How Do Corporations in Singapore Work?
There are several types of corporations in Singapore, each with its own set of requirements and benefits. The key differences between the different corporation types typically lie in their tax obligations and how they generate income. Knowing the ins and outs of the different corporation types can help you make more informed decisions about the tax and liability implications of your business.
What Is a Corporation?
A corporation is a legal entity that shareholders or stockholders own, with the primary purpose of earning a profit. Corporations are separate from their owners, and the state allows these entities to have the same rights and responsibilities as individuals.
This business structure provides limited liability protection to its owners, as well as the ability to raise capital through the sale of shares.
A corporation is a business entity that is owned by shareholders. The shareholders elect a board of directors to manage the corporation. The board of directors hires the executives who run the corporation day-to-day.
Incorporation usually starts at the state level, where there are many different types of corporations that often have different requirements depending on the state. For example, some states offer corporations better benefits like limited liability and tax breaks if they stay in that state.
Different Types of Corporation
Limited Liability Companies
The LLC, or limited liability company, has aspects of both partnerships and corporations. This type of business offers owners protection from being held liable for any financial damages the company may cause.
LLCs have many benefits that appeal to small business owners in Singapore, including the fact that they typically don’t need a board of directors and can be structured as a partnership. LLCs also have pass-through taxation, which means that only the owners pay income taxes on their personal share of the business rather than the entity itself. This can be a major advantage for single owners.
C Corporations
A C corporation is a business structure that the Singapore government taxes separately from its owners. Many large companies choose to organize themselves as C corporations to take advantage of certain benefits, like the ability to have an unlimited number of shareholders both domestically and internationally.
Individual shareholders are generally subject to income taxes on dividends received from a corporation, but there are a few exceptions. For example, if a shareholder receives distributions during the corporation’s liquidation or termination of their interest, they may be exempt from income taxes on those dividends.
Nonprofits
Nonprofit organizations use their surplus revenue to achieve goals for a wide variety of causes, similar to how traditional corporations use their profits.
They typically have a board of directors to make key decisions on behalf of the organization, and they get their funding from donors or the government instead of relying on profits.
The money they get is usually in the form of grants, which they use to support their designated cause. Nonprofits are also exempt from taxes, as are private donations to them.
Closed Corporations
Closed corporations, also known as private companies, are businesses owned by a small number of people. These people usually have a close association with the company.
Because closed corporations are not public companies, they do not have to follow some of the traditional corporation rules. For example, they may not need to create a board of directors or have annual shareholder meetings.
The number of shareholders a closed corporation can have depends on the state’s laws. But generally, there cannot be more than 35 shareholders.
B Corporations
B corporations, or B corps, are private, for-profit businesses that prioritize social and environmental responsibility alongside profit. While B corps don’t receive tax benefits in Singapore, they often enjoy improved relationships with customers and shareholders, as well as the satisfaction of achieving important social missions.
C Corporations
A C corporation is a company or organization that the government taxes separately from its owners. Many larger businesses in Singapore choose to be C corporations for federal income tax purposes. They’re also able to have an unlimited number of shareholders that are both domestic and foreign.
Governments typically tax the distributions of earnings and profits as dividends, whether they’re distributed to shareholders or kept within the company.
Dividends are taxed at both the corporate and individual levels, though there are exceptions for distributions made during a corporation’s liquidation or when a shareholder’s interest is terminated.
S Corporations
S corporations are business entities that voluntarily elect to have their corporate income, losses, credits, and deductions go straight to their shareholders instead of being taxed at the corporate level. This business structure is beneficial because it allows them to avoid double taxation, which can happen to C corporations. By taxing income at the shareholder level and distributing payments to shareholders tax-free, S corporations provide a lot of financial benefits for those involved.
There are some corporate penalties that don’t apply to S corporations, for example, the personal holding company tax or the accumulated earnings tax. Just like C corporations, this type of entity has to follow the law of the state it resides in.
How Do Corporations Work?
A Singapore corporation must name a board of directors before it can start operating, and shareholders elect the members of the board of directors during the annual general meeting.
Shareholders get one vote per share and don’t have to take part in running the corporation day-to-day. However, shareholders can be elected as members of the board of directors or executive officers of the corporation.
The board of directors is a group of individuals who are elected to represent shareholders. Their main responsibility is to make decisions on behalf of the shareholders that will have a major impact on the company. They also create policies to guide the management and daily operations of the corporation.
The elected members of the board of directors have a duty to care for the shareholders and must act in their best interests. They must also ensure that the policies they create are in line with the shareholders’ interests and are beneficial for the corporation as a whole.
Wrapping Up
Incorporating a business in Singapore can help it to grow and succeed. There are many benefits to incorporating, such as special protections and benefits from the state, as well as access to capital through shareholders.
However, it’s important to be aware of the different requirements for each state before incorporation. Consulting with an expert who is familiar with your state’s laws is the best way to ensure successful incorporation.
More compliance obligations may mean more time and money spent on complying with a company’s statutory obligations. However, with good time management and regular bookkeeping, these requirements will not be unmanageable.
The decision of which business entity to choose can be difficult, depending on one’s business requirements. Most government grants and incentives apply specifically to companies, so this may be a factor to take into consideration.
Only this is usually the entity of choice for many entrepreneurs and foreign investors.
