Not all companies are created to turn a profit. In the case of non-profit organisations or charities, the best option for business owners in Singapore is to establish their enterprise as a company limited by guarantee.
The key advantages of running a company limited by guarantee are the following:
- Includes limited liability for stakeholders
- Offers certain tax benefits
- Has a separate legal entity from its members
This article will further explore the features, some examples of companies limited by guarantee in Singapore, and the process of setting it up and getting it incorporated.
Examples of Companies Limited by Guarantee in Singapore
A company limited by guarantee is similar in many ways to a regular limited company. The primary difference is that this type of company has no share capital. In a company limited by guarantee, members are treated as guarantors rather than shareholders.
Charities select this type of company structure when undergoing the incorporation process. However, not all companies limited by guarantee are necessarily engaged in charitable activities. Often, it is used for membership organisations like clubs and sporting associations.
Whatever the primary business activities, this type of company structure is less likely to be used by a regular business since profits are not distributed to members through dividends as they would be in a private limited company.
Features of Companies Limited by Guarantee in Singapore
- Governing regulations. Companies limited by guarantee fall under the jurisdiction of the ACRA and the Companies Act of Singapore. In most cases, this type of company is set up by non-profit organisations that need to obtain corporate status. A company limited by guarantee can also attain charity status, which will be explained subsequently.
- Private company limited by guarantee vs. public company. Companies limited by guarantee are usually public companies since any company with share capital can be established as a private company.
- Liability. In the case of company dissolution, the liability owed by the members will be restricted to the amount that they initially contributed during the conception of the company. The constitution of a company limited by guarantee usually contains a clause for member liabilities and how much they owe in case of an emergency.
- Separate legal identity. Similar to other companies, a company limited by guarantee is treated as an entity separate from its members. It can create or enter lawsuits, enter into contracts, and own property.
The Benefits of Incorporation as a Company Limited by Guarantee
The main advantage of this company structure is that members will be protected from any losses incurred by the company. Even in the case of societies and trusts, which are often considered as alternative business models, society members and trustees are personally liable for the organisation’s losses.
However, in the case of a company limited by guarantee, it is treated as a separate legal entity, and its members enjoy limited liability.
Apart from this, companies limited by guarantee are granted certain tax benefits if registered as a charity in Singapore. Typically, they will need to pay at the corporate tax rate of 17%. However, if registered as a charity they can be fully exempt from paying tax.
Process to Incorporate a Company Limited by Guarantee
The requirements for incorporating a company limited by guarantee in Singapore are similar to other companies, in that business owners have to:
- Apply for incorporation with ACRA through the Bizfile+ portal. Here, it is important to mention the primary business activities, as well as the names of the members and the amount they have guaranteed.
- Pay $15 for company name registration as well as an additional fee of $300 for incorporation.
- Depending on the activities carried out by the CLG, it may have to apply for licenses which can cost additional fees. This should be done with ACRA during the registration process.
Audit Requirements for Public Companies Limited by Guarantee
Some of the key audit requirements for a company limited by guarantee in Singapore are:
- They must name all their members as well as the amount each will be liable to pay in the event of dissolution.
- The primary business activities or objectives should be addressed in the Memorandum and Articles of Association.
- A minimum of three individuals must be named as trustees, two of whom are either residents or permanent citizens of Singapore.
- An auditor must be hired within three months of incorporation.
- They are obliged to hold annual general meetings as well as annual audits.
- All public disclosure requirements as laid down by ACRA need to be followed.
There are many business structures available in Singapore and choosing the correct one is extremely important as different structures have to comply with different sets of rules. A Company Limited by Guarantee is one of the more beneficial structures for companies that are looking beyond simply making profits.