Exempt Private Limited Company Explained

What is an Exempt Private Company in Singapore?

A Singapore Exempt Private Company is a type of private company. As per the provisions, it cannot have more than 20 shareholders. And it cannot have a corporation as its direct or indirect shareholder.

A group of up to 20 individuals can come together and register an EPC in Singapore. An EPC can also be a private company entirely owned by the Singapore government and gazetted as being an EPC under the Companies Act by the Minister.

There is another type of private company. We know this type by the name Private Limited Company. A non-EPC is a private company that can have up to 50 shareholders or has shareholders that are corporations.

The features of an EPC are similar to a private limited company, but they are not the same. A private limited company can have corporations as their shareholders. But EPCs can’t.

Earlier, EPCs having annual revenue of $5 million or lower were exempted from statutory audits. For the business owners, it meant less compliance-related work and costs. It was why they prefered EPC’s for the company incorporation in Singapore.

The main motive behind a company audit is to safeguard the interests of its shareholders. It can reveal fraud or mismanagement in the company leading to debts or losses for it. In the case of an EPC, normally, its shareholders play the role of the company directors. It means they are in a position to safeguard their interests. It ruled out the necessity of initiating a company audit and hence, the audit exemption.

However, Singapore authorities amended the law. Since 1 July 2015, the private companies tagged as the “Small Company” are exempt from audit requirements.

Key Facts of Singapore Exempt Private Companies

Regulatory Framework: An EPC is governed by the Singapore Companies Act.

Shareholders: An EPC does not have the provision of allowing any other corporate body to hold its shares. In addition, it has a maximum of 20 shareholders who are natural persons. The shareholders can be Singapore residents or foreigners.

Shareholders’ Agreement: Shareholders’ agreement sets out the rules and regulations on the management of company management and obligations of the shareholders and directors. It may also give guidelines on matters that are not covered by the company’s constitution.

Directors: An EPC must have at least one director who is ordinarily resident of Singapore. There are no further restrictions on the nationality of other directors. A shareholder can also act as a director.

Corporate Secretary: An EPC needs to appoint a corporate secretary within 6 months from the date of its incorporation. This company secretary needs to be a licensed professional who is ordinarily a resident of Singapore.

AGM: As a newly incorporated company, EPC can hold its first Annual General Meeting (AGM) or shareholders’ meeting within 18 months from its date of incorporation. The rest of the AGMs need to be held no later than 15 months from the previous one. The meetings can be conducted outside Singapore also, and the shareholders are allowed to vote by proxy.

Capital: The minimum initial paid-up capital for the company incorporation in the form of an EPC is S$1. Any currency can be used to denominate the share capital.

Registered Office Address: Every EPC must have a registered physical office in Singapore. The business owners cannot provide a P.O. Box address for this purpose.

Director’s Reports: Generally, the companies file Director’s Reports along with their audited or unaudited accounts and annual reports. The companies that are exempt from audit requirements are allowed to submit their unaudited accounts. They prepare and file unaudited accounts as part of an annual report. The director’s report forms the first part of unaudited accounts.

Filing Annual Returns: EPCs need to submit their annual returns to the Registrar of Companies (ACRA) within 1 month from their Annual General Meeting. Filing of annual accounts with the Registrar is not required. They also need to file their annual tax return by 30 November of the following tax year.

In addition, every EPC has to declare the revenue amount and Estimated Chargeable Income (ECI) with the IRAS within 3 months of the end of its financial year.

An EPC is exempted from filing its audited annual accounts; instead, it can submit a solvency declaration duly signed by the company’s director and company secretary. If this document is not submitted, then the EPC also has an option of submitting its unaudited accounts to the ACRA.

This factor brings in the advantage of greater privacy for the directors and shareholders. The EPCs are still required to maintain proper accounting records, which are compliant with the format prescribed by the Companies Act and the Singapore Financial Reporting Standards (SFRS).

Benefits of Incorporating an EPC

• Reduced burden of audits translates into a saving of audit fees
• Startup tax exemption for the first three years on their taxable income
• The directors of EPCs can take a loan from the company
• An EPC has a distinct legal entity
• Practices asset protection for shareholders
• Can undergo transfer of shares and hence perpetuity of business as an entity
• As a private company, an EPC denotes credibility

The benefits an EPC enjoys are not available for other kinds of companies, especially private limited company. All the aspects, taken together, raise EPCs importance as the most viable business structure for company incorporation in Singapore. While enjoying all these privileges, there is one factor that cannot be overlooked, and that is safeguarding the interest of the shareholders.

For the above-mentioned parameter of shareholder’s security, the Singapore Companies Act has pitched in special provisions. If a shareholder holds more than 5% of an EPC’s share, then that shareholder, in addition to the Registrar of Companies, can ask the EPC to undergo an audit and submit audited accounts. Therefore, it can be rightly said that an EPC brings the best of both worlds, cost-effective benefits coupled with diligence to take care of the shareholders at the behest of the Registrar.