Thinking of setting up your company in Singapore? One key aspect of the process is to determine the company structure you want.
There are various company structures available in Singapore.
The 7 main company types are:
- Exempt private company
- Public company limited by shares
- Unlimited private company
- Private company limited by shares
- Public company limited by guarantee
- Unlimited exempt private company
- Unlimited public company
One popular choice is the public limited company by guarantee, which we will cover in detail in this guide!
What Does a Public Limited Company by Guarantee Mean?
A limited company by guarantee is typically used to perform activities that do not generate a profit, like charity work, that has some form of national or public interest.
As a separate legal entity, it is a body on its own and distinct from its members. A limited guarantee company is registered with the Accounting and Corporate Regulatory Authority Singapore (ACRA) and is governed by the Companies Act.
Non-governmental organisations in Singapore are permitted under Singapore’s public corporation law to operate under the company limited by guarantee (CLG).
Related Read: Types of Business Entities in Singapore »
Is a CLG a Charity?
A CLG does not have to be a charity, but it can apply for a charity status if it meets the qualifying criteria. This charity status gives it a complete tax exemption on its income.
How Can a CLG Apply for Charity Status?
A CLG can apply for charity status to benefit from the full tax exemption. Charities can still perform business activities to a certain extent.
To apply successfully, a CLG must fulfil these requirements:
- Function on a not-for-profit basis
- Established only for charitable reasons
- Complete activities to fulfil its purposes and benefit the public
Some examples of charitable purposes are:
- Poverty relief
- Education advancement
- Purposes advantageous to the community, like promoting and advancing animal welfare
Are Companies Limited by Guarantee Public or Private?
CLGs are public companies because they do not have share capital.
What Are Some Examples of CLGs in Singapore?
CLGs are usually used by non-profit organisations that want a corporate status.
Trade associations, incorporated clubs, professional and learned societies, and charitable entities that want to benefit from its limited liability advantages usually apply to be a CLG.
Some examples of CLGs in Singapore include:
- Temasek Foundation
- The Arts House
- The National University of Singapore (NUS)
What is the Difference Between a Company Limited by Guarantee and Limited by Shares?
A limited company by guarantee is a type of company where the members are not liable for the company’s debts or legal damages.
This means that members’ personal assets are protected in the event that the company goes bankrupt. If someone sues the company, the members are also protected.
Since CLGs do not have share capital, the members’ liability is limited to how much they take on to contribute to the company’s assets if one closes down.
Conversely, for companies limited by shares, shareholders’ liability is limited to the portion of company share capital taken up.
CLGs are also prevented from distributing profits in these forms to shareholders:
If there are profits, they will be reinvested into the company.
What Are the Advantages of a Company Limited by Guarantee?
There are several benefits of setting up a company limited by guarantee.
Limited Liability and Asset Protection
The benefits of a company limited by guarantee are that the members are not liable for the company’s debts, which means that their personal assets are protected in the event that the company goes bankrupt.
Flexibility of Use
Additionally, this type of company is easy to set up and can be used for a variety of purposes.
Although a company limited by guarantee must pay the prevailing corporate tax rate of 17%, there are tax exemptions that may be granted.
The extent to which it is taxable depends on the type of income earned.
To qualify for corporate tax exemptions, it must not:
- Carry on a trade or professional association
- Have over half of its receipts from membership fees from Singapore members that are tax-deductible per the Income Tax Act
Only the income obtained from non-members is taxable if 50% of less of the receipts are tax-deductible.
What Are the Tax Requirements for a Company Limited by Guarantee?
The tax requirements in Singapore for a company limited by guarantee are the same as those for any other type of company.
This means that the company must file a corporate income tax return and pay corporate income tax on its profits.
However, as mentioned above, a CLG may be entitled to certain tax exemptions.
Related Read: Filing Your Singapore Company Tax Returns – Options »
What Are the Regulatory Compliance Requirements for a Company Limited by Guarantee?
This company type may be required to apply for licenses according to the type of activities performed. The application for licenses must be done during registration.
How to Set Up a Company Limited by Guarantee
Setting up a company limited by guarantee in Singapore is a straightforward process.
The first step is to choose a name for your company and reserve it with the Accounting and Regulatory Authority.
How to Register a Company Limited by Guarantee
The next step is to register your company with ACRA. You can do it online or by submitting a paper application. You will need to provide the following information:
- Your company’s name and registered address
- The names and addresses of the directors and shareholders
- The type of company you want to set up (in this case, it is the CLG)
- The company’s proposed activities
- The company’s memorandum and articles of association
- State the amount each member has guaranteed to pay when winding up
Once your company has been registered, you will need to file an income tax return and pay corporate income tax on its profits.
Alternatively, you can engage a corporate service provider to help you incorporate your business quickly and take care of all related matters for you.
Related Read: Guide to Why You Should Register Singapore Company »
How Much Does it Cost to Set Up a CLG?
Reserving a company name costs S$15 and registering the CLG costs S$300.
Appoint InCorp to Help You Manage Your Incorporation Process
You can save the time and trouble of registering your company limited by guarantee by getting the help of a reliable corporate service provider .
InCorp is well-armed with a team of experts across every corporate service need, from business setup to taxation, compliance, and more.
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FAQs About Setting Up a Limited Company by Guarantee
- A company limited by guarantee is a type of company that is limited to the amount of money that it can raise through its members' contributions. It does not have shareholders and cannot distribute profits to its members.
- The remaining funds and/or assets after closure will not be distributed to its members, but to organisations with similar objectives, or a registered charity.
- A CLG may wind up if it is unable to pay its debts, and may happen either voluntarily or involuntarily.