Singapore is one of the ideal destinations for entrepreneurs and foreigners to start a company or set up a (PTE LTD) private limited company. Singapore’s competitive workforce, modern infrastructures and supportive economic policies contribute to making the small island nation one of the best places to do business for the longest time. Furthermore, in the 2023 Index of Economic Freedom, Singapore ranked #1 with an overall economic freedom score of 83.9, making it the freest economy among 39 other countries in the Asia-Pacific.
If you’ve been thinking about starting a company here, one thing you should first decide on is how you would want to structure your business. This decision can affect many things, like how much taxes you would be paying, the amount of paperwork you’d have to do, and the liabilities you would have to face as a company. We have a complete guide on how to register a company in Singapore if you want to know what to expect if you choose to start a company here.
There are different types of business entities in Singapore. One of them is the Private Limited Company.
What is a Private Limited Company?
A Private Limited Company is a type of company that its shareholders own. The company sells its stocks to these shareholders in exchange for money they can use to start or expand the business. When the business does well, all the shareholders will get a return on their investments, called dividends.
The shareholders usually get a company director to manage the company and oversee its day-to-day operation. They could hire one or nominate a shareholder to take the position.
You can read our comprehensive guide about company directors in Singapore to learn more about how a company director works and how shareholders determine their qualifications.
Advantages of Private Limited Companies
Many business owners and investors here in Singapore open a private limited company because it gives them the most benefits compared to the other business structure types. How so? Here are some of the advantages businesses have been getting as a private limited company in Singapore:
1. The company is a separate legal entity
Private limited companies have a legal identity separate from their shareholders and directors. What this means is that the company itself is its persona. It can enter into deals and contracts with service providers and other companies, borrow money from the bank, and acquire assets without having to expose its directors and shareholders to potential liabilities from these transactions.
So, if something happens to the company, like bankruptcy, the creditors would not be able to demand payment from private assets owned by the shareholders because the debt is under the company, not the shareholders. The only assets creditors could touch are those under the company’s name.
2. Easier to raise capital
Whenever the company needs to raise funding, it can issue new shares to its existing shareholders or sell to new individuals to incorporate new shareholders.
If you compare it to other businesses like a privately-owned company like a franchised branch, they will have to rely on their business partners for additional funding or use personal assets to secure capital – exposing them to more liability that could haunt them somewhere along the line.
3. Transferring ownership is easier
If any of the owners would want to transfer their hold of the company because they want to cash in on their investment early or because they want to leave, they easily can by simply selling their shares to outside investors or existing shareholders. This process is relatively quick and easy and would not disrupt the company’s day-to-day activities.
If it were any other business structure like a corporation or a sole proprietorship, there would be board meetings and paperwork that would have to be done to transfer ownership from one person to another properly. There are instances where these procedures could take months on end — potentially wasting precious time that you could have spent elsewhere.
4. Perpetual Succession
As a separate legal entity, a private limited company is unaffected by its shareholders’ death or departure. Even if one of the company’s founders or a key shareholder leaves or dies, the company will still be able to continue existing. Its existence is not tied to the people working on the inside, as another person can replace them.
The only time a company like this would cease is when the company would file for its dissolution.
5. Tax benefits
Because of Singapore’s business-positive policies, businesses can avail of many tax exemptions and benefits – regardless of whether they are newly registered or already established.
Private limited companies can enjoy the country’s competitive tax rates. The country also follows a single-tier tax policy, which means that once income has already been taxed at the corporate level, companies can already give the dividends to their shareholders tax-free.
Disadvantages of Private Limited Companies
Even if the Pte Ltd structure seems the best, there are a few disadvantages you would have to know before committing to it.
1. Stricter rules and regulations
Private limited companies are subject to the Singapore Companies Act, unlike sole proprietorships and partnerships. Without professional help or people familiar with the process, registering and maintaining all the required paperwork can be a hassle. Failure to comply with the paperwork can also result in hefty fines.
2. Limited personal control
Even if the company is your brainchild, your control over it is only relative to the number of shares you still have and the number of shareholders willing to back you up. If the majority of the shareholders would vote against your plans, and you don’t have the numbers to push back, you won’t be able to do what you want in the company.
3. Tedious requirements for disclosure and administration
A Pte Ltd company would need to file documents like annual returns and director’s reports, on top of other documentation required by the government. Failure to do so may result in fines and other penalties.
4. Liquidation takes time
Liquidation of a company like this is time-consuming, tedious, and potentially expensive. The process involves lots of meetings and paperwork that can take months. Shareholders must also accomplish some legal documentation with the assistance of lawyers, which not only makes things take longer to finish and the process expensive.
Avail of Lanturn’s Expert Corporate Services
Whether or not you start a private limited company in Singapore, getting professional corporate services will always make things easier for you.
Since 2017, Lanturn has been helping both startups and established businesses with their corporate service needs. From handling paperwork to helping streamline your company’s workflow, our team is more than capable of helping you out so that you can focus on growing your business further. From Singapore incorporation to accounting, compliance, reporting, payroll and tax, trust Lanturn to manage your business operations, while you concentrate on growing your business.
We have also launched the Launch with Lanturn Programme for aspiring entrepreneurs and first-time business owners, check to see if you qualify for this.
If you want to learn about our corporate services and rates, schedule a call today.