Pros and Cons of a Singapore Private Limited Company
Singapore private limited company is a popular business structure. It is used by aspiring business owners who want to register a company in Singapore. It is a dynamic, credible, and scalable structure that fulfils the needs of a growing business.
A private limited company or Pte Ltd is registered as per the provisions of the Singapore Companies Act, Chapter 50. Singapore company formation process is governed by the Accounting and Corporate Regulatory Authority (ACRA), the Company Registrar of Singapore.
Why Choose Private Limited Company Registration?
Entrepreneurs prefer private limited company registration, a type of limited liability company. Its main pro is that it limits the liability of its shareholders or owners to the amount they have invested in its share capital.
Shareholder’s personal assets are not used to pay their debts or losses. The company is responsible for paying its debts or losses incurred during its business activities.
By law, a private limited company is a legal person. It has the rights of a natural-born person. It has a distinct legal identity from its shareholders and officers. It means it pays corporate tax, sue or be sued by others, own property or assets in its name.
After paying its corporate tax, a single-tier tax, the company can distribute dividends to its shareholder. These are tax-free, and they do not have to pay any capital gain tax.
The ownership of shares is easily transferrable. After the Singapore company formation, its founders can raise capital for its growth by selling its shares to private investors.
The compliance requirements for Pte Ltd are strict. However, an air of compliancy gives them a creditable image in the eyes of banks and other financial lenders. It can also go to them ask for a business loan.
Business owners opt for private limited company registration because Pte Ltd’s features give them a great advantage.
In Singapore, you can choose from the 2 types of private limited company registrations. You can register
- A private limited company having 1-50 shareholders (individuals and companies); Or
- An exempt private company having 1-20 shareholders (only individuals)
Pros of a Singapore Private Limited Company
- Shareholders’ liability is limited. If the company fails, at the most, they lose their investment in its shares. The liability of a sole proprietor or member in a partnership is unlimited. They can lose their personal assets
- The company has a distinct identity from its owners. It can fight its legal battles through its lawyers without involving its shareholders. It is personal involvement for the sole proprietors
- The company can own real estate and assets in its name for business purposes. It is responsible for paying property tax for these assets and not its owners. Sole proprietors have to buy such assets in their name and have to pay property tax out of their pockets
- Company pay corporate income tax on its taxable income. It ranges from 0%-17%. With the tax benefits it can claim, its effective tax comes to around 8.5%-9.5%. A sole proprietor and members in partnership have to pay personal income tax on their income from their businesses. It ranges from 0%-22%
- A limited liability company like Pte Ltd has perpetual existence. It keeps on going even after the change of ownership or deaths or bankruptcy of its shareholders. The death of a sole proprietor leads to the demise of the business
- The ownership in a company is easily transferrable through the sale of its shares. It is not so easy for the proprietor or partnership members
- Raising funds for the company expansion is relatively easy. The founders can bring in a new shareholder or go to creditors for affordable loans. It is not so easy for the sole proprietors. It depends on their Karishma. They may also have to pay high-interest rates
- Companies are managed and governed as per the dictates of their constitution
Cons of a Singapore company
- Singapore companies have to fulfil strict compliance requirements mandated by the Companies Act
- They have to file annual accounts or Director’s reports and invest in an administrative function. It adds to their overhead costs
- Company directors have priorities the interests of the company over their’s
- They have to disclose their interests in the company
- The contracts between the company and its directors are regulated
- The shareholders can remove directors with a resolution
- ACRA holds directors responsible for the company’s compliance
- Personal guarantees given by Directors or shareholders supersede the limited liability protection
- A private limited company keeps on existing even after stopping its business activities. It has to be properly wound up. It is a lengthy, complex and costly process
- Private limited company registration is a costly affair
Yes, it is hard to choose the proper business structure for your business. The experts advise the business owners to go by the risk involved. If the risk is less or negligible, then the Singapore company formation may be overkill. If you are still in doubt, taking advice from a provider of private limited company registration services may be helpful.