Shareholder's salary

[Pearce]

Hello all, I would like to find out about shareholder's salary.

At which stage and how should shareholder's declare the salary when registering a Pte Ltd?

Let's say there are 3 shareholders, do they need to agree with each other that each of them will get, let's say 15% from the earning while the rest goes to "company fund (what is it called btw)"

Scenario - Revenue $10,000 per month.

Shareholder A - 15% of $10k
Shareholder B - 15% of $10k
Shareholder C - 15% of $10k

Rest of 55% goes to "company fund" (is there any term to call this) where it can use to buy commercial vehicle in the future, use it for marketing expenses, IT expenses etc.

Is this correct way of setting up?

 

[chienwei]

is this a PTE LIMITED or a partnership?

 

[yoongf]

Shareholder and salaried employee are 2 seperate roles. Do not mix these 2 together.

The same person can be shareholder as well as a salaried employee.

Shareholder receive dividends from declared profit. No profit = no dividends.
Employee get salary. Can be any amount.

U say 15%. U need a shareholders agreement in place first. If not, today 15%, tomorow 0%.

Best to have a single decision maker.

 

[Value.Matrix]

Shareholder and salaried employee are 2 seperate roles. Do not mix these 2 together.

The same person can be shareholder as well as a salaried employee.

Shareholder receive dividends from declared profit. No profit = no dividends.
Employee get salary. Can be any amount.

U say 15%. U need a shareholders agreement in place first. If not, today 15%, tomorow 0%.

Best to have a single decision maker.

Shareholders = dividends

For directors, they can be
(A) salary paid with cpf or
(B) Director fees. (I have to check but this is more like self employed rules).

Have to be clear and agree with the above quoted comments.

 

[Pearce]

is this a PTE LIMITED or a partnership?

Me and my partners decided to register Pte Ltd

 

[Pearce]

Shareholder and salaried employee are 2 seperate roles. Do not mix these 2 together.

The same person can be shareholder as well as a salaried employee.

Shareholder receive dividends from declared profit. No profit = no dividends.
Employee get salary. Can be any amount.

U say 15%. U need a shareholders agreement in place first. If not, today 15%, tomorow 0%.

Best to have a single decision maker.

Shareholders = dividends

For directors, they can be
(A) salary paid with cpf or
(B) Director fees. (I have to check but this is more like self employed rules).

Have to be clear and agree with the above quoted comments.

Thanks for sharing! Didn't know it is called Dividend.

3 of us would like setup Pte Ltd and thinking how are we going to get paid from our earnings.

For salary, can you all advise how are we able to decide from the earnings, if the 3 of us agreed the below plan?

Director A - 15% of the earning
Director B - 15% of the earning
Director C - 15% of the earning

 

[polyglob]

"Goes to company fund" is called retained earnings.

Salary should be pegged to the type of work. Start with market rate - how much salary will you pay if you hire someone as an employee to do that work?

Also, since you agree on equal split of paid out earnings, means you all put up same amount of capital?

Thanks for sharing! Didn't know it is called Dividend.

3 of us would like setup Pte Ltd and thinking how are we going to get paid from our earnings.

For salary, can you all advise how are we able to decide from the earnings, if the 3 of us agreed the below plan?

Director A - 15% of the earning
Director B - 15% of the earning
Director C - 15% of the earning

 

[CrashWire]

OP, I would suggest you read this in full, and every other article in the sidebar on the right: https://singaporelegaladvice.com/law-articles/dividend-payments-guide-singapore

If you still don't understand something after reading, you can follow-up by asking questions here.

 

[yoongf]

TS, if this is your level of understanding of business setups, i think is premature to get involved.

If business bad, frens sure blame each other, business good, sure green eye. It is never smooth sailing.
Just remember, u can sack director or employee, but can never sack a shareholder. Everyone sure wants to be a chq signatory to jam each other.
As per yr question, % share of revenue can never directly link to salary distribution. High chance run into cashflow problems becos payments may be delayed but salary n CPF is clockwork GIRO. After setting aside funds for working capital, still need to safeguard funds for corporate tax.

Better if everyone get a comm or fee rather than go straight into a Pte Ltd arrangement.

 

[dork32]

Shareholders = dividends

For directors, they can be
(A) salary paid with cpf or
(B) Director fees. (I have to check but this is more like self employed rules).

Have to be clear and agree with the above quoted comments.

from my knowledge of accounting, salary and dividends got difference.

eg revenue 10k, tax rate 17%
if salary = 5k, then profit = 5k, tax = 850. (Salary is an expense, a p&l item)
if dividend = 5k, then profit = 10k, tax = 1700 (dividend is balance sheet item)

but dividend will not kena income tax. salary will kena income tax.

judging by the way ts post, i really doubt he knows what i tokking

 

[Value.Matrix]

from my knowledge of accounting, salary and dividends got difference.

eg revenue 10k, tax rate 17%
if salary = 5k, then profit = 5k, tax = 850. (Salary is an expense, a p&l item)
if dividend = 5k, then profit = 10k, tax = 1700 (dividend is balance sheet item)

but dividend will not kena income tax. salary will kena income tax.

judging by the way ts post, i really doubt he knows what i tokking

Yar lah... we doing a bit of knowledge sharing but honestly speaking, these are the basics for company le.

And usually people do not take dividends in the first 3 years, coz capital is important. Unless profit is very high, then would rather be paid director fee to reduce corporate tax etc unless, that particular person's income tax is super high, then dividends for that person make more sense.

 

[dork32]

For salary, can you all advise how are we able to decide from the earnings, if the 3 of us agreed the below plan?

Director A - 15% of the earning
Director B - 15% of the earning
Director C - 15% of the earning

salary tends to be fixed. if it is a percentage of an earning, usually it is called commission.

Director A: I put in the largest amount of money, i should get the biggest share
Director B: I run the company daily, i should get the biggest share.
Director C: I am the one the bring in the sales. i should get the biggest share.
Dork: all 3 directors are lost child.

to me the way to run the company is this

Director B runs the company. he is to be paid 500/mth = 6000/year
Director C brings in sales, he is to be paid commission eg 10% of sales = 1000
revenue = 10k, so profit = 3k,
dividends declared= 2k and 1k is retained profits.
If A share is 50%, B 25% and C 25%, A gets 1k dividend, B get 500 dividend and C get 500 dividend.

total
A gets 1000
B gets 6500
C gets 1500
retain profits get 1000

i think this sounds too complicated for TS. If it is just a hawker stall, then ching chai lah. no need complex accounting

 

[Dividends]

What TS should be look at is distribution of earnings as either:

1. Directors' salaries (Pre-tax earnings with CPF contribution, note that only directors involved in running the business are allowed to draw salary from it)

2. Directors' fees (Pre-tax earnings, no CPF contribution, taxable on the individual level)

3. Dividends (Post-tax earnings, no CPF contribution, non-taxable on the individual level)


As such, if you go with the first option, you should account for the employer's contribution CPF as well in your calculations.

 

[CrashWire]

1. Directors' salaries (Pre-tax earnings with CPF contribution, note that only directors involved in running the business are allowed to draw salary from it)

Where is the restriction from? Companies can hire directors (or normal employees) that do nothing, and still pay them a salary.

 

[Dividends]

Where is the restriction from? Companies can hire directors (or normal employees) that do nothing, and still pay them a salary.

I'm not sure if they'd be breaking the law under the company act, but this sort of thing is hard to prove, so SMEs do it all the time. Plus, the only benefit out of it is the additional personal tax deduction from the director's CPF contribution, and I guess not needing to issue a company resolution like in the case of directors' fees (can be extra costs if your Corp Secretary charges you for it).

https://www.cpf.gov.sg/employers/FAQ/employer-guides/hiring-employees/cpf-contributions-for-your-employees/FAQDetails?category=Hiring+Employees&group=CPF+Contributions+for+your+Employees&ajfaqid=2198658&folderid=11027

 

[yoongf]

The auditors going through the books will say that allowable expenses are only "expenses incurred in the pursuit of profit."

Expenses ultimately reduce taxes being paid.. so one day.. it might be an IRAS issue.

Where is the restriction from? Companies can hire directors (or normal employees) that do nothing, and still pay them a salary.

 

[Demon_Hunter]

Paging Bro Demon EDMW resident accountant

I am here...

 

[Demon_Hunter]

As someone pointed out earlier, it is best that the shareholding should be distributed equally among the shareholders. When there is profit, it can be issued out as dividends.

As for salary, it should be seperate from the shareholding. It is up to the 3 of you to decide how much is the salary.

 

[yoongf]

Dividends are only declared after profit is booked. Meaning after FY closing, still hv 6mths to prepare the accounts.
Profit means there are taxes to be paid.
Quite hard to estimate profit for a new startup.
So monthly issue out "loan to shareholder" until books settle then adjust loans as dividend?

If shareholder is also director, IRAS will require the loans to be booked as "loans to director' instead of "loan to shareholder". Loans to director must be charged interest. Recurring Dividend way is a really messy method

 

[CrashWire]

The auditors going through the books will say that allowable expenses are only "expenses incurred in the pursuit of profit."

Expenses ultimately reduce taxes being paid.. so one day.. it might be an IRAS issue.

If the company writes it off as an expense, the person they're paying gets taxed instead — either as self-employed (director fees) or salary.

Tax avoidance happens all the time. Why would it be an IRAS issue?