big salary all but guaranteed the issuance of an EP.

The reality is a little different. You must set a salary level that is at least commensurate with the position taken and able to cover living expenses. It can be low, after all, it's a startup. Too high and it looks like a bunch of bullshit artists filled out the EP application, too low, and it looks like you're trying to sneak a ringer in from the subcontinent.

Next, you must prepare 3 to 5 years worth of pro forma financials. Yes, I know that pro formas are often not worth the paper they are written on, but what else are you going to do? These must include your breakeven date so that it can be determined how far down the road it will be before your company will be self supporting.

Let's say that this will be 15 months, and you have a salary of $5,000, and monthly business expense of $3,000. Without getting into the complexities of reducing out of pocket expenses as revenues rise (Bozo and Bozo can do that), you need to demonstrate 15 x $8000 = $120,000 is available to keep the company afloat until breakeven. Otherwise, your business plan is bullshit.

You don't have to demonstrate the cash if you have alternatives. I always recommend submitting a short (less than 20 pages) business plan with your application, with a section on where your cash is coming from. So, if the Singapore company is going to bill the UK company for your management services, then that should be reflected in the business plan. See... you end up with a nice, clean, tight, and financially consistent business plan, pro formas, and EP application. My thread on the Entrepass has a link to the table of contents for the business plan I used... you probably don't need to be half that complicated.

Finally, nobody never verified nothing in the old days. If you said it was $60,000 to breakeven, no one ever asked, "Show me the money!" And if your UK company has some measure of presence and gravitas, then putting them up to pay money in installments will probably fly.

But, if your UK company really repairs used washers and collects aluminum cans, it is unlikely that the gahmen will check up but they might. They might ask to see a set of audited financials. So, if you're going that payment route, then you'll want to be sure that the UK financials can support it. Why, you might ask? Because too many zero companies have tried that "financing" route as a way to avoid having any capital.

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