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Pros and Cons of Incorporating a Private Limited Company

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Pros-and-ConsA private limited company is registered under the Singapore Companies Act, Chapter 50. They are registered with ACRA (Accounting and Corporate Regulatory Authority), the registry of companies in Singapore. Unlike the other type of businesses that can be incorporated in Singapore, like a sole-proprietorship or partnership, a private limited company has a separate legal identity. Owing to this fact, the private limited company can sue or be sued under its own name in Singapore.

Almost anyone above 18 years of age can incorporate a company in Singapore. The person wants to incorporate a company must be a Singapore citizen, or a permanent resident, or an employment pass holder, or a dependent pass holder. The director of the company cannot be a person who has a history of undischarged bankruptcy, felony, or any other kinds of dishonesty charges against him.

For every aspect, there is a good and the bad side of it; similar is the case with incorporation of a private limited company. Leaf through the pointers given below, before you take a decision to incorporate a private limited company.

Advantages

  • Limited Liability Nature

If by any chance a company fails, the shareholders are only liable to pay uptil the extent of investment done by each one of them individually. The personal assets of the owners are safeguarded from being liquidated.

  • Ease of Transfer of Ownership

Transferring ownership is cakewalk for a private limited company, because all that is required to do is just transferring the shares to the new owner’s name.

  • Increased Attractiveness to Investors

Big investors and funding institutes like banks prefer to lend money to companies like a private limited company, because they view credibility in such a company.

  • Good Growth Tendency

When a company grows in size, it has the option of being converted to a public company. By doing this it can easily raise funds by offering of shares and debentures to the public.

  • Competitive Taxation Regime

A private limited company is a tax efficient entity. It enjoys many benefits in terms of tax rebates, schemes, and policies. The corporate tax rate for companies is below 9% for profits up to SGD 300,000 and it is capped at 17% for profits exceeding SGD 300,000.

Disadvantages

  • Tighter Rules

Incorporating a private limited company involves abiding by the stringent rules and regulations of the Companies Act, which are stricter as compared to that of the sole proprietorship and partnerships. Even the accounts for a private limited company must have more information than that of others.

  • Greater Administrative Requirements

The running of a private limited company requires greater administration activities in terms of work force required as well as the operational costs. Even the cost of setting up and running a private limited company is higher than the other two types of business structure.

  • Difficult Liquidation Process

Ceasing of trade and the consequent strike-off process is more difficult and costly for a private limited company. The legal compliances involved are intricate the cost of the process is also high.

In nutshell, it is always wise to weigh the pros and cons properly before taking the plunge, and deciding about the type of company you would incorporate. This is important because once you incorporate a private limited company; it is very difficult and complicated to turn back.