Setting Up a Limited Liability Company in Singapore

A limited liability company is a company that is a separate legal entity from its owner and limited by shares. It is the most preferred Singapore business structure because it gives the owner so many advantages. This article will further discuss all you need to know about setting up a limited liability company (LLC) in Singapore.

Types of Limited Liability Company

There are different types of LLC, each of which has its advantages and disadvantages.

Private Limited Company

A private limited company is the most common form of limited liability company in Singapore. It can have a maximum of 50 members or shareholders consisting of individuals and corporate entities. In addition, it also has a separate legal identity and can trade in its own name or buy or sell real estate. 

However, private limited company shares are not publicly available. A private limited company is also responsible for its own debts or losses. Therefore, if it suffers a loss, its assets are sold to pay its debts. For additional information, you may refer to:

A Complete Guide to Singapore Private Limited Company

Exempt Private Company

Exempt private companies (EPCs) are very similar to private limited companies. However, the number of members should not exceed 20. This business structure is beneficial for small businesses. 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.

Subsidiary Company

A subsidiary is a business structure specifically designed for foreign entities wishing to open a company in Singapore. It has all the characteristics of a private limited company (e.g., it has separate legal existence from its parent company.) For information about setting up a subsidiary in Singapore, refer to A Guide to Singapore Subsidiary Company Registration.

Public Limited Company

A public limited company has certain similarities to a private company, but its characteristics make it more suitable for large businesses. Among its main features, we can mention the following:

• A public limited company can offer its shares to the public, which is not possible with a private limited company.
• It has legal capacity and is separate from its founders or directors; shareholders have limited liability.
• At least 50 shareholders are required for this type of company, making it suitable for large companies.
• Public limited companies are, in most cases, listed on a stock exchange.
• Due to their nature and the fact that the company is registered, a public limited liability company is subject to more stringent accounting and reporting rules.

Public Company Limited by Guarantee

A public company limited by guarantee is a company that carries out non-profit activities with a national or public interest basis, e.g., promoting art or charity.

The advantages of a public company limited by guarantee include separate legal status and limited liability for its members. Also, there is no share capital. When the company is dissolved, each member is only responsible for paying the amount guaranteed by them following the company’s memorandum of association. This amount can be as little as S$1.

The difference between a Limited Liability Company and a Limited Liability Partnership

In an LLC, shareholders own the company while directors run the company, giving the company owner greater flexibility to divide ownership and run the business. In general, the company and its directors are responsible for its mistakes, while its shareholders are not.

On the other hand, in a limited liability partnership (LLP), partners own and operate the partnership. Therefore, a partner in an LLP may be personally liable for their own faults, but not the faults of the other partners.

Another difference is that there are more stringent regulatory requirements for an LLC than for an LLP. This includes requiring auditors, company secretaries, and filing annual returns. On the other hand, LLPs only require an annual declaration of solvency or insolvency status.

In addition, setting up an LLC is slightly more expensive than setting up an LLP, although the rates are still relatively affordable. Setting up an LLP costs around $115, while setting up an LLC costs around $315.

Lastly, an LLC’s profits are taxed at the corporate tax rate, whereas an LLP’s profits are taxed at each partner’s personal income tax rate. Note that corporate tax rates are generally higher than personal income tax rates.

Advantages of setting up a Limited Liability Company

Here are a few main advantages of establishing an LLC in Singapore.

1. Shareholders are not responsible for the company’s debts

One of the main benefits of an LLC is that it protects shareholders from liability for its debts. As mentioned above, the liability of shareholders is limited to the total amount of share capital in the company.

In other words, no matter how large the company’s debt is, the company’s debtors cannot access the amount of money above the share capital or gain access to the shareholders’ personal assets. This protects shareholders and incentivizes them to take more risk by investing in the LLC than they might want to take.

2. You can raise your capital

As an LLC, you can take advantage of the ability to raise capital by adding equity partners, venture funds, business financing, etc. Moreover, investors are more likely to invest in companies with a formal separation between personal and business assets. In general, banks prefer to lend money to LLCs over LLPs.

3. Increase your business’ credibility

Setting up an LLC for your business gives it a professional look. This is because LLCs take time and money to set up and maintain (more on regulatory compliance below). In addition, establishing your business under an LLC lets the outside world (such as customers, employees, vendors, and investors) know that you are serious about your business. 

Requirements to set up an LLC

The following are some requirements to set up an LLC:

• There must be at least one shareholder who may be local or foreign and may be an individual or company.
• Your company must have at least one director who lives in Singapore and is at least 18 years of age. As noted above, a director can also be a shareholder of the company.
• Your company must have a constitution that contains certain mandatory information regulated in the Companies Act. This includes the company’s name, whether the liability of the shareholders is limited, and the personal details of the company members who have agreed to be bound by the provisions of the constitution.

Once you have successfully established a company, remember that there are additional regulatory compliance requirements that an LLC must continue to comply with. These include having a company secretary, registered address, filing annual returns, and corporate tax returns. For further information, refer to this article:

A Post-Incorporation Guide for Singapore Startups (Part 1)

Conclusion

Registering an LLC in Singapore is easy, affordable, and provides all the benefits of a business having a separate legal personality. However, setting up a company without professional help or advice might leave you feeling lost. Therefore, you need to consider engaging a corporate services company to do it for you so you can focus on launching and actually running your business. 

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