Starting an Exempt Private Company in Singapore: Benefits and Process

Singapore has been consistent in attaining one of the top ranks in terms of ease of doing business.

This is largely owed to her robust economy, strict yet business-friendly regulations, strategic location and excellent infrastructure. There are indeed numerous ways you could consider setting up a business over here.

Companies in Singapore can be classified into limited or unlimited companies, as well as public or private companies. Private companies can further be classified into private companies limited by shares and Exempt Private Companies (EPCs).

This article will discuss the setting up of an Exempt Private Company in Singapore.

What is an Exempt Private Company Limited by Shares and How Does It Differ from a Non-Exempt Private Company?

An EPC is a private company with a maximum of 20 shareholders, where none of the shareholders can be corporations. In other words, its shares cannot be held directly/indirectly by any corporation.

An EPC can also be a company which is wholly-owned by the government, and which the Minister has gazetted as being an EPC. Examples of such companies include Singapore Technologies Holdings Pte Ltd and Temasek Capital Pte Ltd.

In contrast, a non-EPC is a private company with more than 20 shareholders but with a maximum of 50 shareholders, or has shareholders that are corporations.

Benefits of Setting Up an Exempt Private Company

There are many reasons why an EPC is an attractive business structure. Some of the benefits of an EPC are as follows:

Shareholders of EPCs have limited liability  

As a shareholder of an EPC, you are only liable up to your investment in the shares of the company.

Therefore, if the company is driven to liquidation, your personal assets cannot be seized to pay off the company’s debts apart from the amount you have invested in the company.

This is unlike other types of business structures, such as a sole proprietorship or a partnership, where the  owners or partners of these organisations are at risk of losing their personal assets since they have unlimited liability.

EPCs can extend loans to their directors 

When it comes to financial loans, EPCs have more freedom and autonomy in comparison to non-EPCs.

In particular, they can extend loans to their directors. This is unlike non-EPCs which are generally prohibited from extending loans to their directors unless certain requirements are met, such as obtaining prior approval for the loan in a general meeting. 

Corporate tax exemption available

To boost the spirit of entrepreneurship and encourage the growth of local companies, newly-setup EPCs are given corporate tax exemptions under the Start-Up Tax Exemption Scheme.

For Year of Assessment (YA) 2019 and before, a full exemption on the first $100,000 of normal chargeable income, and a further 50% exemption on the next $200,000 of normal chargeable income was provided for each of the first 3 consecutive years of an EPC’s operation.

From YA 2020 onwards, when EPCs file their corporate taxes, they will receive a 75% exemption on the first $100,000 of normal chargeable income and a further 50% exemption on the next $100,000 of normal chargeable income.

However, not every EPC is granted tax exemption. If your EPC is an investment holding company and is primarily involved in developing real properties for investment, sale, or both, then it would not enjoy this tax exemption.

For more information, read more about the Start-Up Tax Exemption Scheme in our other article.

Ability to file simplified annual returns

To ease the burden of filing annual returns, the Accounting and Corporate Regulatory Authority (ACRA) has simplified the annual returns filing process for solvent EPCs.

EPCs need to fulfil the following requirements before being eligible to file a simplified annual return:

• Financial Year End (FYE) falls on or after 31 August 2018 
• The EPC is not preparing audited financial statements 
• The EPC is not required to file financial statements 
• There should not be any change in the previous information filed with ACRA

A simplified annual return is much easier and faster to file as compared to an ordinary annual return. This is because most of the information would have already been pre-filled in a simplified annual return form and does not have to be filled in manually. 

Possible audit exemption for EPCs that qualify as “small companies” 

EPCs were previously exempted from having their accounts audited if they had an annual revenue of $5 million or lower. However, with effect from 1 July 2015, only “small companies” are exempt from audit requirements.

A company is deemed a “small company” if it:

• Is a private company; and
• Satisfies any two of the three criteria listed below for each of the two preceding consecutive Financial Years (FYs):
  1. Annual revenue does not exceed $10 million
  2. Value of total assets does not exceed $10 million as at the end of the FY
  3. The company has a maximum of 50 employees at the end of the FY

An EPC that satisfies the above criteria is likely to be exempted from audit, and consequently be able to reduce its operational and compliance costs.

How to Set Up an Exempt Private Company in Singapore

In order to set up an EPC successfully, a few requirements must be met. The EPC must have: 

• At least 1 shareholder (only individuals)
• At least 1 locally resident director who is at least 18 years old
• At least 1 company secretary who must be a licensed individual resident in Singapore
• An initial paid-up share capital of at least $1
• A physical Singapore office address

Once you have ensured that your company has met the requirements stated above, you may proceed to incorporate your EPC.

The total cost of incorporation of a company is $315, which includes a $15 fee for a name application as well as a $300 fee for registration via the BizFile+ portal.

The process of incorporation is relatively simple.

1. Choose a name for your EPC

The first step of incorporation is to choose a name for your EPC. The name selected has to be unique and should not contain any words that could be considered vulgar or inappropriate.

Additionally, it should not infringe on any trademarks. While a normal private company would have the phrase “Pte Ltd” featured in its name, an EPC is allowed to use the abbreviation “EPC”.

2. File your company’s constitution 

The next step involves filing your company’s constitution as well as other details on your company via the BizFile+ portal.

Some of the information that you would be required to provide include details of the allotment of shares (e.g. class of shares, number of shares, amount of paid up share capital and amount of paid-up share capital) as well as the particulars of the directors and company officers. 

3. Draft a shareholder agreement

It is also important to draft a shareholder agreement as part of the incorporation process. The shareholder agreement would set out clearly the rules and regulations on company management as well as the obligations of the shareholders and directors. It also includes provisions or guidelines that the constitution may have excluded.

Upon checking the documents submitted, ACRA will confirm its approval via an email. The email will contain the Unique Entity Number (UEN) allocated to your EPC and serves as the official Certificate of Incorporation.

Given that the process of setting up an EPC is broadly similar to that of setting up a company in general, you may refer to our article on registering a Singapore company for more information.

Compliance Requirements for Exempt Private Companies

You also need to be mindful of the filing and compliance requirements post-incorporation. Some of these requirements include:

1. Holding of an AGM

As mentioned earlier, EPCs are required to hold an Annual General Meeting (AGM) within 6 months of their company’s FYE. This is unless they have been exempted from holding an AGM, or have chosen to dispense with the holding of AGMs.

The latter may be done if all the members pass a resolution to dispense with the holding of AGMs. If the EPC will not be holding an AGM, it may pass written resolutions for matters that would have been tabled at an AGM. 

2. Filing of Annual Returns

All EPCs are required to file annual returns. However, there are differences in the filing requirements for solvent and insolvent EPCs.  

A solvent EPC is not required to file its financial statements with its annual returns but may opt to file simplified annual returns if it meets the eligibility criteria as mentioned above. 

An insolvent EPC, on the other hand, is neither exempted from filing its financial statements nor eligible for simplified annual returns filing. Instead, it has to file a full set of financial statements in XBRL format, or financial statements highlights in XBRL format together with a PDF copy of the financial statements, when filing its annual returns.

3. Disclosure of your EPC’s UEN

An EPC’s UEN serves as the company’s identification number and is required when the company carries out transactions such as filing corporate tax returns, applying for permits or submitting employees’ CPF contributions. 

The UEN is also to be disclosed or displayed on important company documents such as business letters, official notices, statements of account or invoices.

4. Appointing auditors 

Companies are typically required to appoint an auditor within 3 months of incorporation. However, if your EPC fulfils the criteria of a “small company” as explained above, then it is exempted from audits and need not appoint auditors.

These are some of the main compliance requirements that EPCs should be aware of. For more information, you may refer to our other article on the compliance requirements that Singapore-incorporated companies are required to abide by.

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While that article discusses compliance for Singapore-incorporated companies in general, those rules are generally also applicable to EPCs. This is unless special compliance rules apply, such as the ability of solvent EPCs to file simplified annual returns as discussed above.

Should you require further clarification, you are encouraged to consult a corporate lawyer for professional advice on setting up an EPC.