1. Protect Your Personal Assets
A business entity is legally a separate entity distinct from you. Operations pertaining to the business stay within the business. This means that you are not personally liable for any debts and obligations.
In Singapore, a creditor may apply to the court to hold a controlling company director or shareholder liable for debts incurred by the company. This is known as “piercing the corporate veil”. In practice, however, this is difficult to achieve and usually requires convincing the court that company funds or assets had been used in a personal capacity (e.g. without passing through a board resolution), or that the company’s legal status and the limited liability protection it offers directors and shareholders had been abused at the expense of the creditor. This includes carrying out sham transactions to empty company funds, leaving none for the creditor to claim.
2. Add Credibility and Name Protection for Your Business
Incorporating a company gives your business operations an additional layer of professionalism, given the processes you will need to register and upkeep it. Also, corporate partners and clients are more inclined to conduct business with an incorporated company – in line with the mantra to “separate work from personal matters”.
Once your company has been incorporated, it is usually the case that your company’s name will retain its uniqueness since no other business can incorporate any entity with the same name. This adds a boon to your branding and marketing efforts.
3. Ensure Business Stability Through Perpetuity
As a completely separate entity from its owners, your incorporated company persists even after changes in directorship (e.g. resignations, deaths), ensuring business continuity which, in turn, attracts partners and talents with its more stable nature. Conversely, sole proprietorships and partnerships usually end with such changes.
4. Pay Less Tax
One of the most obvious and popular reasons to incorporate a business is for its tax savings and planning benefits. While net taxable income is taxed at personal tax rates of the business owner/partner of a sole proprietorship/partnership (in Singapore, this can go as high as 22%), incorporated companies are taxed at corporate tax rates (the maximum being 17% in Singapore). In offshore tax havens such as the Cayman Islands and the British Virgin Islands, there is no corporate tax levied at all!
Also incorporated companies have the added benefit of deducting usual business expenses (e.g. rental and salaries) before allocating income to directors, thus reducing tax burdens further.
5. Raise Investment Capital Easier
All investors aim to minimise unnecessary risk on their investments. For institutional investors such as banks and venture capitals, this is especially the case given the large sums of capital involved. With liability limited to only the amount of invested capital, incorporated companies are more attractive to investors.
On a related note, quantifying investors’ share of invested capital is possible for incorporate companies via transferring shares of stocks in these companies. Apart from being well-defined, since the proportion of shares held by investors represent the rights and privileges they possess, interest in incorporated companies can be easily transferrable, sold, or given away should investors wish to exit their investment. This has the added effect of giving incorporated companies a more credit-worthy appearance.
Jenga BCG provides the full suite of corporate secretarial and accounting services to meet your business needs be it a stand-alone business or subsidiary. Since 2017, Jenga BCG has already successfully empowered over 1000 businesses worldwide with our team of professionals armed with deep industry knowledge and connections via our regional partners.