“I don’t understand, Boon – we offered the landlord the price they wanted and agreed on everything last week, but now they don’t want to proceed because the share capital in the company is only $100. Don’t they realise we are a multi-billion dollar shipping company?”
This is a common issue for many companies entering the Singapore market who are unfamiliar with the local culture and protocols. A key aspect of Singapore’s corporate culture is the company’s share capital level.
While many foreign jurisdictions are familiar with the idea of a “$2 company,” approaching Singapore with the same mindset will likely limit their ability to operate in Singapore.
The amount of share capital you inject into your Singapore company reflects how serious you are about building your presence in this market. If your company has a low share capital value, the market view is that you are not fully invested in Singapore as a market for your company.
Your company is viewed as a risky counterparty to any agreement because it appears to have limited working capital to meet the company’s ongoing running costs.
Share Capital vs. Loan
Your counterparty in Singapore prefers share capital rather than a loan injection because share capital is more permanent and is covered by statutory provisions under the Companies Act 1967.
Whilst the Companies Act does allow for a capital reduction, the process is covered by provisions that include the need for the company to be solvent when the capital reduction is made and, in some instances, approval from the company’s creditors and the court.
In contrast, loans are usually undocumented and can be called upon for repayment at any time by the lender.
The barriers to taking out the funds as share capital are higher than for a loan – the most significant being the costs involved to engage lawyers and company secretaries.
Who Looks At Share Capital?
The share capital of a company is usually reviewed in the following circumstances:
- Opening A Bank Account – Singapore is renowned for its strong and secure banking system. The process of opening a bank account goes through a compliance review, which prefers to onboard a company with at least S$10,000 of share capital.
- By The Ministry Of Manpower When Assessing An Application To Sponsor A Foreigner On A Working Visa – A key obligation for a company sponsoring an individual on a working visa is the payment of their monthly salary. It is not unusual for the Ministry to request that share capital equal 6 – 12 months of the gross salary figure for the sponsored employee.
- Suppliers (Including Landlords) Looking To Enter Agreements With The Singapore Company – When dealing with a new company, it is common for landlords only to enter into agreements with companies with an amount of share capital that reflects the planned operations (including the payment of rent) to minimise their exposure to risk.
In Summary
The key consideration regarding share capital that companies need to consider include:
- The amount of share capital reflects how seriously a business is invested in making its mark in the Singapore market.
- An injection of share capital is preferrable as it is viewed as more permanent than a loan, which can be quickly repaid.
- If you are applying for a working visa for an employee, it is recommended that the share capital be equal to at least half of the total salary payable to the employee.
- Given the importance of share capital, it is crucial that you have sufficient savings to inject such funds into the Singapore company’s bank account.