The majority of businesses are registered as private limited companies or exempt private companies in Singapore. Among private limited companies, there are two types – exempt private companies and non-exempt private companies. This article focuses on exempt private companies, their characteristics, benefits, and the process of registration.
WHAT IS AN EXEMPT PRIVATE COMPANY IN SINGAPORE?
An Exempt Private Company (EPC) is a type of private limited company in Singapore that has up to 20 shareholders and does not have more than 20 individual shareholders.
An EPC is exempt from specific requirements that apply to non-exempt private companies, including the filing of financial statements with the Accounting and Corporate Regulatory Authority (ACRA). However, EPCs are still required to keep proper accounting records and prepare financial statements.
CHARACTERISTICS OF EXEMPT PRIVATE COMPANIES IN SINGAPORE
- Shareholders – As mentioned earlier, an EPC can have up to 20 shareholders, and these shareholders can be individuals or corporate entities.
- Annual Revenue – An EPC must have an annual revenue of less than S$5 million. If an EPC exceeds this revenue threshold, it will lose its exempt status and will be required to comply with the reporting requirements that apply to non-exempt private companies.
- Audit Requirement – An EPC is exempt from the audit requirement, provided it meets the following conditions:
- The EPC has fewer than 20 shareholders.
- The EPC’s annual revenue is less than S$5 million.
- The EPC’s total assets are less than S$10 million.
- One resident director – At least one director must be a Singaporean citizen, a permanent resident, or an Employment Pass holder. The resident director is responsible for managing the company and ensuring that it complies with all relevant laws and regulations.
- One company secretary – The company secretary is responsible for maintaining the company’s statutory registers and ensuring that it complies with all relevant laws and regulations. The company secretary must also be a Singapore resident.
- Initial paid-up share capital of at least 1 SGD – Every company must have an initial paid-up share capital of at least 1 SGD. This means the company must have at least one shareholder who has contributed 1 SGD or more towards the company’s capital.
- A physical Singapore office address – This means that the company must have a physical location in Singapore where it can conduct its business activities. The office address must be a physical address and cannot be a post office box.
- EPCs are one of Singapore’s most popular types of enterprises because they offer a wide range of benefits and tax incentives. An EPC, as its name suggests, is eligible for exemptions from tax obligations and audit procedures. There are two types of EPCs, which are;
- An insolvent EPC – This type cannot pay debts and is required to file either a complete set of financial statements in XBRL format or key financial data in XBRL format, together with a PDF copy of your financial statements. (Read about XBRL filing Singapore)
- A solvent EPC – This type is able to pay debts, and it does not need to file financial statements. However, it is recommended that you to fulfill the requirement for filing as it is with insolvent EPC.
BENEFITS OF EXEMPT PRIVATE COMPANY IN SINGAPORE
An EPC provides similar benefits to a private limited corporation, such as a separate legal standing and members’ restricted liability through shares. Other recognized benefits are as follows;
Less compliance requirements
EPCs are exempted from filing annual accounts if the type is solvent upon registration. Also, an EPC can be exempted from conducting an annual audit if it meets at least 2 out of the 3 following criteria for the first or second financial year after incorporation, which are;
- Its total annual turnover is equal to 10 million SGD or less
- Total assets are equal to 10 million SGD or less
- Its total employees are 50 or less
Higher tax exemptions
For each of the first three years of operation, start-ups are offered a tax exemption on standard chargeable income of up to 200,000 SGD. Also, EPC is liable for 75% exemption for the first S$100,000 and a 50% exemption for the next S$100,000.
Distinct legal entity
An EPC is treated as a separate legal entity from its owners and shareholders. Hence, it is responsible for its own debts and losses. Its stockholders’ responsibilities would be limited to the amount of stock they held, and you may secure the continuance of your EPC in Singapore by transferring shares.
Flexibility in business loan
An EPC is able to be more independent in conducting business loans, and the entity is exempted from the typical restrictions. Hence, you are allowed to grant loans to other entities as a way to increase your profits.
A foreigner may act as the only shareholder of an EPC and possess all of its shares, implying that an EPC is suitable for complete foreign ownership.
EPC provides indicators of growing skills and financial integrity, which can help you create the perception of your company among investors and the general public.
Can one person start a private limited company in Singapore?
Companies Act, 2013, has introduced the concept of One Person Company (OPC) private limited, in which a single individual can start a private limited company.
What is the difference between a private company and an exempt private company?
An Exempt Private Company limited by Shares is a private company that has at most 20 shareholders.
How do you know if the company is an exempt private company?
If the number of shareholders exceeds 50, it becomes a public company. Finally, if the number of shareholders is 20 or less, with no corporation holding any beneficial interest in the company’s shares, it is known as an Exempt Private Company (EPC).
What are the cons of EPC?
There are several potential disadvantages of being an Exempt Private Company (EPC) in Singapore, including:
Limited number of shareholders: EPCs are restricted to having a maximum of 20 shareholders. This can limit their ability to raise capital and restrict their growth potential.
Limited fundraising options: EPCs are not allowed to issue shares to the public or engage in crowd-funding, which can make it challenging to raise capital beyond their current shareholders.
Reduced access to grants and incentives: EPCs may not be eligible for certain grants and incentives offered by the Singapore government, which are only available to larger, non-exempt companies.
Restricted transfer of ownership: EPCs may have limited options for transferring ownership, as shares can only be sold to existing shareholders or to immediate family members.
Limited public disclosure: EPCs are not required to file financial statements with the Accounting and Corporate Regulatory Authority (ACRA) and may not be subject to the same level of public disclosure as non-exempt companies. This can make it more challenging for investors and lenders to assess the company’s financial health and performance.
It’s important to note that there are also potential advantages to being an EPC, such as reduced compliance costs and less stringent reporting requirements. Ultimately, the decision to register as an EPC or non-exempt company will depend on the specific needs and goals of the business.