When it comes to establishing a business or organization in Singapore, one of the key decisions you'll need to make is the type of company structure that best suits your goals. A company limited by guarantee (CLG) is an ideal structure for non-profit organizations, charities, clubs, and professional associations. Understanding the capital requirements for this type of company is essential if you're considering setting up a Singapore company limited by guarantee.
In this blog post, we will provide a detailed explanation of the capital requirements for a company limited by guarantee in Singapore, how it differs from other business structures, and what you need to know before starting the registration process.
What is a Company Limited by Guarantee?
A company limited by guarantee is a special type of company structure in Singapore primarily used for non-profit organizations, charities, and other entities that do not seek to generate profits for shareholders. Instead of having shareholders who own shares in the company, a CLG has members who guarantee to contribute a fixed amount (usually a nominal sum) toward the company’s liabilities in the event of liquidation.
This structure is often chosen by organizations with charitable or non-profit motives, such as educational institutions, sports clubs, trade associations, or advocacy groups. The company’s purpose is to promote the interests of its members and not to generate profits for distribution.
Capital Requirements for a Company Limited by Guarantee in Singapore
Unlike a private limited company (which has share capital), a company limited by guarantee does not issue shares or require a minimum paid-up capital to be raised during incorporation. This makes the capital requirements for a CLG quite different from those of other business structures in Singapore.
1. No Minimum Paid-up Capital Requirement
One of the most notable features of a company limited by guarantee in Singapore is that there is no minimum paid-up capital requirement for incorporation. The focus of a CLG is not on profits or shareholder ownership, but rather on its purpose and activities. Therefore, the capital structure is defined by the guarantee amount that the members of the company agree to contribute in case of liquidation.
The guarantee amount can be as low as S$1 per member, and typically, the total amount of the guarantee is not significant. This is because the company is not designed to generate returns for its members, but to fund its activities and projects.
2. Guarantee Amount
Each member of the company is required to sign a memorandum of association, which states their commitment to contribute a specified amount in the event of the company being wound up. This amount is called the guaranteed amount. While the guarantee can be as low as S$1, it is typically set higher if the company expects to have liabilities or if members wish to have more financial backing.
In practice, the guaranteed amount is rarely called upon, as most companies limited by guarantee are established for purposes such as charity, education, or advocacy, and do not generally run large-scale operations with high financial risks. However, the guarantee acts as a safeguard in the event that the company’s liabilities exceed its assets upon dissolution.
3. No Requirement to Deposit Capital
Since the guarantee amount is not considered "share capital," there is no requirement to deposit any funds into a company bank account at the time of incorporation. The amount is only relevant in the event that the company is dissolved, and its liabilities exceed its assets. The members' guarantee will then be used to settle the debts, though this is a rare occurrence for most non-profit organizations.
This is in stark contrast to other company structures in Singapore, such as private limited companies, which require a minimum paid-up capital of S$1 or more to commence business operations and offer shares to investors.
4. Voluntary Contributions and Fundraising
For a company limited by guarantee, funds for daily operations and activities typically come from donations, fundraising, membership fees, grants, and sponsorships. The members' guarantee does not serve as operating capital; instead, the company relies on external sources of income to fund its activities.
This means that the organization will need to focus on external fundraising efforts and revenue-generating activities to support its programs. In some cases, the company may choose to have a board of trustees or directors who manage these efforts.
Additional Financial Considerations
While there may not be a minimum capital requirement for a company limited by guarantee, there are other financial and regulatory considerations that must be taken into account:
1. Compliance with Accounting and Auditing Standards
Even though a company limited by guarantee is a non-profit entity, it must still comply with accounting standards in Singapore. This includes filing annual financial statements and ensuring that the company's operations are transparent and in compliance with Singapore’s laws and regulations. Depending on the company’s size, an audit may also be required.
2. Tax Exemptions and Benefits
One of the primary reasons many non-profit organizations choose to set up as companies limited by guarantee in Singapore is the potential for tax exemptions. If your company is registered as a charity and meets the necessary criteria, it may be eligible for tax exemptions on income, donations, and other activities.
In addition, charitable organizations may qualify for the IPC (Institution of a Public Character) status, which provides further tax incentives for both the organization and its donors. It’s important to consult with professionals to ensure compliance with these requirements and benefit from the relevant tax incentives.
3. Dissolution of the Company
If a company limited by guarantee is dissolved, the members are liable to contribute only the amount specified in their guarantee. This ensures that members are not personally liable for the company's debts beyond the guarantee amount. However, if there are outstanding liabilities after the dissolution, the assets of the company will be used to pay off these debts, and any remaining assets must be transferred to another non-profit or charitable entity.
How to Incorporate a Company Limited by Guarantee in Singapore
Limited by guarantee company formtion in Singapore follows a similar process to setting up other types of companies. Here are the general steps involved:
- Choose a Company Name: Ensure the name is unique and adheres to the Singaporean naming conventions.
- Draft the Constitution: This document outlines the company’s operations and governance structure.
- Appoint Directors and Members: You must have at least one local resident director and one member. There is no limit to the number of members.
- File with ACRA: Submit your registration with the Accounting and Corporate Regulatory Authority (ACRA), which will process your application and issue a Certificate of Incorporation.
- Register with the Tax Authorities: Apply for the necessary tax exemptions if your organization qualifies as a charity.
Conclusion
In conclusion, a company limited by guarantee in Singapore offers a unique structure for non-profit organizations and charities, with flexible capital requirements. While there is no minimum paid-up capital requirement, members are required to agree to a guarantee amount to cover any potential liabilities in the unlikely event of liquidation.
This structure provides a straightforward and efficient way to establish a non-profit organization, with the flexibility to raise funds through donations and external support, while adhering to Singapore’s rigorous legal and financial standards. By understanding these capital requirements and compliance obligations, you can ensure that your company limited by guarantee is set up for success.
Frequently Asked Questions (FAQ)
1. What is the capital requirement for a company limited by guarantee in Singapore?
There is no minimum capital requirement for a company limited by guarantee in Singapore. The capital is defined by the guarantee amount, which is typically nominal (such as S$1 per member).
2. How is a company limited by guarantee funded?
A company limited by guarantee is typically funded through external sources, such as donations, membership fees, grants, and sponsorships, rather than member contributions or share capital.
3. Can a company limited by guarantee make a profit?
A company limited by guarantee can generate surplus income, but it cannot distribute profits to members. Any surplus must be reinvested into the organization’s charitable or non-profit activities.
Also Read: Checklist for Sole Proprietorship Registration in Singapore
