What is a Subsidiary Company in Singapore


Subsidiary Company in Singapore - Types, Advantages, and Disadvantages

A subsidiary company is a corporation controlled by another corporation through a parent-child relationship. It is said that a corporation is only a subsidiary if the parent has a majority stake in owning more than 50% of the issued share capital. Only one subsidiary can have subsidiaries. The subsidiaries are considered separate legal entities for fiscal and regulatory purposes.

Types of subsidiaries

Three types of subsidiaries can be formed, namely:

1. Public Limited Liability

  • Minimum capital: must be paid by the founders (minimum two members)
  • Actions: can issue registered or bearer shares.
  • Management: must have at least three counselors. An administrator must be a permanent resident of the country.

2. Private Limited Liability

  • Minimum capital: Must be paid by the founders.
  • Actions: The shares must be nominative. Bearer shares cannot be subscribed.
  • Management: managed by one or more managers.

3. Co-operative Company with limited liability

  • Minimum capital: Three partners are needed. A quarter of the capital contribution must be paid.
  • Actions: The shares are registered.
  • Management: A cooperative society with limited liability managed by one or more managers.

Parent Company - List of Affiliates

It is important that the subsidiary is recognized as an independent company managed by the board of directors, even if it was incorporated by the parent company. This does not mean that the subsidiary is not controlled. The parent company has the legal right to hold the subsidiary liable for the achievement of the financial objectives.

For the parent company to control the independent subsidiary, it is necessary that:

  • The only shareholder.
  • Include the provisions on voting control in the subsidiary article.
  • Prepare the laws that define the authority of the officers, their mandate and retirement.
  • Prohibit the modification of articles without the approval of the shareholders.

Legal Risks

As long as the parent company holds it's subsidiary responsible for the expectations of its board of directors, there is little risk that the parent company is liable for the incorrect facts of the subsidiary. However, if the parent company exercises excessive control, for example, if it has the same board of directors, the use of a common letterhead, in which case, the parent company, and the subsidiary are treated as one. and even the personal debts of the subsidiaries, etc.

Advantages and Disadvantages of the Subsidiary Company

Here are the benefits of registering a subsidiary in Singapore:

Foreign Companies Have Limited Liability

Foreign companies are not legally responsible for losses, liabilities, and debts incurred by their subsidiary in Singapore, which is treated as a separate legal entity.

More Business Freedom

A subsidiary can conduct business, even if it is not done at its headquarters. With this greater commercial freedom, this structure can maximize its income-generating activities.

Various Tax Benefits and Exemptions

To the extent that a subsidiary is incorporated in Singapore, it has the status of local resident and can claim local tax benefits and exemptions from its first assignable income of SGD 100,000, provided that the following conditions are met:

  • Its management and control are exercised in Singapore.
  • You must have at least one shareholder who owns at least 10% of the issued shares of a corporation or no more than 20, and they all have their shares in their name.
  • It is allowed to be 100% owned by foreign companies or contractors.
  • This commercial structure allows 100% foreign participation and still benefits from tax and benefits exemptions granted to local companies.

(Note: the maximum number of shareholders for a subsidiary is 50. Meanwhile, there are no requirements on the ownership percentage between foreign and local shareholders).

Better Management Structure

As a subsidiary has a legal obligation to manage and control its administration in Singapore, the Board of Directors will have greater control and decision-making powers that can have a significant impact on the success of your business.

In the meantime, it is important to note that it is mandatory to appoint at least one local resident director, Singaporean citizen or holder of the state of permanent residence, work permit or EntrePass.

Disadvantages of Subsidiary Company.

  • The legal formalities related to the creation of a subsidiary can take a long time, and can be quite expensive.
  • The control also becomes a problem when a subsidiary is partially owned by another external organization.
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