Profit Distribution

One of the best practices of a company is the sharing of dividends or the distribution of a capital. It is great knowing that the profit can be enjoyed by all parties. Here is an example of a proper liquidation.

I have a client manages a limited company in Singapore. It has only one shareholder who acts as the director as well. The client would then like to inquire of its legitimacy and would want to recommend a practice that provides proper liquidation to the company.

Loans : As to its legitimacy, there is no known act which prohibits a director or a shareholder from liquidating in a form of loan for the company. A loan application is subject to the approval by the board. Directors and shareholders of a limited company are considered as “related-parties”, thus disclosure of any transaction with “related-parties” is required. This is not subject to tax because it has got no gain. There are some relevant supporting documents for proper documentation and accounting such as the board resolution, the loan agreement, and the bank remittance record.

By Increase Paid-up Capital : The most common ROI is the dividend. Prior to distributing the dividends, profits shall be presented to the shareholders first. Or the capital may be reduced and be distributed to the shareholders. Dividends distributed after January 1, 2008 are exempt from tax. However, if the shareholder is not a citizen, he may be subject to other personal income tax from his native land. If the company is eligible to reduce its capital through cash distribution, it is not subject to any applicable tax. The following are the documents needed to support this transaction: For the dividend declaration- Shareholder’s Consent and Board Resolution, For the Cash Disbursement- Shareholder’s Consent, Board Resolution, and Relevant Application Form and Notice.

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