May 3, 2009
Taking that first step in starting a business
Registration paperwork is not as daunting as it seems and one can tap support service firms
By Debbie Yong
It has been her dream since young to set up her own childcare centre.
But when former human resource account manager Phoon Wai Ching left her job to register her new business last week, she found out it was, well, no child's play.
What, for example, is the difference between a sole proprietorship and a private limited company?
'I knew I needed to register but didn't know what it involved. It was confusing enough trying to understand the Companies Act, let alone finding out what documents I need to submit,' said Ms Phoon, who is in her 30s and had worked previously in multinational firms.
She approached friends who had started companies for help but most had done so more than five years ago, forgotten the details, or complied with now-obsolete requirements.
'It's a once-in-a-lifetime kind of activity so you want to make sure you get it right the first time,' she added.
She registered her centre as a private limited company with the help of a business management consultant last week.
According to consultancy firms, incorporating - the industry term for registering - a business may not be as daunting a task as it seems.
The process can be broadly broken down into four steps.
First, consider what kind of entity you want your business to be.
There are three options - a sole proprietorship or partnership, a private limited or limited company, and a limited liability partnership.
'Most of our clients who are serious about starting and maintaining their business would go for companies. It may involve additional paperwork but this will assure partners that they are more reliable than sole proprietorships,' said Ms Chen Yew Ju, branch manager of DP Bureau.
It helps entrepreneurs set up and grow their businesses.
Ms Rita Haque, who registered branding and training firm Rita Haque Consultancy as a private company last Thursday, agreed: 'I want to gain credibility among my clients and be a significant player.'
Companies, however, are more costly to set up and maintain.
The administrative work needed includes having to appoint an auditor within three months of registration and a company secretary within six months.
Any changes made to the company must also be lodged with the Accounting and Corporate Regulatory Authority (Acra).
It is possible to convert a sole proprietorship or partnership to a company or limited liability partnership, but not the other way around.
The second step before a business can be successfully registered is to choose a suitable name.
Names with offensive or obscene words, or names that are too similar to an existing business, may be rejected by Acra.
The next step is to consider what licences and permits are needed to run your business.
Certain businesses, such as travel agencies, moneylenders or liquor distributors, need special licences from various ministries or authorities.
Professionals who offer a particular service, such as financial planning, or doctors may have to apply for occupational licences.
Companies have to apply for separate business activity licences for each service they plan to offer, such as food permits or a public entertainment one if they intend to put up a television set in a public area.
There is no specific checklist of operating licences as they differ from business to business.
The application, renewal and termination of licences can be done at the Online Business Licensing Service at www.business.gov.sg
Finally, decide on an address for your business.
The Housing Board and the Urban Redevelopment Authority have a Home Office Scheme allowing home owners to conduct small-scale businesses and list their home addresses for business correspondence.
Alternatively, there are more than 50 organisations offering business incubator services here. They provide meeting rooms, information technology infrastructure and networking opportunities for start-ups.
Ms Jasmine Tham, who runs business support firm Bean Counters, said she has seen an increase in the number of clients in recent weeks.
She attributes this to the reduction in operating expenses such as rental, salary and professional fees.
And though registration is now a fully online process that can be done on the Acra website, many new business owners still prefer to meet face to face with a person, she observed.
Though specimens of required documents for registering a company can be found online, Ms Tham felt 'there are legal jargon, implications and requirements which most clients are not aware of and do not understand'.
Ms Ong Siew Kim, general manager of DP Information Network, however, disagreed. She feels that 90 per cent of business owners these days are highly tech-savvy.
'Previously, we had people asking us to tell them what they need. Now, more people come in knowing what they need, and ask us how they can go about getting it,' she noted.
Seventy per cent of her firm's clients are first-time business owners. She estimates that 10 to 20 per cent of clients in the past six months had been retrenched as a result of the downturn.
'Times like these produce tough entrepreneurs. With limited funding and capital available, they have to think frugal and really build a solid business plan by questioning if they have a product or service that is still in demand in these times,' she said.
'Registering your business is only the beginning.'
Know the jargon
Sole proprietorship or partnership
The former is a business owned by one person. A partnership has two to 20 owners.
In both cases, the owners have unlimited liability. If something goes wrong, a creditor can sue the owners and all their business and personal assets are liable.
In a partnership, all partners are personally liable for the actions of everyone. A sole proprietorship or partnership costs $65 to register with the Accounting and Corporate Regulatory Authority (Acra) and must be renewed yearly for $20. Profits are taxed at owners' personal income tax rates.
Company (limited or private limited)
A company is a legal entity which can own property and sue or be sued in its own name.
A private company can have up to 50 shareholders. If the number goes beyond that, that will make it a public company. Shareholders are not liable for the debts and losses of the company.
It costs $315 to register and closure requires the submission of formal documentation.
Profits are taxed at corporate rates. Companies enjoy a tax waiver for the first $100,000 of chargeable income for its first three years of existence.
Limited Liability Partnership (LLP)
It offers the limited liability features of a company with the operational flexibility of a partnership.
An LLP is a legal entity which can sue or be sued in its own name.
Partners are not personally liable for business debts. However, they can be personally liable for losses resulting from their own wrongful act or omission.
It costs $165 to register and exists as long as an annual declaration is made, stating whether the business is able to pay its debts during the course of business.
Profits are taxed at owners' personal income tax rates.