Advantages and Disadvantages of Singapore Private Limited Company

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A company is a business entity registered under the Singapore Companies Act, Chapter 50. Unlike a business firm such as a sole proprietorship or partnership, it has a legal personality i.e. it has rights to own properties, can sue or be sued. It usually has the words ‘Pte Ltd’ or ‘Ltd’ as part of its name. In many European or the USA, it is commonly known as a Corporation.

A private limited company has its own legal identity, separate from its shareholders (who own the company) and its directors (who manage the company). Companies pay corporation tax on their profits; Shareholders receive dividends which are tax free under the Singapore new one tier tax system and directors pay income tax as employee’s officers on any remuneration paid.

One of the major advantages of a limited company is that the shareholders are not liable for the company’s debts beyond the amount of share capital they have subscribed, provided there has been no deceit, fraud or malpractice.

Another advantage of such a company is that it is easy to transfer the ownership, either wholly or partially, through the selling of all or part of its total shares, or through the issue of new shares to additional investors. There is no need to wind up the company in the event of deaths, or changes amongst the shareholders or directors.

In Singapore, a company can be incorporated in one of the following ways:

There are two types of Private Companies Limited by Shares.

Private Company

This is a locally incorporated company where the number of shareholders is limited to 50.

Exempt Private Company

A exempt private company is a private limited company, of which all shares are not held directly or indirectly by any corporation (i.e. another limited company), and which has not more than 20 members. An exempt private company need not file its annual accounts with the ACRA for the information of the public if the company files a Certificate of an Exempt Private Company, that the company is able to meet its liabilities as and when they fall due.

 

Advantages

  • Limited liability for shareholders. This means that if the company fails, the shareholders may lose the entire value of their shares but no more, unless they have given guarantees.
  • A company has its own legal identity. This means that, it can enter into legal agreements, it can own property, it can sue and be sued all in its own name. It will continue to exist, even if its shareholders or directors die, resign or go bankrupt.
  • It is easier to transfer the ownership of a company than an interest in a partnership, as all that is required is a transfer of shares, subject to the company’s constitution.
  • Clear structures are laid out in the Companies Act governing the organization and procedures to be followed by companies.
  • The minimum number of shareholders and directors is one.
  • Companies may find it easier than partnerships to borrow, as they are able to create floating charges over their assets.
  • Incorporation is sometimes seen as supporting an image of status and credibility.
  • Exempt Private Limited companies owned by individual shareholders need not audit its accounts if the company’s annual turnover falls below S$5 million.

 

Disadvantages

  • Companies are governed by tighter rules and regulations than partnerships. For example, they must follow the detailed rules and procedures set out in the Companies Act. Company accounts must show more information than the accounts of a partnership and companies must have at least one director and one company secretary.
  • Companies face greater disclosure and administration requirements than partnerships. Therefore, the running costs for a company are generally higher than for a partnership. For example, they must file annual audited accounts or FRS or Directors’ Report if they are exempted from audit and returns with ACRA (Registrar of Companies), with penalties if they are late. These can be publicly available.
  • Directors must not make any secret profit out of their position and they must exercise their powers for the benefit of the company.
  • Directors must disclose to the company certain information about their interests in the company’s shares, contracts and debentures.
  • There are restrictions on the freedom of the company to enter into contracts or arrangements with its directors.
  • A director is always subject to removal by an ordinary resolution passed by the shareholders.
  • Directors can have personal liability in some circumstances, for example if they breach their duties to the company, or if they commit wrongful or fraudulent trading.
  • Limited liability may mean very little in practice, if the directors or shareholders have to give personal guarantees to banks or landlords.
  • Ceasing to trade can be more difficult and costly than in the case of partnerships, as the business belongs to the company, and that company will need to be correctly wound up.
  • Companies can be more expensive to set up than partnerships.
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