In Singapore, non-profit organizations can operate as Companies Limited by Guarantee (CLGs), charitable trusts, or societies. Setting up a CLG offers several benefits, such as limited liability for members, no need for share capital, and eligibility for tax exemptions. This article explains the main features of a CLG and the steps to incorporate one.

What is a Company Limited by Guarantee?

A Company Limited by Guarantee (CLG) is a type of company often set up for non-profit activities or work that benefits the public, like charitable projects. Registered with the Accounting and Corporate Regulatory Authority (ACRA) and regulated by the Companies Act, CLGs give non-profit organizations a formal corporate structure. Additionally, CLGs can apply for charity status if they meet certain requirements.

What's the Difference Between Companies Limited by Guarantee and Companies Limited by Shares?

Companies Limited by Guarantee (CLGs) are different from companies limited by shares in a few key ways. CLGs don’t have share capital, so members’ liability is only up to the amount they agree to contribute if the company winds up, as stated in the company’s constitution. In contrast, for companies limited by shares, shareholders’ liability is limited to the value of the shares they own.

Why Should You Incorporate a Company Limited by Guarantee?

Some organizations may choose not to incorporate to save on costs, but incorporation provides valuable benefits.

First, incorporation offers members limited liability. When a CLG is incorporated, it becomes a separate legal entity from its members. This means that the CLG can sue or be sued in its own name, and its members are not personally responsible for the company’s debts—protecting their personal assets if the company faces financial trouble.

Incorporation can also bring tax advantages. While CLGs generally pay corporate tax at a rate of 17%, they may qualify for certain tax exemptions or deductions. Additionally, CLGs with charity status are exempt from tax.

Choosing the Right Legal Structure for Your Non-Profit: CLG, Society, or Charitable Trust

Non-profits in Singapore can operate as Companies Limited by Guarantee (CLGs), societies, or charitable trusts. Each structure has distinct characteristics, so it’s important to understand their differences to choose the best fit for your organization.

• Structure Differences
  A society requires at least 10 members and is best for small, membership- or volunteer-based groups. A trust is typically created by individuals who want to set aside funds for charitable purposes, but it can be expensive to establish and maintain.
  
• Legal Identity and Liability
  Unlike CLGs, societies and trusts do not have separate legal identities. This means societies and trusts cannot sue or be sued as entities; instead, individual members or trustees bear personal liability for any legal issues or debts. By contrast, a CLG has its own legal identity, allowing it to sue or be sued in its own name. Members of a CLG enjoy limited liability, which protects their personal assets from company debts or losses. Considering these factors, CLGs offer the advantages of legal protection and tax benefits, making them suitable for many non-profits.

Steps to Incorporate a Company Limited by Guarantee in Singapore

• Legal requirements
  To set up a Company Limited by Guarantee (CLG) in Singapore, you need to apply through ACRA. The company’s constitution must be submitted on ACRA's BizFile+ website. The constitution should include the company's name, the amount each member guarantees to pay if the company is wound up, and a clear statement of the company’s objectives.
  
• Procedure, Documents, and Fees
  Reserving the company name costs $15, and the registration fee for a CLG is $300. Once the registration fee is paid, the company is usually incorporated within 15 minutes. If the application requires further review by authorities, it may take between 14 days and 2 months for approval.

Regulatory Compliance for Companies Limited by Guarantee

CLGs might need to apply for specific licenses, depending on their activities. This should be done when registering with ACRA. To check and apply for the required licenses, visit the GoBusiness website.

How Much Are Companies Limited by Guarantee Subject to Tax, and Do They Qualify for Tax Deductions or Exemptions?

CLGs can qualify for corporate tax deductions and exemptions, but how much of their income is taxed depends on the type of income they earn.

If a CLG:

• Operates as a trade or professional association, and
• Earns more than 50% of its revenue from membership fees from Singapore members, which are tax-deductible under section 14 of the Income Tax Act,

then the CLG is considered to be running a business. This means all income from both Singapore members and non-members is taxable. However, if 50% or less of the revenue from Singapore members is tax-deductible, only the income from non-member transactions is taxable.

How to Apply for Charity Status for a Company Limited by Guarantee

A Company Limited by Guarantee (CLG) may want to apply for charity status because it allows them to get full tax exemption on their income.

To apply for charity status, a CLG must meet the criteria set by the Commissioner of Charities. Charities can run business activities, but these activities must be limited.

In Singapore, a charity is an organization that:

• Operates on a not-for-profit basis;
• Is set up for charitable purposes only; and
• Carries out activities that benefit the public.

Charitable purposes include:

• Helping the poor;
• Promoting education;
• Advancing religion; or
• Other community-benefiting purposes, such as improving health or animal welfare.

To apply for charity status, the organization must submit an application within 3 months of being set up through the Charities Portal. The organization must show the Commissioner of Charities that:

• Its goals are purely charitable;
• It has at least 3 board members, with at least 2 being Singapore citizens or permanent residents;
• Its goals mostly benefit the Singapore community.

Dissolving a Company Limited by Guarantee (CLG)

A CLG can be dissolved in different ways, such as winding up or striking off.

Winding Up happens when the company cannot pay its debts. The company is shut down, and any money from selling its assets is used to pay the creditors. Winding up can happen in two ways: either involuntary (forced by the court) or voluntary (chosen by the company).

Striking Off is another way to dissolve a CLG. A director can ask ACRA to remove the company’s name from the official register, usually when the business has closed or the CLG has already been fully wound up.

What Happens to a CLG’s Remaining Funds/Assets? Can They Be Given to Members?

Any remaining funds or assets of the CLG after it is wound up cannot be given to its members. Instead, they must be given to organizations with similar goals or to a registered charity, as decided by the Commissioner of Charities.

Professional Help to Setup Charitable Foundation In Singapore

If you want to start a non-profit organization in Singapore, it's a good idea to get professional help. A services provider can guide you through the registration process and ensure you meet ongoing compliance requirements.

Clooud Consulting specializes in helping people set up non-profit organizations and foundations for various charitable goals. Whether your focus is on humanitarian work, conservation, supporting underprivileged families, or environmental issues, we have the expertise to assist you. Are you curious to know more? Reach out to us for a quote!

Non-profit charities are organizations that exist to help the public. They are created solely for charitable purposes and usually get their funding from donations, either from individuals or businesses. The money they receive is used for activities that help those in need, as well as for their everyday operations. Because of this, charities need audit services to make sure their financial records are properly managed. Audit firms provide these charity audit services in Singapore, following the best accounting and financial practices.

Donating Equals Tax Exemption

All registered charities and Institutions of a Public Character (IPCs) automatically receive tax exemptions. If a property is used for charitable purposes, it may also qualify for full or partial property tax exemption upon application, which is reviewed by the Comptroller of Property Tax. When donors contribute to registered IPCs, they receive tax exemption receipts that can be used to claim tax relief on their tax assessments. This encourages IPCs to uphold high standards of regulatory compliance and governance.

Auditing of Charities

Like other registered organizations, charities and IPCs must have their accounts audited to ensure they follow the guidelines set by the Inter-Ministry Committee (IMC) on the Regulation of Charities and IPCs. These guidelines require IPCs to comply with Financial Reporting Standards (FRS) and Recommended Accounting Practices (RAP) 6 issued by the Institute of Certified Public Accountants of Singapore. Audits help ensure that best accounting practices are followed. Since donors have a right to know how their contributions are used, charity audits promote transparency and accountability, helping to prevent misuse of funds.

Charity Capability Fund (CCF)

Funding Period: April 1, 2022 – March 31, 2027

Objectives of the Fund

The Charity Capability Fund (CCF) aims to boost productivity, improve operational efficiency, and enhance governance and management capabilities in exempt and registered charities and Institutions of a Public Character (IPCs).

Eligibility Criteria

• All exempt and registered charities and IPCs can apply for the CCF, unless specified otherwise.
• Applicants must not receive funding from other government sources for the same purpose unless explicitly permitted.
• To be considered, applicants must submit their latest Annual Report, audited Financial Statements, and a Governance Evaluation Checklist through the Charity Portal.
• Projects, training courses, or purchases that started before submitting and receiving approval for the CCF application are not eligible for funding.

Why Choose Clooud Consulting?

• Accuracy and Compliance
  We ensure your financial statements are accurate and meet all legal requirements. Our thorough audit processes help spot any discrepancies and promote transparency in your financial reporting.

• Specialized Expertise
  Our team has extensive experience in auditing NGOs, non-profits, and charities. We understand the unique financial and regulatory challenges these organizations face and apply our specialized knowledge to every audit.

• Tailored Approach
  Every non-profit organization has different financial needs. We offer customized audit solutions that fit your specific requirements, making the audit process relevant and comprehensive.

• Timely and Efficient
  We know how important timely financial reporting is. Our efficient audit processes aim to minimize disruptions and deliver high-quality results on time.
  
• Confidentiality and Integrity
  We prioritize confidentiality and integrity in everything we do. You can trust us to handle your financial information with the utmost care and professionalism.

Professional Help

If you want to start a non-profit organization in Singapore, it’s a good idea to seek professional assistance. A professional services firm can guide you through the registration process and help you meet ongoing compliance requirements.

Clooud Consulting specializes in setting up non-profit organizations and foundations with different charitable goals. Whether your focus is on humanitarian work, conservation, supporting underprivileged families, or tackling environmental issues, we have the expertise to help you. Contact us for a quote!

Are you struggling with late accounting closures, delayed filings on the Charity Portal, or facing issues like fundraising malpractices? Worried about potential audit failures or being in the news for charity fraud? It's time for a change! Let's reform and strengthen your charity's internal control and governance framework together. With my expertise, you can improve compliance, streamline operations, and rest easy knowing your organization is secure and well-managed. Let's ensure your charity runs smoothly, maintaining trust and credibility in the community by understanding more on avoiding the charity scandal: protecting IPCs and Charities.

What is Fund-Raisers?

Organizations and individuals, including charities and Institutions of a Public Character (IPCs), can raise funds in Singapore for charitable, benevolent, or philanthropic reasons. This includes supporting charity operations, programs, or providing aid for disasters abroad.

A "fund-raising appeal" refers to asking people to donate money or property, or receiving donations for these purposes. All fund-raising appeals in Singapore, whether online or offline, and whether for local or international charitable causes, are regulated under the Charities Act and related regulations such as Charities (Fund-Raising Appeals for Local and Foreign Charitable Purposes) Regulations 2012 and Charities (Institutions of A Public Character) Regulations (for IPCs).

Responsibilities and Requirements for Fund-Raisers

This section outlines the key considerations when conducting fund-raising appeals in Singapore for charitable purposes. It covers the permits required for different types of fund-raising appeals by charities, IPCs, commercial fund-raisers, or individuals. For example, permits are needed if you plan to raise funds for international charitable causes.

Different rules apply when starting a fund-raising campaign, depending on whether you're a charity (including an Institution of a Public Character) or a member of the public. Charities can also hire commercial fund-raisers or participators to help with their fund-raising efforts.

A commercial fund-raiser is someone paid to raise funds for a charity, while a commercial participator is a business that raises funds for charity as part of its regular activities (e.g., retailers, banks, pharmaceutical companies).

Steps to Prevent Fraud in Your Charity

Here are five essential steps to prevent fraud in your charity:

1. Implement Reliable Accounting Software
   Utilize a reputable cloud accounting software like Xero, approved by ACRA. This strengthens internal controls by ensuring accurate financial tracking and compliance. You may also qualify for government grants such as the Charities Capability Fund (CCF) to assist with implementing Xero.
   
2. Establish Strong Governance:
   Avoid conflicts of interest and enhance accountability by instituting a robust governance system. This involves assigning different tasks to prevent people from overseeing processes they are directly involved in, making sure there are checks and balances in place.
   
3. Develop Comprehensive Internal Controls:
   Enhance operational efficiency and transparency in financial reporting by implementing a structured internal control framework. This framework ensures that your charity effectively manages all aspects of its operations in accordance with regulations.
   
4. Implement Effective Risk Management:
   Identify potential risks and fraud threats, and develop proactive measures to address them. By having a solid risk management strategy in place, you can mitigate risks before they escalate into crises or scandals.
   
5. Outsource Internal Audit:
   Consider outsourcing your internal audit function to an independent party. This external review impartially and comprehensively evaluates your governance, internal controls, and risk management practices annually. Outsourcing can also save costs compared to maintaining an internal audit team.
   
   By following these steps, your charity can proactively safeguard against fraud, maintain financial integrity, and uphold trust with stakeholders and the public.

Why Choose Xero?

ACRA supports Xero, providing a dependable foundation for robust internal controls in your charity. Its features help divide responsibilities with customizable roles such as preparer, reviewer, and approver in an approval hierarchy.

The system securely stores all related documents, accessible to auditors from anywhere with just login details.

You can use government grants like the Charities Capability Fund to pay for software, system setup, and maintenance fees. The grant also covers consultancy services for improving governance, internal controls, and risk management, including creating necessary policies and procedures. With Xero, you can prevent scandals and fraud by having strong governance practices, giving you confidence and security.

How Clooud Consulting Can Help You?

Dr. Luk, a seasoned chartered accountant and corporate governance expert with over two decades of experience as a business coach, has supported more than 1,000 business owners, NGOs, and SMEs in fortifying their governance frameworks to prevent fraud and mitigate risks of scandals.

If you're interested in understanding how the Charities Capability Fund can benefit your upcoming governance initiatives, reach out to us for a complimentary 45-minute consultation with Clooud Consulting.