Setting Up a Private Limited Company in Singapore: Advantages and Process

A Singapore Private Limited Company, one of the most popular business entities, is recognised for its dynamic, credible, and scalable nature, making it a well-suited structure for prospective business owners. This separate legal entity, also known as a private company, distinguishes itself from its shareholders and is viewed as a taxable entity in its own capacity. This means that the shareholders of such a limited liability company are not held personally accountable for its debts and losses beyond their investment in paid-up share capital.

The unique traits of this kind of private company include limited liability for shareholders, separation from its owners, and its status as a recognised taxable entity, all of which contribute to its potential for scalability and credibility. This structure provides an excellent platform for growth, expansion prospects, and increased credibility in the business landscape.

Key characteristics

As a separate legal entity, a Singapore Private Limited Company can enter into contracts, employ personnel, and hold assets under its own distinct legal identity. Once incorporated, the company receives a company business profile (which includes the company name and registration number) and a Unique Entity Number (UEN). Shareholders in a Private Limited Company enjoy liability protection, which safeguards their personal assets from business debts and liabilities. Shareholders are liable only to the extent of their capital investment.

Furthermore, perpetual succession ensures the ongoing existence of the Private Limited Company, regardless of changes in its shareholders or directors. This lends a sense of stability and enduring presence to the company. The Inland Revenue Authority of Singapore also offers tax incentives for Private Limited Companies, including reduced corporate tax rates and tax exemptions.

Comparison with other business structures

While a Private Limited Company stands as a separate legal entity, offering shareholders liability protection, apartnership does not afford the same luxury. Partners in a partnership may be personally liable for the business’s debts and obligations. Also, while partners possess and directly manage the business in a partnership, shareholders in a Private Limited Company own the company but may not necessarily manage it.

In the realm of taxation:

• Sole proprietors are subject to personal income tax on their business profits
• Pte Ltds are taxed at a corporate tax rate of 17%
• Partnerships don’t incur separate taxation. Partners are instead taxed individually on their share of the profits.

A Singapore Private Limited Company can benefit from its separate legal entity status, which allows it to raise capital by selling shares. This is a capability not available to sole proprietorships.

The benefits of incorporating a Private Limited Company under your unique company name make them appealing to entrepreneurs with big ambitions and ideas to test. One of the prominent advantages is the limited liability protection offered to its shareholders. Unlike a limited company, sole proprietorship and partnership structures (regardless if it's a general partnership or limited liability partnership) have the owners personally liable for the business, so their liability is unlimited. This ensures that shareholders are not personally accountable for the company’s debts and losses beyond their investment in share capital. As a result, their personal assets are safeguarded from company liabilities.

Tax incentives are another significant advantage for a Pte Ltd in Singapore. They can leverage reduced corporate tax rates and tax exemptions, especially beneficial for new startups and small to medium enterprises.

Additionally, generating capital for a new Singapore company is a relatively hassle-free process for Private Limited Companies in Singapore — another reason why it's a popular business structure over becoming a sole proprietor. They can issue new shares to either existing or new shareholders, typically completed within 2 to 3 working days, which facilitates the acquisition of additional funds for business expansion.

Tax incentives

The various tax exemptions and tax benefits available to Pte Ltds is possibly the biggest reason it is such a popular business structure, specifically in Singapore.

The Inland Revenue Authority of Singapore has set the applicable corporate tax rate for Private Limited Companies at 17%. However, new start-up companies in Singapore are eligible for a 75% tax exemption on the first S$100,000 of normal chargeable income for their first three consecutive years of operations.

This tax exemption for a new Singapore company essentially allows them to keep a significant portion of their profits, which is excellent for new businesses looking to grow revenues in their early years of business as they will have additional resources for growth and expansion. Furthermore, Singapore adheres to a single-tier taxation regime, ensuring that incomes taxed at the corporate level are not subject to further taxation in the hands of the shareholders.

Consequently, this leads to tax-free income for Singapore company directors, shareholders and proprietors of a Singapore company with no need to pay any capital gain tax.

Limited liability protection

Shareholders in a Singapore company can benefit from this protection, which means that they are not held personally responsible for the company's debts and losses beyond the amount they invested in share capital. This also means that their personal assets are protected from any liabilities that the company may incur. In contrast, a private company owned by a sole proprietor or two or more partners rely on personal assets to raise capital and often pays more to secure debt capital. The liability of shareholders, compared to a sole proprietor, is limited only to the amount of their share capital, whether it has been fully paid, partially paid, or not paid at all. Individual shareholders and owners have distinct personal assets that are protected. This protection helps maintain separate financial identities for individuals and businesses.

The substantial protection of shareholders’ personal assets in a Private Limited Company, a significant advantage over entities like sole proprietorships or partnerships, mitigates the risk of unlimited liability.

Registering a Private Limited Company in this booming economic region is a straightforward process for aspiring company directors and hassle-free if you partner with a reputable corporate services provider. It necessitates specific documentation, including detailed information about specific business activities to ensure compliance and adherence to the requirements stipulated by the Accounting and Corporate Regulatory Authority (ACRA) but this is what your chosen provider for company registration assists you with. Non-residents must enlist the incorporation services of a registered filing agent, such as a corporate secretarial company (like Osome!), law firm, or accounting firm, to submit the application of the Singapore private limited company to ACRA via BizFile+ on their behalf.

The typical incorporation process takes one business day assuming all necessary documentation is in order. Following successful incorporation, the company will receive electronic versions of the business profile and Unique Entity Number (UEN) and may choose to obtain a physical copy of the certificate of incorporation if necessary.

Following the successful Private Limited Company registration, there are several post-registration compliance requirements to meet. These include:

1. Organising an Annual General Meeting (AGM) within six months of the fiscal year-end.
2. Filing an Annual Return within 30 days following the AGM.
3. Completing financial statements submission within seven months of the fiscal year-end.

Additionally, you will need to:

1. Open a corporate bank account for your business
2. Ensure that the registered address is a physical location where the company receives official correspondence. Note that a P.O. Box is not acceptable.
3. In certain circumstances, residential addresses may be used
4. Ensure up-to-date information on your company business profile

Lastly, certain licenses and permits may be necessary depending on the nature of your business. Failure to obtain requisite licenses or permits can lead to severe consequences, including monetary penalties, disqualification, and potential business closure. This is in accordance with the Singapore Companies Act and is a legal obligation of all businesses that require permits to operate.

Annual General Meetings (AGMs) and Annual Returns (ARs)

The annual compliance obligations for Private Limited Companies in Singapore include holding annual general meetings and filing annual returns. Following Private Limited Company registration, business owners in Singapore must conduct their Annual General Meeting (AGM) within four months following the end of their financial year.

Neglecting to comply with the AGM requirements may lead to legal prosecution, potential disqualification or debarment from directorship, and imposition of composition fines by ACRA. In the event of conviction, directors may face fines of up to a maximum of $5,000 per charge.

Corporate bank account

As a distinct legal entity, a Pte Ltd in Singapore must possess a corporate bank account to conduct business transactions. Singapore provides a range of banking options for corporate bank accounts, encompassing traditional banks like DBS, UOB, and OCBC, as well as digital banks and neobanks, such as Aspire. Here at Osome, we are proud partners with multiple mainstream and digital banks in Singapore — we can help choose the best account for your business's needs.

To establish a corporate bank account, you need to provide the following documents:

• Certified True Copies of the Company’s Constitution
• Passport (or Singapore IC) and Residential Address Proof of the Directors, Signatories, and Ultimate Beneficiary Owners
• Board resolution indicating the appointment of signatories