Flipping your startup to Singapore 101

Mar 29

Flipping your startup to Singapore 101

Startup founders from South and South East Asia are often asked by their incoming investors to establish a HoldCo in Singapore. Futurebooks as experienced Company Secretaries have assisted numerous startups accomplish this by rolling up their IP, existing OpCo, investors and ESOPs into a newly established Singapore parent. Let’s dive into the nitty gritty.

 

Step 1: Incorporate a private limited company in Singapore

Incorporating a company is relatively swift, and does not require the founders to travel to Singapore. Futurebooks processes all documentation and signatures electronically.

You will be required to choose an activity from the Singapore Standard Industrial Classification (SSIC), the activity of your HoldCo is best kept the same as the activity of your OpCo. As an example, the most appropriate choice of SSIC activity for a technology startup might be 72105/62090 (IT) or 62011 (e-Commerce).

A question often asked by founders is whether they should issue a pool of shares in advance towards ESOPs, for later allotment. This is not required as the shares earmarked for ESOPs, can be agreed upon in the captable and be issued out later as they vest.

 

Step 2: Open a company bank account

Opening a bank account requires one of the founder-directors to travel to Singapore for a day to meet the bank’s KYC requirements. Futurebooks works with all of the leading banks in Singapore and the account opening meeting is arranged in the comfort of our office (UOB & OCBC) or at DBS’ branch, with our Company Secretarial personnel present with you to handle all documentation. Bank accounts come enabled with internet banking, MasterCard/Visa and multi currency options as required.

 

Step 3: Bring the existing OpCo under the HoldCo

The optimum way to accomplish this is via a Share Swap.

Holders of ordinary & preference shares, ESOPs  and convertible notes in the OpCo swap their shares/rights in return for identical shares/rights in the HoldCo. The benefit of this approach is that it allows for the HoldCo to capitalize the OpCo’s value in its share capital. Such value can either be the Net Asset Value of the OpCo, or any valuation that is independently placed by a suitable valuation firm. A second benefit of this approach is that it generally nullifies the taxation matter of capital gains which may occur in the OpCo’s country, as the value of shares/rights being transferred and received are the same, leading to a nil gain. This is best verified with a tax advisor in your country of origin.

An alternate approach is the transfer the exiting OpCo for a token $1 value.

Step 4: Transfer Intellectual Property

Investors generally insist on IP being held by the HoldCo, which would necessitate a transfer agreement. Once that is done, an inter-company agreement for use of IP by OpCo would need to be set in place with due attention to Transfer Pricing.

 

Step 5: Apply for Employment or Entrepreneur Passes for the founders (Required at times)

Certain investors, generally those that are Singapore based, also require that the founders hold valid work passes in Singapore. These can either be an Entrepreneur Pass if the HoldCo plans on further hiring in Singapore, or an Employment Pass which has no such hiring requirements.

 

Step 6: Complete your funding round

Futurebooks as Company Secretary on-boards your new investors and issues them ordinary, preference shares or convertible notes as per your agreement. Share certificates, being documents of title, are processed physically with wet signatures as per the First Schedule, Part II of the Electronic Transactions Act.

At this stage the Company will usually enter into a share subscription agreement (SSA) with the incoming investors and a shareholders’ agreement (SHA) with the existing and incoming investors. There may be additions to your Board of Directors, amendments to the Constitution and pre-emption waiver required from existing shareholders.

 

Step 7: Setup a dedicated Singapore OpCo (If required)

For companies that plan to invoice customers or hire an ops team in Singapore, setting up a secondary dedicated SG OpCo is recommended to ring fence operational risks.

 

Further reading

Leading tech startup lawyer Lee Bagshaw of Simmonds Stewart, a law firm we work closely with, has compiled a helpful list of things to consider from a legal standpoint while flipping.

 

How Futurebooks can help?

Futurebooks can help from the company formation in Singapore, through the bank account opening, putting in place resolutions for the necessary title swaps, employment pass applications and ongoing compliances for your company. Our tax advisory team can also help you understand your planned flip’s tax impact from a Singapore standpoint. We have assisted startups from Malaysia, Indonesia, Bangladesh, India, Vietnam, New Zealand, Thailand,Pakistan and Philippines establish their HoldCo in Singapore.We work closely with your existing Company Secretary and Lawyer to ensure smooth sailing. Drop us a note below to get a conversation started.

 

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