Starting up a new business is a challenge and it will always require you to put some money into your company from some of your personal savings.
You will also need to put in some amount of your own personal cash into the new business, even when you are well able to get some cash from your friends, family and from other investors.
When joining and starting a new business venture, the capital contribution is, in general, a very necessary and important step. Potential creditors in Singapore will always want to be certain that you have some of your personal security mostly in the form of some personal cash injected as a stake in the new business. The money used as capital whether it’s a loan or a bonus from your company or as an investment has tax implications and impact in each of these circumstances.
Structuring Financing Options For Your Company
In Singapore when you need to lend-out some money to your own business or company, you will be required to have a lawyer draw up some paperwork for you defining the status of the outstanding loans you may have, the repayment plan agreed upon together with the consequences of non-repayments of the existing loan. It is supposed to be clearly stated that the existing loan is a commitment and that it is binding on the part of your business venture.
For the purposes of taxation in Singapore, a loan from your company or business and a loan from you is an “arm’s length” business deal, which will already be treated as another debt. The interest incurred on the debt accrued is equally taxable to you as an individual and can and should be deducted from the company individually as your income.
The principal loan amount applied for cannot be deducted to the business apart from when it makes use of the funds available to acquire more capital assets. In Singapore, the capital assets meet the basic requirements for getting depreciation deductions. The return of the principal amount of the loan applied for cannot be taxed because the loan amount was issued after tax has been applied to the amount of money taken.
Investing In Your Business
In Singapore, putting some money in your business is the other option to investing the money. Therefore, there no taxation to you should you receive your contributions. When you withdraw additional money in the form of dividends, bonuses or draw, the amounts are subject to taxation. In Singapore, there are no tax implications to the company on the investment made, except when is for the purchase of depreciable assets.
10 Factors You Should Consider When Making A Contribution To Your Business Or Company.
- Ensure you consider the labels on the paperwork you use. In Singapore, the document stated needs to show whether it is financing document or investment documentation.
- Ensure you consider the source of the loan payment. You should define whether the loan payment put on a loan is realized as a kind of dividend or as a payment.
- You should also consider the right of the identified lender in applying for a payment from the business or company. This needs to be written in the loan documentation. In Singapore, such language and information will not often show up in a share of stocks document.
- Take into account the lender’s right to get involved in the business management process. In Singapore stockholders usually tend not to take part as a prerequisite for acquiring shares in the management of a business or a company.
- You will also need to consider the maturity date of the loan applied for. The clear and precise indication of a given maturity date implies an existing loan.
- Ensure you carefully consider the lender’s right to amass assets alongside the usual business lenders. This information and language are concerning the collection and bankruptcy policies of the company and it will need to be made available in the company files.
- It is good to be clear on the involved parties’ intent. The existence of documentation needs to clearly state and show such intent and it will be helpful with this particular component of a business venture.
- The satisfactoriness of a borrower’s and of the company’s source of capital. Simply put, the principal sum applied for as a loan needed ought to be equally reasonable.
- Ensure you take into consideration whether the stockholder’s loan amount to the business venture is a proportion to the equitable ownership in the company they are involved in.
- It is also important to take into account the borrowers and the businesses’ ability to get and receive loans approved from other lenders.
Despite the consequences of a loan to a business or an individual, it is necessary for you to allocate and indicate whether your contributions are as a capital investment or a loan and attach the required paperwork to support such a claim. This will help in clarifying the tax impacts and implications of the business transactions made and also prevent any potential problems with the Singaporean revenue authority.
Where You Can Get A Business Loan
There are plenty of places you can get a business loan for your company, depending on the loan amount as well as your company’s financial situations. For a large loan amount with longer repayment period, banks come naturally to mind while for a quick cash flow fixer, you can approach moneylenders as they are less stringent when it comes to approval process and time taken to approve your loan.
The Comparison Between The Threats Involved
Each of the selections has a risk implication attached to it. When the company or business is declared bankrupt and should you also have lent the said business some money, you then automatically become a lender. This means that you might or might not be able to get your loan money back from its liquidation depending on whether the loan given was unsecured or secured.
In case the company declares bankruptcy, the flip side would be the business owner’s investments are totally at risk. In this threat scenario, there is little or no possibility of recovering the funds you have personally invested in the business venture.