Difference Between Company Limited By Guarantee And Limited Liability Company

Singapore’s legal landscape gives rise to the establishment of a wide variety of legal entities and business structures that caters to the diverse needs of entrepreneurs. When making a decision of company incorporation in Singapore, one of the most important factors to consider is the type of business structure that you choose for your business. It can impact your tax payments, personal liability, ability to borrow money, image and perception of your business among your clients and suppliers, amount of paperwork your business is required to do, compliance responsibilities and ease of doing business.

Therefore, it is important to understand the different business structures well so as to make a wise choice. In this article, we will understand the difference between the two most popular types of business structures namely, Company Limited by Guarantee and Limited Liability Company.

What is Company Limited by Guarantee?

A company limited by guarantee is a type of business entity incorporated for non-profit purposes or for the public good. It includes societies, clubs, trade associations, charitable and religious bodies, community projects and other similar organisations. Instead of distributing the profits to their members, these companies retain the profit or utilise them for some relevant purpose.

In the case of a company limited by guarantee, the liability of members is restricted to their asset contribution in the company. In addition, the amount of guarantee by the members is mentioned in the Memorandum of Association.

Reasons to Set Up a Company Limited by Guarantee
  • A company limited by guarantee protects its members from any personal liability for the debts or losses that may be incurred by the company.
  • Moreover, they are considered more trustworthy and legitimate in comparison to other unincorporated businesses. People view them as a reliable and credible establishment.
  • Funding bodies and local authorities prefer to collaborate with organisations registered as company limited by guarantee.
What is Limited Liability Company?

As the name suggests, a limited liability company is a type of business entity where the liability of shareholders is only to the extent of the amount of their capital contributions. In other words, the personal assets of the owners are safe from corporate debts.

Limited liability company enjoys a separate legal identity that is distinct from its owners and shareholders. It is a separate person in the eyes of law which is vested with certain rights and imposed certain obligations.

Reasons to Set Up a Company Limited by Guarantee

A limited liability company is easy to incorporate and is considered to be the most effective business structure to boost your professional status.  It helps you establish yourself as a trustworthy and credible entity. It is an ideal business structure especially for new businesses and existing sole proprietors.

As mentioned earlier, a limited liability company enjoys limited liability for your organisation’s debts and protects your personal finances and assets again business liabilities.

What choice should you make?

While every business structure has its own pros and cons, it is crucial to choose the most ideal structure for your organisation. Your choice should be based on the profit sharing model that you intend to follow. This is the best approach to follow while taking a decision.

So, if you are planning to set up a profit-making business, you may consider incorporating a limited liability company, while if you are planning to set up a non-profit-making organisation, you may consider incorporating a company limited by guarantee.

The Bottom Line

The choice of your business structure should suit your company’s present and future needs. You may take the advice from a professional company who can guide you on the ideal business structure looking at the comprehensive perspective of your business.

At IMC Group, we help our clients choose the ideal business structure which helps them meet their goals. When you hire us you don’t have to worry about how to register a company in Singapore. We take care of everything right from deciding the business structure to completing all the registration and compliance requirements. So, get in touch with us today!