Setting Up a Non-Profit Business or Charity in Singapore
Running a non-profit or charitable organisation is a fulfilling way to give back to society. To encourage these types of initiatives, a different legal structure is available which allows the organisation to qualify for certain tax exemptions, apply for charity status (if needed), as well as limit liability to its members.
This structure is called a Company Limited by Guarantee (CLG); if you are setting up a charitable organisation, we highly recommend using this structure to incorporate your company. Want to learn more? Read on to learn more about the pros and cons of setting up a Company Limited by Guarantee.
No share capital
Stakeholders in a Company Limited by Guarantee do not own shares and are not considered shareholders. Instead, they are members of the company.
At incorporation, or at the stage of being added as a member, the member must commit to an amount of money which they agree to contribute to the assets of the company in the event of winding up or liquidating the company. This amount can be as little as S$1. This limits the member’s liability exposure to essentially zero, and therefore making it a very attractive option. If a member decides they later want to be no longer involved in the company, this can be done by a simple lodgement in ACRA.
On the other hand, if you choose to undertake non-profit or charitable activities without setting up through a legal entity, you can expose yourself to being sued for your own personal assets, including your car and your home!
Corporate Tax Rate
The corporate tax rate in Singapore is levied at a flat rate of 17% on chargeable income, which is considered a favourable rate compared with rates globally. Further benefits can be availed depending on the type of income the Company Limited by Guarantee receives.
Eligibility to Apply for Charity Status
By applying for charity status, the Company Limited by Guarantee can benefit from full tax exemptions. To apply for this, the company must meet the following criteria set by the Commissioner of Charities:
The company operates on a wholly not-for-profit basis
The company runs exclusively for charitable purposes
The company carries out activities to achieve those purposes which are beneficial to the public.
If you are planning to apply for charity status, please note you must do so within three months of its establishment to the Commissioner of Charities via the Charities Portal.
Whilst a Company Limited by Guarantee is eligible to apply for charity status, it should be clarified that many non-profits would not meet the above criteria, and a Company Limited by Guarantee structure would still be perfectly suitable for them.
Restrictions and requirements
There are a few restrictions and requirements placed on Companies Limited by Guarantee which are in place to help maintain the integrity of the company.
Companies Limited by Guarantee are prohibited from paying dividends and profits to their members. If you are intending to be a non-profit or charitable organisation, this should not be an issue. If the members are seeking to gain monetary return for their investment into the company, you should incorporate as Private Limited Company instead.
Companies Limited by Guarantee are required to be audited each year. This is to ensure the above is being followed and also to prevent the company being used for illicit activities such as money laundering.
Setting up and managing a Company Limited by Guarantee
The company’s name must be reserved, and the incorporation lodged with ACRA. Prior to incorporating, it is important to prepare the correct legal documents for the directors and members to sign.
It is common for ACRA to refer the lodgement for review by its governing body and you may be asked for more details of the business before the submission is accepted. Going forward, the company must meet its statutory obligations and file the Annual Return every year.
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Interested in setting up your own non-profit or charity? Contact us to see how we can help: [email protected].