When embarking on your journey to set up a business in the booming South East Asian business hub, Singapore, it is important to choose the right corporate structure. It will determine your chances of success in the country and how quickly your business will grow.
Most entrepreneurs choose to operate a private limited company. For, this company structure offers a plethora of benefits. In this article, you can find out what a private limited company is, what benefits it offers, and how to register a private limited company.
Read more about Choosing the appropriate business structure in Singapore.
What is a Private Limited Company?
In Singapore, a Private Limited Company (PLC) is a limited liability entity whose shares are owned by not more than 50 parties. All PLCs must have ‘Pte Ltd’ after their company name.
Even though both corporations and individuals can be shareholders, the general public cannot buy shares of such companies. The limited liability nature of private limited companies protects shareholders from being liable for any debt incurred by the company beyond the shares they own.
Benefits of a Singaporean Private Limited Company
The liabilities of a private limited company shareholder will be limited to the capital amount they contributed. The shareholder’s liability cannot be extended beyond their capital contribution even in circumstances where the company struggles to pay its debt.
A private limited company will continue to exist until it is dissolved legally. Its existence will not depend on the survival and life of its shareholders. In case of illness or demise of a shareholder, the ownership of shares can be transferred to another individual or company.
This guarantees that the business will continue transactions and thrive even when faced with severe consequences even when a shareholder or director resigns or dies. Perpetual Succession applies even when insolvency is declared.
Easy Transfer of Ownership
Transferring both partial and full ownership of a private limited company is rather easy. The process entails no complicated legal documentation and can be completed without disrupting any business operations. All the business needs to do is invite new shareholders or issue additional shares to existing shareholders.
Access to Capital Pool
A private limited company can raise capital for its day-to-day activities or other reasons quite easily. It can issue new shares to the existing shareholders. Alternatively, it can bring a new shareholder to gather more money if the number of shareholders is less than 50.
The limited liability clause makes it easy for private limited companies to attract new shareholders. As it separates business assets from personal belongings, more people are willing to invest. Furthermore, banks are also generally more eager to offer loans to a limited liability company because they can recover the lent money quickly by attaching the company’s assets.
When compared to sole proprietorships and partnerships, private limited companies give a more credible image. This is another reason why more investors are inclined to put their money into this corporate structure. Bankers, suppliers, professionals, and potential clients are also more likely to take a PLC seriously.
Lucrative Tax Incentives
Singapore tax rate is very favourable for private limited companies. For profits up to SGD 300,000, a 9% tax will be charged. For profit exceeding that amount, a 17% tax rate will apply. As the Singapore government follows a single-tier tax policy, the shareholders will not be taxed twice. The policy also exempts start-ups from having to pay any capital gain tax.
Disadvantages of a Private Limited Company
Despite the surfeit of benefits, a private limited company has disadvantages. The most substantial issue people face is that setting up this company structure can be quite cumbersome. One must comply with a set of stringent rules associated with pre-incorporation and post-incorporation.
Setting up a private limited company requires many legal procedures and demands a high set-up and maintenance cost. For instance, hiring an accountant and a bookkeeper are statutory requirements, which is always costly. Additionally, it has various constraints related to the filing of annual returns.
How to Register a Singapore Private Limited Company
First thing first, the company must be registered with ACRA. To do so, you will need the name of the company secretary and at least one director who is a Singapore resident. You must also list an individual or corporate shareholder, a physical address for the office, and a minimum of one paid share capital of over SGD 1.
Documents Required for PLC Registration
The below documents are required for registering a private limited company in Singapore:
- Company Name: Choosing a unique name for your PLC will help build a reputable brand. According to Singapore law, it is forbidden to use a corporate name that is undesirable or deceptive. You cannot use any names that are confusing or similar to other corporate names.
- Document Outlining Business Activities: Follow the Standard Industrial Classification Code 2010 to get an overview of what type of activities the company should partake in
- Shareholding Pattern: More than one share should be issued to the first members
- Shareholders Agreement: Prepare this document to avoid any future disputes
- Details of Shareholders: Provide details of at least one shareholder (corporate or individual)
- Details of Director: Provide details of at least one director (should be a Singapore permanent resident, citizen, or pass holder)
- Details of the Company Secretary Details: A company secretary must be appointed within six months of the company’s incorporation
- Registered Office Address: This must be a physical address as P.O. Box addresses are not acceptable
- Memorandum and Article of Association: This document mentions the activities the business will conduct and defines a set of rules to be followed by the company’s internal management
- Business Profile of the Company: The Business profile confirms the incorporation of the business
- Share Certificate
- Certificate of Incorporation
- First Board Resolution Minutes: The document will appoint the directors and the shareholders that will work as the officials
- Account Opening Resolution Minutes: This document will permit the company to open a business bank account.
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