Guide to Limited Liability Companies in Singapore
What is a Limited Liability Company?
A company in Singapore is a type of business structure that is a separate legal entity from its owner. This means only the company, and not the owner, can sue, be sued, own property or enter into contracts on its own behalf.
The company is also responsible for its own debts and liabilities, and the company’s owners are generally not responsible for such debts and liabilities. This is also known as the company having a separate legal personality, and the owners having limited liability.
Ownership of the company is based on the owners’ respective shareholdings, or the number of shares that each owner holds in the company.
A Limited Liability Company (LLC) is a specific type of company whereby the liability to shareholders is limited to the total amount of share capital (i.e. the total amount of money put into the company in return for shares) in the company.
Types of Limited Liability Companies
Private limited companies and exempt private companies
There are different types of LLCs in Singapore. The most common form is the “Private Limited” company, denoted by “Pte Ltd”. This refers to a company that has a maximum of 50 shareholders and does not have publicly-traded shares.
Within this category of private limited companies, some are “Exempt Private Companies (EPC)”. This requires the company to have a maximum of 20 shareholders, none of whom can be corporations. The main benefits of using an EPC are the corporate tax exemptions available and the extension of loans to their directors, which is generally prohibited in non-exempt private companies.
Public companies limited by shares and public companies limited by guarantee
There are also non-private limited companies, such as public companies limited by shares, denoted by “Ltd”. These companies can have more than 50 shareholders and their shares can be traded publicly, such as on a stock exchange.
Finally, there are companies limited by guarantee. These companies do not have share capital, and liability is instead limited to the amount which members have undertaken to contribute if the company is wound up. Companies limited by guarantee are often used to carry out non-profit activities.
What is the difference between an LLC and LLP?
Both LLCs and Limited Liability Partnerships (LLPs) benefit from being limited liability structures, such that the business owners are protected from being liable for the business’ debts.
However, in an LLC, shareholders own the company while directors run the company, providing greater flexibility for owners of a company to divide the ownership and running of the business. (It is possible for a person to be both a shareholder and director of a company.) In general, the company and its directors are liable for wrongdoings of the company, while the shareholders are not.
On the other hand, in an LLP, the partners own and run the partnership. A partner in an LLP may therefore be personally liable for any of their own wrongdoing, but not that of the other partners.
There are more onerous regulatory requirements on LLCs compared to LLPs. These include requiring an auditor, a company secretary, and filing of annual returns. Limited liability partnerships only require an annual declaration of solvency or insolvency status.
Additionally, setting up an LLC is slightly more costly than setting up an LLP, although rates are still relatively affordable either way. Setting up an LLP costs around $115 while setting up an LLC costs around $315.
Finally, an LLC’s profits are taxed at the corporate tax rate whereas an LLP’s profits are taxed at each individual partner’s personal income tax rates. Corporate tax rates are generally higher than personal income tax rates in the beginning.
Why Set Up a Limited Liability Company?
Shareholders are not liable for company’s debts
The main benefit of an LLC is that it protects shareholders from being liable for the company’s debts. As mentioned above, shareholders’ liability is limited to the total amount of share capital in the company.
This means that no matter how great the company’s debt, the company’s debtors cannot get access to any amount of money above the share capital or get access to a shareholder’s personal assets. This protects shareholders and incentivises them to take more risk by investing in an LLC than they might otherwise be willing to take.
Investments from the public could increase capital
Additionally, if your company is a public limited company, you will be able to increase your company’s capital by getting investments from the public.
Increase your business’ credibility
Setting up an LLC for your business gives it a professional front.
This is because an LLC takes time and money to set up and maintain (more information on regulatory compliance below). Parking your business under an LLC tells the outside world (such as customers, employees, vendors and investors) that you are serious about your business, instead of running a fly-by-night operation.
Requirements to Set Up a Limited Liability Company
There are some requirements to setting up an LLC:
- There must be at least 1 shareholder who may be a local or foreigner and may be a natural person or a company.
- There must be at least 1 director who must live in Singapore and be at least 18 years old. Additionally, an undischarged bankrupt cannot be a director unless he has received approval from the court. As mentioned above, a director may also be a shareholder of the company.
- The company must have a constitution which contains certain mandatory information stipulated in the Companies Act. This includes the name of the company, whether the liability of its shareholders is limited and the personal details of company members who have agreed to be bound by the terms of the constitution.
- A fee of $15 for the name application and $300 for incorporation must be paid.
Refer to our article on registering a company in Singapore to learn more about the registration process.
Regulatory Compliance Requirements
After setting up the company, there are additional regulatory compliance requirements that an LLC must continually comply with. These include having a company secretary, a registered address, filing annual returns and corporate tax returns.
For more information, refer to our article on regulatory compliance requirements for Singapore companies.
Fees for Registering and Maintaining a Limited Liability Company
In addition to the registration fees mentioned above, there are additional fees associated with complying with the above regulatory compliance requirements, particularly for filing annual returns.
Registering an LLC in Singapore is affordable and accords all the benefits of the business having a separate legal personality.
While it is possible to register a company without professional assistance or advice, you may want to engage a corporate services firm to do so for you so you can focus on the actual launch and running of your business. This is especially since the rates of such firms are generally competitive and affordable.
We have partnered with an ACRA-approved corporate service provider to offer a range of corporate services, including registration, at competitive prices.
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