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Exempt Private Limited Company

This article explains the concept of Exempt Private Limited Company, also called just EPC in Singapore. You will be able to comprehend all about this entity, its characteristics and the manner in which it is formed in the city state of Singapore.

EPC happens to be just one of the many types of business entities that can be formed in Singapore. Such an organization has to make use of the suffixes such as Pte Ltd or Private Limited to differentiate it from other business entities. As the name implies, an EPC is therefore a private limited company whose shares are not held by more than 20 individuals and also not by an entity specifically made for this purpose. Because it has much less legal requirements and it is also least expensive, an EPC today is the most common type of business organization in Singapore.

To begin with, there is no binding of audit and submission of accounts for an EPC with an annual turnover of less than S$5 million. The only requirement for this provision is that the entity must be solvent and this can be achieved simply by submitting in prescribed form a declaration of solvency that is signed by the company secretary and the Directors of the company. Another way of getting exemption from audit is to send the accounts to ACRA and the registrar. However, this is not all as an EPC gets tax exemptions also to add to its savings.

Tax sops for a newly formed EPC

The tax authorities in Singapore know how important it can be for a new business to have unhindered cash flow in the initial stages of the business. This is why businesses are given certain exemptions to provide them with valuable support. Every year till the completion of their 3rdyear in existence, EPC’s are exempt from tax liabilities for an income of S$ 300000 per annum. There is nil tax on the first $100000 income, a tax of just 8.5% on income of $100000 to $300000 and a tax of 17% on incomes of above $300000.

The procedure of making of an EPC in Singapore

For an EPC to come into existence, it has to be registered under the Companies Act in Singapore. It is possible to make an EPC with a single member. The shareholders of the company must be individuals and not entities to avail the status of EPC. All members of EPC are referred to as its shareholders. Companies Act of Singapore governs the existence and operations of EPC while it is also subject to laws of IRAS and ACRA.

Features of EPC

If there is a private limited company whose shares are not held by corporate entities and which does not have more than 20 shareholders, all of whom are natural persons; it naturally qualifies to become an EPC. No audit is required in the case of an EPC as long as its revenue does not exceed S$5 million in a year. Another feature of EPC is that such a company can give loan to its Director or Directors.

EPC and its share capital

Shares are issued to the shareholders as soon as an EPC comes into existence. Such a company can increase its capital by issuing more shares later on. One can arrive at the capital of an EPC by multiplying the value of a single share with the total number of shares issued. Shares in an EPC get transferred through an agreement between the buyer and the seller and not through public issues as is the case with other companies.

Loans to directors and shareholders in EPC

Exempt Private Companies are very flexible when it comes to engaging in financial activities such as granting loans and giving guarantees. In general, if a director of a company has 20% or more shareholding in another company, the Companies Act prohibits his company from giving loans or giving guarantees to loans obtained by the other company. Also, a company cannot extend loans to its director under this Companies Act. However, these restrictions do not apply in the case of an EPC which means that these companies can take financial decisions about their share capital based upon pragmatism far more freely.

But, one should not misconstrue that there are no responsibilities of EPC towards tax authorities. These companies have to maintain financial records and statements as required by the Companies Act and FRS. There is a provision that shareholders with at least 5% equity can ask the EPC to submit records that are audited. The same is true in case of Registrar of Companies.

Filing Requirements Definition Solvent – able to meet its debts when they fall due Insolvent – not able to meet its debts when they fall due
Small EPC Total turnover of the EPC remains less than S$ 5 million
  1. No need to audit accounts
  2. accounts need not be attached; has to declare solvency instead
audit not required accounts need to be filed
Normal EPC When turnover of EPC is greater than S$ 5 million
  1. accounts need to be audited
  2. no need to attach accounts; solvency declaration needed
  1. no audit accounts
  2. accounts have to be filed
Dormant EPC If there has been no business activity or no financial transactions have taken place in the financial year
  1. accounts audit not required
  2. accounts need not be attached; solvency declaration required
  1. no audit accounts
  2. accounts have to be filed

In addition to the features above mentioned, there are also other advantages of an EPC. These pertain to a distinct identity as a business entity and the safety of the capital of the shareholders. In view of all these benefits, Exempt Private Company remains the most popular choice when it comes to structuring the business entity.

If you feel interested to incorporate your business as an EPC, you can take advantage of the registration Wizard that we have established for the propose of helping entrepreneurs.

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