All you need to know about Subsidiary Company Singapore

This article will provide all information on registering a subsidiary company in Singapore. By reading this article, all your questions related to incorporating a subsidiary company in Singapore would be answered.

What is a Subsidiary Company?

The Singapore Companies Act (Chapter 50) provides a meaning of the term ‘subsidiary company. Under section 5 of the Singapore Companies Act, a subsidiary company can be understood as an entity that is under the direct control of another company. Any shares which are held by the parent company in a fiduciary capacity would not be exercisable.

Hence from the above definition, a parent company would not have any rights with respect to sharing control. A subsidiary company in Singapore is one of the best incorporation options available for a foreign company. Foreign companies utilize this type of entity to secure tax benefits and limit their liability.

Types of Subsidiary Company Singapore 

Subsidiary Company Singapore can be incorporated either as a domestic entity in Singapore or it can also be incorporated by a foreign company. However, when it is incorporated as a foreign company, a resident director has to be appointed. The foreign company has to use the services of a registered filing agent for incorporating a subsidiary company in Singapore.

Differences between branch office, subsidiary company, sister company, and holding company?

It is essential to understand the above key terms for ease of reference. 

• Branch Office- A foreign company that incorporates an entity in Singapore and has complete control over the operations of the entity is known as a branch office. The liability of the branch office is under the foreign parent company.

• Subsidiary Company Singapore- A Company that is incorporated in Singapore which has independent existence and status from the foreign parent company is known as a subsidiary company. The liability of the shareholders and directors of the subsidiary company is limited. This entity has independent status from the parent company.

• Sister Company- When a parent company has control over different subsidiaries then such subsidiaries are known as sister companies. The liabilities of sister companies would be separate and independent from the parent company.

• Holding Company- An entity that has main operations controlling different subsidiary companies is known as a holding company. The main operation of a holding company is to control different subsidiary companies.

Subsidiary Company Singapore: Why do foreign companies incorporate this entity?

Singapore’s thriving business environment attracts foreign companies. Companies that incorporate here see this country as the main hub in Asia for doing business. Foreign companies are incorporated in Singapore as subsidiary companies due to the following reasons:

• Preferred Form of Entity- Going by the business structures adopted in Singapore, the above is the preferred form of entity. Independence in control and operations is one of the main reasons why foreign companies go for incorporating a subsidiary company.
  
  
• Tax Exemptions- There are a lot of tax exemptions allowed for a Singapore subsidiary company.

• Repatriation Allowed- Singapore has always welcomed investment opportunities. Foreign direct investment rules are lenient in the country and repatriation of profits to the home country is allowed. 

• Foreign Ownership- There are no foreign ownership restrictions in Singapore. A foreigner can own a 100% stake in a subsidiary company in Singapore.

Requirements for Registering a Subsidiary Company Singapore

The following requirements have to be fulfilled for registering a Subsidiary Company:

1.Reserve the Name- First and foremost, the foreign applicant has to choose the name of the company. The below process has to be followed for reserving the name of the company:

• A search must be carried out to find the official name of the company. The name of the company must not breach the provisions of intellectual property laws in Singapore. 
  
  
• Once the name of the company is chosen, then an application must be made to the Accounting and Corporate Regulatory Authority (ACRA) for reserving the name.
  
  
• After receiving the application, the ACRA will review the application.
  
  
• If there are no issues with the name, then the name will be reserved for a period of 120 days. The registration of the company requires to take place before the expiry of the above period.

2. Shareholders- You require local shareholders for registering a subsidiary company in Singapore. At least one shareholder must be a resident of Singapore. Such requirement is also present under the provisions of the Singapore Companies Act (Cap 50). The following rules have to be considered when appointing a shareholder:

• A director of a company and a shareholder cannot be the same individual.

• At least one shareholder who is an individual must be appointed for running the subsidiary company.

• A company has to have a minimum of one shareholder. A company can have up to 50 shareholders.
  
  
• All the details and information of the shareholders would be available for public inspection.

3. Resident Director- As per the Singapore Companies Act, you also have to appoint a resident director in Singapore. A resident director must be a local resident of Singapore. Make sure you comply with the other rules related to the appointment of directors for the subsidiary company Singapore. The other rules are:

• The director must be a major (more than 18 years of age).

• The individual must not be adjudged as bankrupt or insolvent.

• The individual must be free from criminal convictions.

4. Company Secretary- For a subsidiary company in Singapore you must appoint a company secretary within six months of incorporation. The requirement for appointing a company secretary is specified under the Singapore Companies Act.

5. Registered Address- You must comply with the requirements of having a registered place of business. All the records and important documents have to be in the registered place of business.

6. Corporate Governance- If your subsidiary company has more than one shareholder, then there has to be an appropriate governance structure. All the interests of the shareholders have to be specified in terms of formal contracts or shareholders agreements.

7. MOA and AOA- The Memorandum of Association (MOA) and Articles of Association (AOA) are important corporate documents that have to be filed with the ACRA.

8. Auditor and Audited Accounts- As per the Singapore Companies Act, an auditor must be appointed within three months of incorporating the company. A subsidiary company in Singapore must ensure to file audited accounts. However, filing audited accounts is not required if it comes under the definition of a ‘small group’. If the parent company along with the subsidiary company fall under any two of the three conditions below, then they would be categorized as a small group.

The following are the conditions of a small group:

• The aggregate turnover of the group is more than SG $ 10 Million;
• The aggregate turnover of the balance sheet must not be more than SG $ 10 million at the end of the financial year; or
• The group must not have more than 50 employees.

Therefore if any two of the above conditions are satisfied then subsidiary company Singapore would be termed as a ‘small group’. For the above purposes, the consolidated basis of accounts is considered for the parent and subsidiary company.

Insolvency Proceedings- Subsidiary Company Singapore

Usually, if there is an insolvency or bankruptcy proceeding against the group, all the companies would be affected. However, this is not the case for a subsidiary company. 

As mentioned earlier, a subsidiary company enjoys independence in terms of ownership and liability. If the subsidiary company becomes insolvent, then the status of the holding or parent company would not be affected. 

What happens if the parent company becomes insolvent and the subsidiary company position is good? 

To answer this, we have to look into the type of insolvencies. There are two types of insolvencies:

• Cash Sheet Insolvency- This insolvency is when the parent company is not able to meet all the obligations of the subsidiary company.

• Balance Sheet Insolvency- This insolvency is when the liabilities are more than the assets.

Usually, when companies are insolvent, they carry out liquidation proceedings and the court makes the payment in the preferential ranking. When the parent company becomes insolvent, then the parent company can sell the subsidiary company’s stock. This would only be viable when the subsidiary company stock is listed as an asset in the balance sheet.

Conclusion

Singapore is one of the prominent locations for starting a foreign subsidiary. Foreign companies opt for this location due to the strategic avenues offered by the government. There are many benefits of forming a subsidiary company in Singapore.

Now that your questions are answered, why not contact ScaleX for forming a subsidiary company? At ScaleX, we ensure that your subsidiary company is compliant with the laws of the land.

If you are interested in obtaining more information regarding subsidiary company Singapore, you can contact us and set up a free consultation.