Guide to paid-up capital in Singapore
As an entrepreneur seeking to incorporate a company in Singapore, you may be wondering how important is paid-up capital, and how it affects your shareholders and your business. In this article, we will explain the ins and outs of paid-up capital in Singapore, and how you will be able to manage your paid-up capital in your company.
What does Paid-Up Capital mean?
A paid-up capital is the sum total of investment capital received by any company from its shareholders in exchange for shares. In other words, it refers to the amount of money a company has received from shareholders who have fully paid for their purchased shares.
A company that sells its shares in the primary market directly to investors will increase its paid-up capital, usually through an IPO or sold between investors in the secondary market. An additional pay-out is only made if the proceeds from these transactions go to the selling shareholders and not flowing to the issuing company.
What is Share Capital in Singapore?
Share capital is also known as the paid-up capital in Singapore. The minimum paid-up capital in Singapore to start a local company is S$ 1.00. Singapore’s incorporated company law also states that companies can issue shares with or without receiving a full payment from shareholders.
The share capital of a company can be divided into two which includes:
- Paid-up capital
It is the total sum of money a given shareholder has paid in full for the shares issued by an incorporated company.
- Unpaid share capital
This is the situation in which none of the amounts due to the allocation of shares issued has been paid.
In small organizations and businesses, share capital is often unpaid and owed by the company indefinitely. Singapore company’s law states that all incorporated companies will maintain their registered capital throughout the life of the company. Foreign entrepreneurs setting up a local company should keep this in mind when managing their share capital.
Types of Shares
Singapore company’s law also enables entrepreneurs setting up a local business to create types of shares that grant shareholders different privileges and rights.
The major types of shares issued by companies in Singapore are listed below.
- Ordinary shares
All companies must issue one common share to be registered. Ordinary shares are usually offered one vote per share at general meetings, as well as the right to dividends which demand the rest of the assets if the company is dissolved.
- Non-voting shares
In contrast to ordinary shares, non-voting shares do not give shareholders the right to general meetings or voting rights. Non-voting shares are usually assigned to either the employees or family members of the main shareholder.
- Preference shares
Preference shares generally give ordinary shareholders special rights in relation to dividend payments. For example, a company may issue dividends to preferred shareholders in front of common shareholders. In addition, preference shares may have the right to claim common shareholders’ assets but preference shares are non-voting shares.
- Alphabet shares
A company can set up different share classes (e.g. class A, class B, class C), each of which offer different rights and privileges to the shareholders.
- Management shares
Management shares are often granted to the company’s founders and usually offer additional voting rights.
- Redeemable shares
Typically, a redeemable share will be issued on the condition that the company redeems the share at a later date.
- Deferred shares
No dividend will be paid on deferred shares until a minimum dividend has been paid to all other shareholders.
Requirements for Capital Investment
For foreign entrepreneurs keen on setting up a local company, certain conditions must be met before the company receives such capital investment from an investor.
These requirements are listed below:
- If the company’s business is regulated (e.g. telecommunication providers, traveling agencies, recruitment providers, financial services, etc.), the minimum capital requirements are determined by the relevant licensing requirements.
- If you apply for a work visa when there is no official minimum deposit capital, it is recommended that the deposited capital of at least S$50,000 be used to improve the chances of employment approval.
Different minimum capital requirements may apply to companies registered in Singapore that belong to a regulated industry. For example, a telecommunications service provider or travel agency must have a paid-in minimum capital of SDG 100,000 at the time of licensing.
For entrepreneurs who had finished setting up a local company, paid-up capital can be used accordingly for the company’s business needs, e.g. the payment of business assets, or the payment of employee salaries.
However, deposited capital should not be deducted for personal use as it is treated as a company loan. Instead, it can be increased at any time after completing the process to incorporate a company in Singapore. This usually takes the form of new shares, or you can acquire new shareholders or persuade existing shareholders to buy more shares.
Singapore incorporated company’s law states that a limited liability company must have not less than 1 shareholder and it should also not exceed 50 shareholders. Shareholders can vary from individuals to companies (private-owned) and can be domestic or foreign. Singapore also allows foreign shareholders to take a 100% stake in the company, which will be beneficial for foreign business owners setting up a local company here.
To become a shareholder, a person must first acquire shares in the company. A shareholder owns the business by buying shares. Since the company is an independent legal person, the shareholder does not own any assets of the company and is not responsible for the company’s debts. As a company owner, certain rights are acknowledged by the rest of the board to the shareholders. In addition to these rights, shareholders also have certain responsibilities.
It is important to know that the criteria and procedure for issuing new shares to shareholders for entrepreneurs who seek to incorporate a company in Singapore. It may vary based on the company’s industry, among other factors. Entrepreneurs setting up a local business understand that credibility of your company is vital when dealing with shareholders and investors, hence you will need to manage the paid-up capital prudently. A small paid-up capital can worry investors and stakeholders.
Documents needed to issue paid-up capital
As soon as the paid-up capital can be issued to increase the company’s share capital, your business service provider will ask the company to provide the necessary documents such as proof of the capital injection (bank statement). In fact, the directors of the company will seek the consent of existing shareholders to issue new shares, and this will be done at a general meeting.
The documents and procedure required include:
- Ordinary resolutions (Authority to issue shares)
- Director’s resolutions (Allotment of shares)
- Extraordinary General Meeting
- Letter to the company’s secretary
- Application of shares.
These documents are submitted to the Accounting and Business Regulatory Authority (ACRA), which will update the company profile with the revised paid-up capital of your Singapore registered company.
Shareholders are also not permitted to withdraw their stake or a paid-up capital once the funds have been received by a company since the paid-up capital is owned by the company and should be used to manage business requirements.
By taking all this into account, entrepreneurs who wish to incorporate a company in Singapore can effectively manage their paid-up capital requirements. There are a lot of details businessmen setting up a local company should keep in mind, and to simplify the process, they can hire a service provider to efficiently manage these requirements.
These professionals are experts not only in the process to incorporate a company in Singapore, but they can also process your financial statements and provide good advice on your paid-up capital management. Contact us today to discuss how we can help you.