5 Advantages of Setting Up a Private Limited Company in Singapore
In Singapore, a private limited company (Pte Ltd) is the most popular business structure for local and foreign entrepreneurs looking to register in the country. But why is it such a popular choice? Why do companies offering corporate services recommend this structure for incorporation?
We'll discuss the different advantages of setting up a private limited company in Singapore, along with its disadvantages, in this article...
Why Should You Incorporate Your Company in Singapore?
Singapore is known for its business-friendly policies and its anti-bureaucratic movement within its government. If you want proof of how easy it is to incorporate a business in Singapore, look at its ranking in the World Bank's Doing Business publication. Let's take a look at some of the more recent global awards.
In 2020, Singapore placed second as the best country globally for Doing Business, a business report conducted by the World Bank among 189 countries. The country earned an Ease of Doing Business Index of 86.2, just 0.6 away from the #1 ranked country, New Zealand.
This score represents how easy and convenient it is for foreign companies to get into these ranked countries. The report would look at the cost, time, procedures, and reliability of the following:
Starting a business
Acquiring construction permits
Registration of properties
And more...
To put it simply, the higher a country's ranking is in this report, the easier it is for any business to incorporate and operate within that country. Any country in the top 10 of this report is guaranteed to make the company formation process hassle-free and convenient for the business owner.
Advantages of Running Your Business as a Private Limited Company
Within reason, corporate service providers, like Piloto Asia, often recommend the private limited company structure for business owners who want to register their business in Singapore. Within a Western context, a Singapore private limited company is similar to a limited liability company structure (used in countries such as the USA).
A business owner looking to start a holding company or offshore company would benefit a lot from the private limited company structure. Let's take a look at some of the advantages of setting up a Pte Ltd company in Singapore:
Your Company Has a Distinct Legal Identity
A private limited company has its own legal identity and is entirely separate from its owners and shareholders. This separate legal entity is meant to empower the Singapore company to acquire assets easily, manage and negotiate contracts, avail of debt, or even sue or be sued in its company name.
This distinct legal identity is perpetual until the owners or shareholders formally dissolve it.
The death or disability of an owner/shareholder will not impact the existence of the private limited company, nor will it negatively affect the contracts the company entered into.
You Reduce Personal Risk Exposure
Your private limited company is an independent legal entity.
That means owners and shareholders' liability are only limited to the share capital subscribed to them or held shares considered paid, unpaid, and partly paid by them. Personal assets of individual shareholders and owners are separate and protected.
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. If businesses built using this structure are sued or go into debt, the owners' personal properties and assets are affected. For example, suppose a Singapore company can't repay its obligations. In that case, the owners or shareholders' private properties and assets may be used to repay the debt by the financial institution that the company owes.
Private Limited Companies Can Easily Raise Capital
With its distinct legal identity, it's easier for a private limited company to raise capital than other business structures. We're not only talking about securing loans from banks and other agencies. Limited companies have the option of issuing new shares to raise capital. This, in turn, attracts new investors into the Singapore company.
In contrast, a private company owned by a sole proprietor or two or more partners rely on personal assets to raise capital and often pay more to secure debt capital.
The private limited company structure also makes it easy for owners and shareholders to transfer their equities for more investment or to issue new shares.
Private Limited Companies Enjoy Certain Tax Exemption
Singapore's corporate tax rate is competitively sitting at 17% tax on up to S$200,000 of chargeable income. Several tax exemptions are available to newly registered companies and partial tax exemptions for already established companies.
Chargeable income of sole proprietors and partnership firms is treated as the personal income of owners/partners, meaning they pay higher tax.
Singapore follows a single-tier taxation regime, incomes taxed at the corporate level will not be taxed again in the hands of the shareholders. Dividends received by the shareholders and owners of a limited company are not taxed, resulting in tax-free income.
Private Limited Companies Can Easily Transfer Ownership
Ownership of private limited companies may be transferred wholly or partially. Transfer of ownership is done by selling off all or part of an owner's total shares or issuing new shares to additional investors.
Suppose an owner or shareholder chooses to exit the business due to irreconcilable differences or a dispute between either party. In that case, one or a few of them can decide to leave the company by selling their shares to new shareholders or existing ones. This, in turn, does not disrupt business operations and may even attract new investors into the company (due to the availability of new shares).
If you want to know more about Singapore company incorporation, be sure to get in touch with one of our dedicated account managers. He or she will be ready to answer any queries you might have about the process within 24 hours…
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Disadvantages of a Private Limited Company
We've talked a lot about its advantages, but are there any disadvantages to setting up a private limited company in Singapore?
Private Limited Companies Follow Tighter Rules
Private limited companies follow tighter rules and regulations instead of sole proprietorships and partnerships. Limited companies are governed by the laws written in the Singapore Companies Act.
Violating their rules could result in expensive penalties.
Liquidation Process Can Be Lengthy
If a business entity incorporated as a private limited company needs to be dissolved, the liquidation process might be tedious, more complicated, and more expensive. The reason is that shareholders and owners have some form of equity in the company. Legal compliance is also a different matter in itself and may require the assistance of lawyers. If your private limited company has tax issues, you'll need the assistance of accountants to help you sort it out with the Inland Revenue Authority of Singapore (IRAS).
Requirements for Disclosure and Administration Are Greater
This disadvantage is in comparison against partnership structure. A Pte Ltd company needs to file annual returns and Director's Reports, on top of other obligations required of them. If they are exempted from filing, they need to report to Accounting and Corporate Regulatory Authority (ACRA) about their exemption. Otherwise, they incur harsh penalties.
This makes it so that a limited company's running costs is higher than running a partnership.
Closing
Whether you're a local business owner, or a foreigner, looking to incorporate a new company, branch office, or any form of private company in Singapore, the private limited company structure is worth considering so long as it fits your business' needs.
You may also want to talk to our dedicated account managers here at Piloto Asia if you want to know more about the company incorporation services we provide and how they can benefit your business in the future.
Frequently Asked Questions
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Setting up a private limited company in Singapore offers several advantages, making it a popular choice for a diverse range of business ventures, from local startups to foreign enterprises and including various types of entities such as investment holding companies. Key advantages include:
Distinct Legal Identity: A private limited company operates as a separate legal entity, facilitating asset acquisition, contract management, and legal proceedings.
Limited Liability: Shareholders' liability is limited to their share capital, offering protection for personal assets.
Ease of Raising Capital: The ability to issue new shares or transfer ownership makes it easier to attract investment.
Attractive Tax System: Competitive corporate tax rates and various tax exemptions are beneficial for private limited companies.
Enhanced Credibility: This business structure is often perceived as more stable and credible, enhancing the company's reputation.
Transferability of Ownership: Shares can be easily transferred, providing flexibility in ownership and investment opportunities.
These benefits make the private limited company structure a suitable choice for a wide spectrum of business entities looking to establish or expand their presence in Singapore.