The following is an overview of the various types of companies that are available in Singapore.
Limited Liability Company
Limited Liability Company (LLC) is a company incorporated by registering with Accounting and Corporate Regulatory Authority (ACRA) of Singapore under the Companies Act. It is a separate legal entity, meaning there is a legal veil separating the owners from the entity. The company can enter into contracts and own assets. It can sue and be sued in its own name. The liability of the company is limited to its share capital and each member’s liability is limited to the share capital subscribed by the member (shareholder). The shareholders can be an individual or a corporation. The personal assets of the shareholders are insulated from the liabilities of the company. LLC has the following types:
Private Limited Company
The most common and most preferred type of entity among entrepreneurs in Singapore is the Private Limited Company. The shares of a Private Limited Company are not made available to the general public, all of its shares are held privately. The number of shareholders in a Private Limited Company must not be more than 50. In Singapore, the names of this type of entities have the suffix ‘Private Limited’ or ‘Pte Ltd’.
Exempt Private Limited Company
An Exempt Private Limited Company (EPC) is a Private Limited Company that is exempted from statutory annual audit. In order to qualify as an EPC a Private Limited Company must meet the following conditions:
- It must not have more than 20 shareholders
- No corporation should have beneficial interest in its shares, meaning, it must not have any corporate shareholder
- The annual revenue must not be more than S$5 million
Instead of preparing and filing an audited statement annually to the ACRA the EPCs are merely required to submit a declaration signed by the directors and company secretary confirming the solvency of the company. EPCs must still keep records of the financial statements following Singapore’s Financial Reporting Standards (FRS) in case ACRA requests them.
An amendment made to the Companies Act has made more companies eligible for the exemption even if they do not qualify as an EPC. Such companies are categorised as ‘small’ companies. Effective 1 July 2015, a company, even if it does not qualify as a EPC, will be exempted from the annual audit requirement if it meets at least two of the following new criteria for the immediate past two consecutive financial years:
- Annual revenue is less than S$10 million
- Total assets not exceeding S$10 million
- Less than 50 employees
Parent Companies or subsidiaries that are small companies and are part of a small group will also qualify for audit exemption. A small group is one, which meets at least two of the three quantitative criteria above on a consolidated basis for the immediate past two consecutive financial years.
Merits of Private Limited Company
- This is the most popular entity type because besides limiting the liability of shareholders, it also provides greater control of ownership.
- The ownership is easily transferable, either as a whole or part, by simply transferring the shares. Assets, licenses and permits can be easily transferred in the case of change in ownership.
- Though the compliance cost is higher when compared to sole proprietorship, the tax liability is immensely lowered by the competitive corporate tax rates in Singapore. Companies that have a taxable profit of S$300,000 or less are effectively charged a rate of just 8.5%. Profits above S$300,000 are subjected to a rate of 17% only.
- It is relatively easy to raise capital by issuing shares to new shareholders or by issuing additional shares to existing shareholders. This facilitates growth and expansion of the business. It also improves the access to financial assistance from banks and other financial institutions.
- The death or insolvency of shareholders will not impede the existence of the company. It has legal perpetuity until it is taken off the register.
There are two types of public company:
- Public company Limited by Shares
- Public Company Limited by Guarantee
Public Company Limited by Shares
A LLC that has more than 50 shareholders is a public limited company. It may offer shares to the general public. The name of a Public Limited Companies is followed by the suffix ‘Limited’ or ‘Ltd’. They can get listed in the stock exchange and are required to submit a prospectus to the Monetary Authority of Singapore (MAS) before getting listed to raise capital from public.
Its merits are similar to that of a private limited company, in terms of limiting the liabilities of the shareholders, competitive corporate tax rate and a prestigious image in general. They have improved access to capital; they can raise capital by offering shares, debentures and bonds to public. Shareholders enjoy greater liquidity as they can buy and sell shares in the capital market. However they are subjected to strict regulations and financial matters are subjected to greater public scrutiny. The compliance cost is very high. The board and management are accountable to the shareholders.
Public Company Limited by Guarantee
A company that is incorporated for the purpose of public good and non-profit purposes is a Public Company Limited by Guarantee. Societies and organisations that are registered for the purpose of promoting arts or for the purpose of charity fall in this category. The liability of its members is limited to the amount that the members undertake to contribute to the assets of the company in the event of its winding up. The amount of guarantee by the members will be stated in the Memorandum of Association. The amount is usually nominal. The names of such companies do not have the word ‘Limited’.
It must be noted that there is no shares involved in this type of entity. As long as it is a going concern the members are not required to pay any capital. This structure is generally used by non-trading and non-commercial entities such as trade associations, charitable bodies, professional societies, religious bodies, incorporated clubs or other not-for-profit undertakings.
Contact us to learn more about the type of entity that suits your business the best.