- February 27, 2023
- Posted by: Vivek Sharma
- Category: Knowledge Base
A limited liability company (LLC) is a popular business structure for entrepreneurs looking to start a business in Singapore. An LLC offers several benefits to business owners, including the protection of personal assets, ease of management and a straightforward tax system. This article will discuss the basics of LLCs in Singapore, including their formation, management and advantages.
Formation of an LLC
The first step to forming an LLC in Singapore is to choose a name for the company. The name must be unique and not already in use by another company. Once a name has been chosen, the next step is registering the company with the Accounting and Corporate Regulatory Authority (ACRA).
An LLC that denotes a business entity should be registered per the Companies Act, Chapter 50. Possessing a distinctive legal personality, an LLC manifests rights to own properties while enjoying perpetual succession. An LLC is deemed a Public Company if it has over 50 shareholders and a Private Company if the number of shareholders is more than 20 but fewer than 50.
In this context, it is to be noted that eligible nascent organisations, barring investment holding and property companies, are provided with an exemption of 75% on the first S$100,000 of accountable income and a further benefit of 50% on the next S$100,000. Profit exceeding S$200,000 is taxed at the standard rate of 17%.
In addition to the waiver for startups, all companies are granted a 75% waiver on the first S$10,000 of chargeable income and a further 50% tax exemption on the next S$190,000 of chargeable income, with maximum exemptions extending up to S$102,500.
To shield its companies from the atrocious costs of a time-consuming annual audit, the Singaporean government introduced the “Small Company” concept in 2015 to provide essential financial support to young firms.
One critical type of private limited company is an Exempt Private Company (EPC). Specifically, the mandate requires the company to have 20 shareholders, none of whom are considered corporations. Apart from lucrative tax benefits, these come with additional allowances, including extending loans to directors.
To register an LLC, the company must have at least one shareholder and one director who is a resident of Singapore. The company must also have a registered address in Singapore. Additionally, the LLC must appoint a company secretary within six months of its incorporation. Under normal circumstances, establishing an LLC costs around $315.
Management of an LLC
LLCs in Singapore are managed by their directors, responsible for making important decisions and managing the business’s day-to-day operations. Shareholders have the right to vote on important matters, such as changes to the company’s constitution, but are not involved in the company’s day-to-day management.
Advantages of an LLC
One of the main advantages of an LLC is that it offers protection of personal assets. This tenet means that the shareholders’ personal assets are protected if the company runs into financial trouble or is sued. An LLC offers a simple tax system, with profits being taxed at the company rather than the individual level.
Another advantage of an LLC is that it is easy to manage. There are no requirements for annual general meetings, and the company’s directors have a lot of flexibility in how they choose to run the business. This advantage makes an LLC an attractive option for entrepreneurs who want to start a business without the burden of extensive legal and administrative requirements.
Overall, an LLC grants optimised flexibility for the owners, especially in dividing partnerships or equity and operating business, thereby protecting the shareholders from being lamentingly liable for the debts the Organization may build up. In the long run, it provides the much-needed professional front, thus inducing greater credibility and reputational advantage to the entity compared to other kinds of commercial bodies.
Conclusion
LLCs are a preferred business structure in Singapore for a good reason. It offers protection of personal assets, a simple tax system and ease of management. If you’re considering starting a business in Singapore, an LLC could be your right choice. However, it’s always a good idea to consult a legal or financial professional to determine the best structure for your business needs.