Questions About Companies, EP's, and Nominee Directors

[Strong Eagle]

I received the following query in a PM and thought it of a general enough nature to post on the forums. So, with the OP's permission, I present it here.

Things are going good. I have (started my company as we talked and have a) solid steady income with my company. The only variable is that my wife's job situation is fairly tenuous still -- and if she loses her EP, obviously that would affect my situation. (I'm her dependent, working for my own company on a LoC.)

I had a long conversation with MOM today. Unfortunately it seems that a sole proprietorship cannot give its sole proprietor an EP, even after showing steady revenue. I don't qualify for the Entrepass, because they'd require $50,000 in capital apparently. So my only option, it seems, is to convert my company into a private limited.

For PVT LTD: My understanding is that I would require a local partner to be the head of the company. My question is this: what would this person's role be? Would he be required to draw a salary and participate in the business? Would he have liability for my behavior and/or debts? Assuming I can find a local partner, why would he NOT want to do register this company with me?

Thanks as always,

My answer is in the next post.

[Strong Eagle]

Congrats on the business. You are a DP, correct? So, DP's can form private limiteds, be a shareholder, and be a director, (with a letter of consent), and can actively manage and work for the company (again, with a letter of consent).

So, there must be at least one person as a director who is a Singapore citizen, PR, or EP (as in Entrepass), or a DP who has a letter of consent. You might also be able to apply to have someone working for another company on an EP to apply to be a director. I have heard of this happening, but have no confirmations from any person that has done this.

As for the other person you mentioned, they are referred to as 'nominee directors'. You pay someone to be a director and when you hire them, you have them sign a letter of resignation so you can get rid of them immediately if you need this. Nominee directors are sometimes hired because a foreigner wants to run business in Singapore. In this case, your director would probably receive pay and other incentives to actively manage a business owned by a foreign investor.

But, just as often, the nominee director exists only to meet the legal requirements. She/he has no active participation in the business, may not even know what it really is, and exists to sign the necessary papers for the company with respect to ACRA, IRAS, MOM, etc.

However, nominee directors have full responsibility that any director would have so they will usually cost at least $1500 per year and they will want to review your business because they will be liable for any criminal or civil penalties that may result from your business operations. People who hire themselves as nominee directors put themselves at risk if you are not on the up and up.

But, a nominee director doesn't solve your problem. You are still a DP, and if you're wife loses her EP, you can still own stock in your company, but you can't be here to direct and run it.

So, what you really want to know from MOM is whether they will grant you an independent EP based on your earnings from your business when you convert it to a private limited, because if all you have is DP status, it really doesn't matter whether you have a nominee director or not. This is the $64K question that needs to be sorted.

So, you need to ask MOM if you convert your successful business into a private limited company, will they grant you an EP, and under what conditions? For example, you might temporarily need a nominee director who could apply for your EP.

And, you need to ask ACRA how to convert your business into a private limited so that you have the necessary historical records of operation so that MOM has the proof of your business success.

I'd like to post your question and my answer in the business section as this is of general interest to a lot of people.

Cheers.

[wcs]

Given the specific outcomes you have in mind, it would be worth getting a good accountant to help you with this. This will ensure the real issue will be addressed...being able to be sponsored by your company for an employment pass, and your wife for a dependent's pass if the worst happens.

For more generalised information about setting up a company and converting a sole proprietorship into a company, ACRA provides this pdf.
http://www.acra.gov.sg/NR/rdonlyres/8D0 ... busine.pdf

Good Luck!

[mmmmdave]

Hi guys -- I am the original poster for this question.

So, you need to ask MOM if you convert your successful business into a private limited company, will they grant you an EP, and under what conditions? For example, you might temporarily need a nominee director who could apply for your EP.

It sounds like this is indeed the case. I spoke to MOM, and it appears this is the only option available to me: setting up a Pvt Ltd and bringing on a nominee director. It seems that they'd grant me the EP if my company was a Pvt Ltd.

Is there anyone else with experience in this situation? Surely some DP holder must have started a successful business at some point...

[Strong Eagle]

Hi guys -- I am the original poster for this question.

So, you need to ask MOM if you convert your successful business into a private limited company, will they grant you an EP, and under what conditions? For example, you might temporarily need a nominee director who could apply for your EP.

It sounds like this is indeed the case. I spoke to MOM, and it appears this is the only option available to me: setting up a Pvt Ltd and bringing on a nominee director. It seems that they'd grant me the EP if my company was a Pvt Ltd.

Is there anyone else with experience in this situation? Surely some DP holder must have started a successful business at some point...

I still don't see why you need a nominee director. As a DP you can create the company and act as its director, then apply for your own EP as director.

I have a friend who started a pte ltd as a DP, got some contracts to provide a salary, and after a few months as DP applied for EP via her company and was approved.

[mmmmdave]

I thought having a nominee director was a requirement of a Pvt Ltd? Or, less specifically, that a Pvt Ltd requires somebody from Singapore or a PR to be involved?

[Strong Eagle]

I thought having a nominee director was a requirement of a Pvt Ltd? Or, less specifically, that a Pvt Ltd requires somebody from Singapore or a PR to be involved?

No... a DP can form a company. Below, you will find the guts of an email I sent to MOM, plus their answers. So, use the link above to see how to convert your business to a pte ltd (although I would recommend a CPA to handle all the documents).

*** Customer Enquiry Details ***



Customer Name: Wayne Herbert

Submitted on: 24-05-2009 17:03:00

Subject : General Enquiries (other than XBRL & UEN)

Question:

Can a person legally in Singapore on a Dependents Pass register a business as a sole proprietorship and then run that business actively?

Can a person on a Dependents pass form a private limited company as a sole director and with the intent to actively manage? Thank you.

*************************************************************************************************************
This is an email reply from Ask ACRA system for case number IQS-CCC-0905-002295. Please do not reply to this email. Please click here if you have any follow-up queries on our reply.
*************************************************************************************************************

Dear Wayne

I refer to your email below.
A dependent pass holder can be eligible to setup a business.

Pertaining to your second question, an individual must fulfill the below criteria before he/she can proceed to incorporate a company.

1. Any person above the age of 18 years (with effect from 1 March 2009) can incorporate a local company.

2. A company may have only one director who must be “ordinarily resident in Singapore”

[mmmmdave]

I should have taken your advice and created a private limited to begin with.

[Strong Eagle]

I should have taken your advice and created a private limited to begin with.

Well... it does cost more... and you really do have to engage a CPA to handle AGM's, EGM's, resolutions, minutes, filings, and audits... but in the long run it does give you an aura of 'substantialness'... is that a word?

It costs me a couple of thousand a year to have the paperwork shuffled and my accounts audited.

[jpatokal]

It costs me a couple of thousand a year to have the paperwork shuffled and my accounts audited.

...and sufficiently small "exempt" companies don't even require auditing.