Shelf Company vs. New Incorporation in Singapore

Shelf Company vs. New Incorporation in Singapore | Bestar

Singapore Company Options: Shelf vs. New

When looking to establish a business presence in Singapore, you generally have two main options: incorporating a new company from scratch or purchasing a "shelf company." Both approaches have distinct advantages and disadvantages, and the best choice depends on your specific business needs and priorities.

Here's a breakdown of the key differences:

Shelf Company (Ready-Made Company)

A shelf company is a business entity that has been legally incorporated and registered, but has remained dormant with no business activities or income. It's essentially a "ready-made" company kept "on the shelf" for sale.

Advantages of a Shelf Company:

• Speed and Immediate Start: This is the primary benefit. You can acquire a shelf company and begin business operations almost immediately, bypassing the entire company incorporation process which can take a few days to weeks. This is ideal if you have urgent business opportunities, need to sign contracts quickly, or have strict deadlines.

• Established Age/Credibility: Some shelf companies have been incorporated for a period of time (e.g., a few years). An older registration date can give your company an appearance of longevity and credibility, which might be beneficial when dealing with clients, partners, banks, or seeking loans. Lenders often prefer companies with a longer operating history.

• Pre-existing Elements (Sometimes): Some shelf companies might come with a pre-registered name (though you can usually change it), a company secretary, and a registered address. In some cases, providers even offer shelf companies with pre-opened bank accounts, though transferring signatory rights might still require a bank interview.

• Simplified Initial Process: You don't have to go through the initial steps of name approval, preparing the constitution, and filing with ACRA (Accounting and Corporate Regulatory Authority) from scratch.

Disadvantages of a Shelf Company:

• Higher Cost: Shelf companies generally come at a higher upfront cost compared to incorporating a new company. The price typically ranges from SGD 2,000 to SGD 10,000 or more, with older companies usually being more expensive.

• Limited Customization: The company's initial structure, name, and constitution are pre-defined. While you can typically change the name, directors, and even business activities, it might require additional steps and might not offer the same level of initial customization as a new incorporation.

• Potential Inherited Issues: Although reputable providers will ensure the shelf company has no debts, liabilities, or previous business activities, there's always a slight risk of inheriting unforeseen issues or a less-than-perfect history. Thorough due diligence is crucial.

• Loss of New Company Tax Benefits: Singapore offers certain tax exemptions for newly incorporated companies for their first three years (if they meet specific criteria). A shelf company, being "older," might not qualify for these specific tax breaks, potentially leading to higher tax liabilities in the initial years of your operations.

• Bank Account Challenges: While some shelf companies might have a pre-existing bank account, banks often require new directors and shareholders to undergo a personal interview for signatory changes. There's a possibility the bank might decide to close the account during this process.

New Incorporation

This involves setting up a company in Singapore from the ground up, following all the standard procedures with ACRA.

Advantages of New Incorporation:

• Full Customization: You have complete control over every aspect of the company, including its name, constitution, share structure, and business activities, from the very beginning. This allows for a perfect alignment with your business vision and brand identity.

• Lower Initial Cost: The official government fees for incorporating a new company in Singapore are relatively low (e.g., S$15 for name approval and S$300 for registration). The overall cost will be lower than a shelf company, especially if you handle some of the administrative tasks yourself or use a basic service package.

• Clean Slate: A newly incorporated company has no prior history, liabilities, or baggage. You start with a completely clean slate, which can be advantageous for building trust and reputation.

• Eligibility for Tax Exemptions: New companies in Singapore (especially private limited companies) can qualify for significant tax exemptions on their first S$200,000 of taxable income for the first three assessment years, provided they meet certain conditions (e.g., being a tax resident, having at least one individual shareholder with 10% or more shares).

• Direct Control over Setup: You are directly involved in the entire setup process, ensuring everything is precisely as you intend.

Disadvantages of New Incorporation:

• Time-Consuming: The process of incorporating a new company can take several days to a few weeks, especially if there are complexities with the name approval or if additional information is required. This might not be suitable for businesses needing an immediate start.

• Administrative Effort: You need to go through all the steps yourself or rely on a corporate service provider for assistance, including preparing the necessary documents, appointing a resident director and company secretary, and applying for a unique entity number (UEN).

• No Pre-existing Credibility: A new company starts with zero operating history, which might initially affect perceptions of credibility with certain stakeholders, particularly banks and potential investors who prefer established entities.

Key Requirements for Both Options in Singapore:

Regardless of whether you choose a shelf company or new incorporation, all Singapore companies must comply with ongoing statutory requirements, including:

• At least one resident director: This must be a natural person who is a Singapore citizen, Permanent Resident, or an EntrePass/Employment Pass holder. (Nominee director services are available if you don't have a local resident).

• At least one company secretary: This person must be a natural person residing in Singapore and is responsible for compliance. It's often advisable to engage a professional corporate secretarial firm.

• A registered office address: This must be a physical address in Singapore (P.O. boxes are not allowed) and accessible to the public during business hours.

• Minimum paid-up capital of S$1.

• Annual General Meeting (AGM) and Annual Return filing: Companies must hold an AGM and file annual returns with ACRA within stipulated deadlines.

• Maintenance of statutory records.

• Corporate tax filings.

This comprehensive overview should help you decide between a shelf company and a new incorporation in Singapore:

Shelf Company vs. New Incorporation in Singapore: Which is Right for You?

The decision between purchasing a shelf company and undergoing a new incorporation in Singapore is a critical one, with implications for your business timeline, initial costs, and long-term strategic advantages. There's no single "better" option; the ideal choice hinges on your specific circumstances, particularly your urgency to commence operations, budget, and desired level of customization.

Key Factors to Consider:

1. Time Sensitivity:

   • Shelf Company: If you need to begin operations immediately – perhaps to sign a crucial contract, meet a tight deadline, or capitalize on a fleeting opportunity – a shelf company is generally the faster route. The transfer of ownership can be completed within a day or two, allowing you to have a legally recognized entity almost instantly.

   • New Incorporation: A new incorporation typically takes 3-5 business days for ACRA to process, assuming all documents are in order and the name is approved quickly. While not excessively long, it's not "instant." If your timeline is flexible by a few days, this is a viable option.

2. Budget:

   • Shelf Company: Expect to pay a premium for the speed and pre-existence. Prices for shelf companies can range from S$2,000 to S$10,000 or more, depending on factors like the company's age and any pre-existing features (e.g., dormant bank accounts, nominee director arrangements).

   • New Incorporation: The government fees for new incorporation are relatively low (S$15 for name application, S$300 for registration). The total cost, including professional service fees for incorporation and initial secretarial services, is typically lower than a shelf company, often ranging from S$600 to S$2,000.

3. Credibility and Age:

   • Shelf Company: An "aged" shelf company (one that was incorporated several years ago) can offer an immediate perception of credibility and longevity. This might be advantageous when applying for loans, attracting investors, or dealing with clients who prefer to work with established entities.

   • New Incorporation: A newly incorporated company starts with a clean slate and no history. While it lacks immediate "age credibility," it also has no hidden liabilities or past issues. Building credibility will be a gradual process through your business operations.

4. Tax Incentives:

   • New Incorporation: This is where new companies have a significant advantage. Singapore offers a tax exemption scheme for new start-up companies (SUTEC). For the first three consecutive YA (Year of Assessment), a qualifying new company enjoys 75% tax exemption on the first S$100,000 of normal chargeable income and 50% tax exemption on the next S$100,000. This can result in substantial tax savings.

   • Shelf Company: As a shelf company is not "newly incorporated" in the eyes of tax law, it generally does not qualify for the new start-up tax exemption scheme. This means you will typically pay full corporate tax rates from day one of your operations, which could translate to higher tax liabilities, especially in your early profitable years.

5. Customization and Control:

   • New Incorporation: You have absolute control over every detail, including the company name, constitution (articles of association), share capital structure, business activities (SSIC codes), and initial directors/shareholders. This ensures the company is perfectly tailored to your business model.

   • Shelf Company: While you can change the company name, directors, and business activities after acquisition, the initial constitution and certain details are pre-set. This might require additional administrative steps and may not offer the same seamless initial customization as a new incorporation.

6. Potential for Hidden Liabilities (Shelf Companies):

   • While reputable corporate service providers ensure that shelf companies are truly dormant and have no existing liabilities or activities, there's always a theoretical, albeit small, risk. Due diligence is crucial, and you should always obtain a written guarantee from the provider that the company has no past debts, contracts, or operations.

Practical Considerations for Both:

• Bank Account Opening: Whether you incorporate new or buy a shelf company, opening a corporate bank account in Singapore will require due diligence from the banks. They will verify the identity of the directors and shareholders, and in most cases, an in-person meeting (or a robust video conference) with the bank is required. A shelf company with a pre-existing bank account might seem appealing, but transferring signatory rights can still be a lengthy and uncertain process, as banks may decide to close the account rather than transfer.

• Ongoing Compliance: Regardless of your choice, all Singapore-registered companies must adhere to strict ongoing compliance requirements set by ACRA and IRAS (Inland Revenue Authority of Singapore), including:

  • Appointing a qualified Company Secretary within 6 months of incorporation.

  • Having a resident director.

  • Maintaining a registered office address.

  • Filing annual returns and financial statements with ACRA.

  • Filing annual corporate tax returns with IRAS.

  • Keeping proper accounting records.

When to Choose a Shelf Company:

• Extreme Urgency: You need a company number and legal entity within hours or a day to sign a contract, tender, or secure a business opportunity that cannot wait a few days.

• Perception of Age: An older registration date is crucial for your business strategy, e.g., for specific tenders, legacy client relationships, or perceived stability.

• Minimal Customization Needs: You are comfortable with a standard company structure and can easily make necessary amendments post-acquisition.

When to Choose a New Incorporation:

• Cost-Effectiveness is a Priority: You want to minimize initial setup costs.

• Tax Benefits are Important: You qualify for and want to leverage the significant tax exemptions offered to new start-up companies.

• Full Customization: You want complete control over your company's name, constitution, and structure from the outset.

• Clean Slate: You prefer to start with a company that has absolutely no prior history or potential liabilities.

• Timeline Flexibility: You have a few days to a week to complete the incorporation process.

Recommendation:

For most businesses and entrepreneurs looking to establish a presence in Singapore, new incorporation is generally the more advisable and cost-effective option. The significant tax benefits for new start-ups, the lower upfront cost, and the ability to fully customize your company from day one usually outweigh the marginal time savings offered by a shelf company.

However, if your business truly requires an immediate legal entity within a day or two and you are willing to forgo the new start-up tax exemptions and pay a higher premium, a shelf company can be a viable solution for very specific, time-critical scenarios.

How Bestar can Help

Shelf Company vs. New Incorporation in Singapore

Bestar plays a crucial role in helping businesses, especially foreign entrepreneurs and SMEs, navigate the complexities of establishing and maintaining a company in Singapore. We offer a wide range of services that extend far beyond just company incorporation, essentially acting as a one-stop shop for administrative, legal, and compliance needs.

Here's a breakdown of how Bestar can help:

1. Company Incorporation & Registration

• Guidance on Business Structure: We advise on the most suitable legal structure for your business (e.g., Private Limited Company, Sole Proprietorship, Limited Liability Partnership) based on your objectives, ownership, and liability considerations.

• Name Application and Approval: We handle the application for your proposed company name with the Accounting and Corporate Regulatory Authority (ACRA), ensuring it meets guidelines and facilitating approval.

• Preparation of Incorporation Documents: This includes drafting the company's constitution (formerly Memorandum and Articles of Association), preparing declarations, consent forms for directors and shareholders, and other necessary statutory documents.

• Filing with ACRA: We act as registered filing agents with ACRA, submitting all required documents efficiently and accurately to ensure a smooth and quick incorporation process.

• Obtaining UEN and Certificate of Incorporation: Once approved, we secure your Unique Entity Number (UEN) and the official Certificate of Incorporation.

• Shelf Company Acquisition (if applicable): If you opt for a shelf company, we facilitate the ownership transfer, ensure all due diligence is completed, and manage the necessary changes to directors, shareholders, and company name.

2. Corporate Secretarial Services (Mandatory Requirement)

• Appointment of Company Secretary: Singapore law mandates that every company appoint a qualified company secretary within six months of incorporation. CSPs typically provide this service, ensuring compliance.

• Maintenance of Statutory Registers: We are responsible for keeping statutory records, such as the Register of Directors, Shareholders, Charges, and Minute Books, up-to-date and accurate.

• Annual General Meeting (AGM) Support: We assist in preparing for and conducting AGMs, drafting resolutions, and ensuring the timely filing of AGM documents with ACRA.

• Annual Return Filing: We prepare and file the company's Annual Returns with ACRA within the stipulated deadlines.

• Monitoring Compliance: We proactively monitor changes in Singapore's Companies Act and other relevant regulations, advising your company on necessary adjustments to remain compliant.

• Advising on Corporate Governance: We provide guidance on best practices for corporate governance, helping directors understand their duties and responsibilities.

• Managing Corporate Changes: We handle filings for changes in company particulars, such as changes in directors, shareholders, share capital, registered address, or business activities.

3. Registered Office Address

• Provision of a Local Address: Singapore companies are required to have a physical registered office address in Singapore (P.O. boxes are not allowed). CSPs often provide this service, allowing businesses without a physical presence to meet this requirement.

• Mail Handling: We offer mail scanning and forwarding services for official correspondence.

4. Nominee Director Services

• Meeting Residency Requirements: For foreign individuals or companies setting up in Singapore, a local resident director is mandatory. Bestar can provide a nominee director service to fulfill this requirement, ensuring compliance.

• Compliance & Due Diligence: The nominee director acts only in a non-executive capacity and primarily serves to meet the residency requirement, subject to strict due diligence and indemnities.

5. Accounting and Tax Services

• Bookkeeping: We can manage your daily financial transactions, keeping accurate and organized records according to Singapore Financial Reporting Standards (SFRS).

• Financial Statement Preparation: We prepare financial statements (e.g., Statement of Financial Position, Statement of Comprehensive Income) that comply with statutory requirements.

• Corporate Tax Filing: We assist with the computation of corporate income tax and the filing of annual tax returns (Form C/C-S/C-S (Lite)) with the Inland Revenue Authority of Singapore (IRAS).

• GST Registration and Filing: If applicable, we can help with Goods and Services Tax (GST) registration and submission of GST returns.

• Tax Advisory and Planning: We can offer advice on tax-efficient structures and strategies to optimize your tax position.

• Estimated Chargeable Income (ECI) Submission: We help prepare and submit your ECI to IRAS.

6. Payroll Services

• Monthly Payroll Processing: We manage salary calculations, statutory deductions (e.g., CPF contributions), and timely salary disbursements.

• IR8A Submission: We handle the annual submission of Form IR8A for employee income tax.

• Leave and Expense Management: Bestar offers integrated solutions for managing employee leave and expense claims.

7. Immigration Services

• Work Pass Applications: For foreign entrepreneurs and employees, Bestar can assist with applying for various work passes, such as the Employment Pass (EP), EntrePass, S Pass, and Dependant's Pass.

• Visa Assistance: We provide guidance and support for visa-related matters.

8. Business Advisory and Consulting

• Licensing and Permits: We can identify and assist with applying for necessary business licenses and permits specific to your industry.

• Compliance Advisory: We offer ongoing advice on regulatory compliance, ensuring your business stays informed about evolving laws and regulations.

• Business Planning: Bestar provides strategic business advisory to help with market entry strategies, corporate structuring, and growth planning.

Benefits of Using Bestar:

• Time and Cost Efficiency: Outsourcing administrative and compliance tasks frees up your valuable time and resources, allowing you to focus on core business activities. It can also be more cost-effective than hiring in-house staff for each function.

• Ensured Compliance: Bestar has in-depth knowledge of Singapore's legal and regulatory framework. Our expertise helps you navigate complex requirements, minimizing the risk of non-compliance, penalties, and legal issues.

• Expert Guidance: You gain access to experienced professionals who can provide valuable advice on corporate governance, tax planning, and administrative best practices.

• Smooth Process: We streamline complex processes like incorporation, bank account opening, and work pass applications, making them faster and less stressful.

• Local Insights: Especially beneficial for foreign businesses, Bestar offers local market insights and connections that can be invaluable.

• Scalability: Our services can often be scaled up or down to match your business growth, providing flexible support as your company evolves.

In essence, Bestar acts as a trusted partner, simplifying the administrative burden of running a business in Singapore and allowing you to concentrate on your strategic goals and growth.

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