Are a fund manager or asset manager looking for a guide on Singapore corporate structures like LLP and VCC, or fund management structures like the VCFM and RFMC? Read this comprehensive guide to learn how to identify them and how to start your licence application.
Singapore has established itself as one of the most business-friendly countries globally due to its political stability, tax incentives, and proximity to numerous other nations. Therefore, more and more companies are looking to open their offices in Singapore to expand their footprint in the Asian region. There are several options for setting up one’s company in Singapore, namely a sole proprietorship, a limited liability company (LLC), a limited liability partnership (LLP), and Variable Corporate Company (VCC).
Each of the four company types mentioned above has its benefits and drawbacks. We break it down to help you decide which kind of company best suits your needs.
Four Company Types in Singapore
1. Sole Proprietorship
This type of business is when you have complete control of owning and operating a business by yourself. It is not an incorporated legal entity, meaning that your personal finance is entangled in the company itself. If someone sues your business, they will threaten your personal bank accounts, statements, and wealth. You are personally responsible for everything that happens in the business.
When you opt for a sole proprietorship, you must come up with funds for expansion and growth purposes yourself. Moreover, you will be taxed via your personal income tax, and the business will lack a line of succession if something bad happens to you, as you are the sole owner of the company. That being said, a sole proprietorship is the easiest to register for; you only need to pay a $65 annual fee after filing the paperwork once at the beginning.
2. Limited liability company (LLC)
Unlike a sole proprietorship, where you run the business yourself and shoulder all the legal troubles that may come, a limited liability company or LLC is a separate legal entity from its owners. This means that if the company is sued, your personal wealth will not be liable; only the amount of investment to the company. Essentially, your personal wealth is protected, and only your investments are exposed for scrutiny.
By setting up a limited liability company, you have appointed professional management to run the day-to-day business operations, which are not its shareholders or investors. As an LLC, the business will adhere to the corporate tax law when it comes to its income instead of the personal income tax of its shareholders. The incorporation process is more complex than a sole proprietorship, as we have explained previously.
3. Limited liability partnership (LLP)
Similar to an LLC, a limited liability partnership is a separate legal entity from its owners. The same liabilities that apply to an LLC are also applicable to an LLP; partners only lose and are liable for what they have invested into the business. They are not responsible for the negligence of the other partners, unless the negligence is caused by him or herself.
However, unlike an LLC, having the partners own and run the business is common; they do not have a separate management team. That is why they can personally be liable. When it comes to taxes, their earnings from the business will be taxable under their personal income tax.
Registering for an LLP is relatively simpler than an LLC. You need to pay a $165 registration fee and a legal partnership agreement. You will also need to submit an annual declaration of solvency or insolvency to authorities in terms of compliance.
4. Variable Capital Companies (VCC)
The Monetary Authority of Singapore (MAS) launched another corporate structure that aims to make the investment process more flexible for investors and help save money for investors and fund managers in January 2020. Unlike a company that’s used to carry out a business, a VCC’s sole purpose is to create one or more collective investment schemes (CIS) in the form of a corporation. The investment can include either open-end or closed-end funds. However, remember that this scheme is only valid until 15 January 2023.
During its first year alone, there were approximately 200 entities registered under this new structure, signifying a level of keenness in adoption among fund managers. Such enthusiasm is not without reason. The launch of the Variable Capital Companies Grant Scheme means the government will pay up to 70% of eligible expenses for the first three years of fund companies operating in Singapore. The grant is capped at S$150,000 for each application, with a maximum of three VCCs per fund manager.
Aside from the grant mentioned above, there are numerous tax incentives offered that a VCC can enjoy. These include the tax incentives under Section 13R (Singapore Resident Fund) and Section 13X (Enhanced Tier Fund). Essentially, there will be no taxable income from the gains or income derived from VCC investments, giving maximum income to both the investor and the fund manager. Additionally, VCC offers flexibility in issuing and redeeming shares without seeking shareholders’ approval, allowing investors to exit anytime they wish.
Licensing and Registration
Regardless of the business type that you incorporate, you are still required to register and obtain a licence to conduct regulated fund management activities in Singapore. Your business must either be registered with the Monetary Authority of Singapore (MAS) or hold a Capital Markets Services (CMS) licence to operate here. There are four types of fund management structure to choose from, which are the following:
- Registered Fund Management Company (RFMC): A company that may have up to 30 accredited and institutional investors with a total of S$250 million in assets under management (AUM).
- Retail Licensed Fund Management Companies (LFMC) – As the name suggests, this type of company conducts fund management with all kinds of investors, including retail or individual investors.
- Accredited/Institutional LFMC (A/I LFMC) – This type of company only manages funds for accredited and institutional investors.
- Venture Capital Fund Manager (VCFM) – Refers to management companies that only manage venture capital funds, meaning that it’s primarily invested in startups. This type of company is also only for accredited and institutional investors.
The capital needed to establish the fund management depends on the type. RFMC and A/I LFMC require S$250,000, whereas VCFM and RFMC need S$0 and S$500,000, respectively. When it comes to requirements in appointing a director, each type has a different requirement as follows:
- RFMC and A/I LFMC: At least two directors possessing a minimum of five years of relevant experience. One should at least be an executive and full-time resident in Singapore.
- Retail LFMC: At least three directors possessing more than five years of relevant experience. One should at least have ten years of experience and be a full-time resident in Singapore.
- VCFM: Fund managers are not required to have more than five years of experience in fund management.
Once you have chosen the type of business and fund management you want to engage in, and the right people to manage the business, MAS will assess your application based on the following:
- Fitness and propriety of the applicant, its shareholders and directors.
- Track record and fund management expertise of the applicant and its parent company or major shareholders.
- Ability to meet the minimum financial requirements prescribed under the SFA.
- Strength of internal risk management and compliance systems.
- Business model / plans and projections and the associated risks
After getting approved and licensed, fund management firms must comply with local laws, such as anti-money laundering, and counter the financing of terrorism (AML/CFT) framework and policies. Other policies include implementing a know your customer (KYC) procedure when registering a potential customer. These policies are put in place to align with the existing regulations, including identifying, addressing, and monitoring the risks associated with the business activities while also ensuring that its business activities are subject to adequate internal audits.
These rigorous compliance frameworks must be met to keep one’s licence as a fund management service provider. This should be expected if Singapore wants to keep its spot as a dependable financial hub where individuals can grow their wealth with ease and security. MAS continuously monitors the evolving financial needs of its citizens and residents. Therefore, it can be said that regulations and compliance is not a static thing; it’s continuously changing to keep up with the times and meet people’s needs.
Keeping up with the changing laws and regulations on your own can be a time-consuming and complicated process that may lead to inefficient business processes. Additionally, you may not have the expertise and understanding of the law, a crucial component to keep your fund in business. Therefore, partnering with a third party with expertise in consulting regarding Singaporean laws and compliance may come in handy.
“These rigorous compliance frameworks must be met to keep one’s licence as a fund management service provider. This should be expected if Singapore wants to keep its spot as a dependable financial hub where individuals can grow their wealth with ease and security. MAS continuously monitors the evolving financial needs of its citizens and residents.”
Work with Lanturn
Lanturn has experts with years of experience ready to help you by providing a comprehensive fund formation and administration services, ranging from assisting you in applying for a licence to providing you with a regulatory framework, such as the policies above. Our team will guide you every step of the way and submit the necessary documents to the relevant authorities, giving you peace of mind as your compliance needs are taken care of!
Want to let us do the heavy lifting starting today? Don’t hesitate to contact us now!