What Entity Should I Register My Groundup As?
Updated: Nov 17, 2020
(Caveat: There currently isn’t an avenue where you can lodge notice of your groundup’s existence and activities, so when we say “registering”, we’re typically referring to registering your groundup as a legal entity with ACRA or the Registry of Societies.)
At the early stages (and sometimes even in the later stages) of running a groundup, we often have to contend with the question of whether to register and the murky unknowns it consists of. If you’ve weighed the costs and benefits of registering and have decided to go ahead and register, this article aims to clear up some of those murky unknowns. There are in fact 9 entity options available to register as. But don’t get too overwhelmed by the number of options because they can be broadly broken down into two routes – the non-profit organisation (NPO) route or the social enterprise route.
What’s the difference between the two routes?
Both NPOs and social enterprises seek to serve social needs, but the main difference between the two is that social enterprises have a business model (meaning they sell a product or service) to generate the bulk of their income, while NPOs traditionally rely on donations and grants as their main source of income. Read on to find out more about the two routes.
Going the NPO route
There are 4 different types of entities you could register an NPO as – Charitable Trust, Co-operative, Company Limited by Guarantee (CLG) and Society. Charitable Trusts and Co-operatives are used in more specialised circumstances, so the bulk of NPOs are usually registered as either CLGs or societies. Registering as a CLG allows for more control as the decision-making usually lies with the board of directors, while societies will have to get members to vote in certain major decisions. But as a tradeoff for the more centralised control, CLGs are more heavily scrutinised than societies, requiring more administrative work (and often, fees) to comply with the governing laws.
Registering as an NPO doesn’t immediately mean you are a charity. Both CLGs and societies can go on to become charities, but charity status has to be applied for with the Commissioner of Charities. Only upon approval as a charity will full tax exemption be enjoyed, and to be able to issue tax-deduction receipts, there is a further step of applying as an IPC. This is a long journey that could take at least 3 years, as the audited financial statements for the preceding 3 years as a charity are usually requested during the IPC application process.
Going the social enterprise route
There is no special entity type for social enterprises in Singapore, so they are usually registered as companies. However, social enterprises can also sign up as a member with raiSE, and in doing so they are recognised as a social enterprise by the national body.
There are 5 different types of entities you could register your social enterprise as – Sole Proprietor, General Partnership, Limited Partnership, Limited Liability Partnership and Private Limited.
If you’re the sole driver of your groundup, you can either register as a Sole Proprietor or a Private Limited Company (Pte Ltd). As a sole proprietor, there is no mitigation of personal liability – you are still personally liable for the happenings of the business – but the Simplified Record Keeping Requirements for Small Businesses gives you the leeway of remaining haphazard for a while longer. Conversely, registering as a Pte Ltd means you will have to pay more attention to administrative duties, but enjoy the benefits of limited liability.
If you have trusted partners working with you on your groundup, you can consider registering as either a partnership or a Private Limited Company (Pte Ltd). Three types of partnerships are available, but a Limited Liability Partnership (LLP) is usually preferred over a General Partnership or a Limited Partnership, as it gives the owners the protection of limited liability (Note: they are still liable if there is fraud or personal negligence).
Then, the choice is between an LLP and a Pte Ltd. In choosing between the two, there are a number of things to think about. You might want to consider future plans like your exit strategy – going for a Pte Ltd may allow you to transit into an exit more easily as ownership is determined by shares. Consider also the tax implications – profits of LLPs are taxed based on personal income tax rates of each individual owner, while corporate tax rates (and possibly exemptions for new companies) apply for Pte Ltd companies. LLPs also generally require less administrative work than Pte Ltd companies, so that’s another thing to factor in.
There are some instances where groundups find themselves in a rather unique position – they are self-funded and able to sustain their operations that way, but are looking to register either for credibility or reduction of liability reasons. In this case, following the social enterprise route (even though there is no business model) would make the most sense as it allows the founder to retain decision-making control.
Choosing which entity to register as is certainly not easy as there are many moving parts to consider at the same time. Take your time to think about what you would like to achieve with your groundup, your motivations for registering, and how much control over the decision-making process you would like to retain.
Want to find out more in greater detail? Check out LegaleSE, a legal handbook for community organisations published by the Law Society of Singapore, or write in to make an appointment for a consultation with a pro bono lawyer at firstname.lastname@example.org.
The lawyers reading this may frown upon the technicality of some of the terms used in this article. I just tried my best to keep it as layman as possible, so don’t judge me (pun intended) please, thanks!