In the realm of business structures, one common entity type that often garners attention, particularly in the non-profit sector, is the company limited by guarantee. In this article, Singapore Company Formation delves into comprehensive information about such a company, particularly in the context of Singapore’s regulatory framework.
Company limited by guarantee definition
- Non-profit organizations, charities, clubs, associations, and other similar entities commonly utilize a company limited by guarantee as a type of legal entity. Unlike companies limited by shares, which have shareholders who hold ownership stakes and receive dividends, a company limited by guarantee does not have shareholders or share capital. Instead, it has members who act as guarantors, pledging to contribute a nominal amount towards the debts of the company in the event of its winding up.
- In essence, the guarantors commit to covering the company’s liabilities up to the agreed-upon amount, usually a token sum, typically specified in the company’s constitution. This structure provides a level of financial security for creditors and stakeholders, assuring them that there are funds available to settle the company’s debts if it becomes insolvent.
- While company limited by guarantee entities do not distribute profits to shareholders, they can still generate income through various activities such as donations, grants, membership fees, or revenue-generating initiatives. However, any surplus funds generated must be reinvested back into the organization’s objectives rather than distributed to members.
- One of the primary motivations for choosing a company limited by guarantee structure is often the desire to pursue charitable or non-profit objectives while benefiting from the legal protections and corporate structure afforded by formal incorporation. Additionally, this structure provides a clear framework for governance, decision-making processes, and accountability, which can enhance transparency and trust among stakeholders. It’s important to note that the regulations governing companies limited by guarantee may vary from one jurisdiction to another.
- Overall, a company limited by guarantee offers a flexible and legally recognized framework for organizations with non-profit objectives to operate efficiently, raise funds, and fulfill their missions while providing a degree of financial security and governance structure for its members and stakeholders.
How to register a company limited by guarantee in Singapore
Singapore, known for its robust business environment and supportive regulatory framework, offers a conducive platform for various forms of business entities, including companies limited by guarantee. If you want to register a company limited by guarantee in Singapore, here are 8 primary steps and compliance requirements.
1. Name Reservation
The first step is to choose a unique and appropriate name for your company. The name should not infringe on existing trademarks or be offensive. You can check the availability of the name and reserve it through ACRA’s online portal.
2. Prepare Documents
Prepare the necessary documents for registration, including:
- Memorandum and Articles of Association: This document outlines the company’s objectives, rules for governance, and the guarantee amount each member commits to.
- Consent to Act as Director and Statement of Non-disqualification: Directors of the company must provide consent to act and declare they are not disqualified from holding the position.
- Consent to Act as Secretary (if applicable): If you appoint a company secretary, they must provide consent to act in that capacity.
3. Appointment of Directors and Secretary
Appoint at least one director and, optionally, a company secretary. Directors must be individuals aged 18 years or older, and at least one director must be a Singapore resident.
4. Registered Office Address
Your company must have a registered office address in Singapore, which will be used for official correspondence. This can be a commercial address or a residential address, but a PO Box is not acceptable.
5. Guarantee Amount
Determine the guarantee amount that each member will commit to. This is the amount each member agrees to contribute in the event the company is wound up.
6. Submission to ACRA
Compile all required documents and submit them to ACRA through their online filing system. Pay the necessary registration fees at this stage.
7. Approval and Incorporation
Upon successful submission and review of the documents, ACRA will issue a Certificate of Incorporation. This signifies that Singapore law officially registers and recognizes your company limited by guarantee.
8. Post-Incorporation Compliance
After registration, ensure compliance with ongoing obligations such as filing annual returns, maintaining proper accounting records, holding annual general meetings, and adhering to any regulatory requirements applicable to your company’s activities.
Company limited by guarantee advantages and disadvantages in Singapore
Every business structure comes with its own set of pros and cons, and the company limited by guarantee is no exception. In this section, we analyze Company limited by guarantee advantages and disadvantages in Singapore, offering insights to help entrepreneurs make informed decisions regarding their organizational setup.
Difference between limited by shares and limited by guarantee in Singapore
In Singapore, two common types of corporate structures are companies that limit liability by shares (CLS) and companies that limit liability by guarantee (CLG). Understanding the Difference between limited by shares and limited by guarantee in Singapore is crucial for entrepreneurs and organizations when deciding on the most suitable legal framework for their business objectives. Here’s a comparison:
1. Ownership Structure
- Limited by Shares (CLS): In a CLS, ownership is determined by the number of shares held by shareholders. Shareholders have ownership stakes in the company and may receive dividends based on their shareholdings. Shareholders cap their liability at the outstanding balance on their shares.
- Limited by Guarantee (CLG): In a CLG, there are no shareholders or share capital. Instead, members of the company pledge to contribute a nominal amount towards the company’s debts if it is wound up, serving as guarantors. They typically limit their liability to the amount they guarantee, which is usually a token sum.
2. Profit Distribution
- CLS entities operate on a profit-oriented basis, allowing the distribution of profits to shareholders as dividends, contingent upon the company’s Articles of Association and legal requirements.
- CLG entities, on the other hand, serve non-profit purposes like charities, social enterprises, or clubs. These entities cannot distribute profits to members and must reinvest any surplus funds into the organization’s objectives.
3. Governance and Membership
- Limited by Shares (CLS): CLS entities are governed by shareholders and directors. Shareholders typically have voting rights proportional to their shareholdings and may participate in decision-making processes.
- Limited by Guarantee (CLG): CLG entities are governed by members and directors. Members typically have voting rights equal to one vote per member, regardless of the guarantee amount. The company’s Memorandum and Articles of Association outline the membership criteria and voting rights.
4. Regulatory Requirements
- Limited by Shares (CLS): CLS entities must comply with statutory requirements related to shares, such as issuing share certificates, maintaining a register of shareholders, and adhering to rules regarding share transfers.
- Limited by Guarantee (CLG): CLG entities must comply with statutory requirements related to guarantees, such as specifying the guarantee amount per member, maintaining a register of members, and ensuring compliance with regulatory guidelines for non-profit organizations.
5. Taxation and Reporting
- Limited by Shares (CLS): CLS entities are subject to corporate income tax on their profits. They must file annual tax returns with the Inland Revenue Authority of Singapore (IRAS) and comply with financial reporting requirements under the Companies Act.
- Limited by Guarantee (CLG): CLG entities may enjoy tax exemptions or concessions if they meet the criteria for non-profit status. They must file annual returns and financial statements with the Accounting and Corporate Regulatory Authority (ACRA) and comply with regulatory guidelines for non-profit organizations.
In summary, while both CLS and CLG structures offer distinct advantages and cater to different business objectives, understanding their differences in ownership, profit distribution, governance, regulatory requirements, and taxation is essential for entrepreneurs and organizations seeking to establish the most suitable corporate framework for their endeavors in Singapore.
Summary
In summary, the journey of establishing a company limited by guarantee in Singapore represents a strategic fusion of business acumen and altruistic endeavor. By embracing principles of social responsibility and democratic governance, CLGs offer a structured framework for organizations to pursue their mission-driven objectives while contributing positively to society.
