What I’ve learnt from incorporating an overseas startup

Basics of incorporating abroad

Source: WSW1985 on Shutterstock

Creating a holding company

The first step is to incorporate a private limited company in the foreign country you intend to setup your holding company. The regulations may vary, but in Singapore, you must have a registered name, one local authorized representative (called a nominee director, we’ll get into more details in a bit) and a local registered address . A nominee director is voted by the board of directors of the company to represent one or more companies. In a holding company, a nominee director has to be a local citizen or resident. They may or may not own shares in the business. There should be a provision in the company’s business activity where you have the director’s have to mention that it is a ‘holding company’.

Creating a subsidiary

Once a holding company has been formed, the next step is to incorporate a local subsidiary in your country of operations. In my case, we incorporated Loop in Bangladesh as a private limited company before we incorporated our holding company in Singapore. Here’s the important point to note: You may or may not have the same shareholders as in the holding company, due to local shareholders owning shares in your company. But it is important to make sure that your holding company owns the ‘majority’ of the share in the subsidiary in order to activate the holding/subsidiary relationship (IFRS 10: Consolidated Financial Statements). This means the holding company must own more than 50% of shares in the subsidiary. But typically, in order to be safe for future investment rounds, it is a good practice to make sure the holding company owns at least 90% of the local subsidiary company so that you have more new equity to sell to investors when the need for fundraising arises. The last thing you will want is to be in a situation where you will run out of new shares to when raising a new round. There is also the 99+1 practice that foreign holding companies utilize, meaning that the holding company owns 99% shares of the local subsidiary, keeping the 1% to make sure that the local shareholders have enough local shares in order for the company not to get liquidated. Which brings us to our most important part of the incorporating overseas: share transfer.

Transferring local shares abroad

Source: 1st formations

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Wasim Uz Zaman

Wasim Uz Zaman

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Web 3.0 enthusiast. 2x Freight-Tech Founder. Investor in beauty-tech. Trader for the last 10 years. Bangladeshi for the last 32.