Overview
A non-profit organization is set up to support or engage in the activities that are related to public or private interest. Based on its name, it has no interest in monetary profit but when a non-profit organization earns a surplus (or monetary profit in profit-making organization), it will be retained by the organization for future use instead of distributing to the trustees of the organization.
Government does not necessarily play a part in setting up a non-profit organization. It is self-governed by a board of managing committees which comprise of individuals (or trustees) who will produce benefits for other individuals outside the membership of the organization.
In Singapore, a non-profit organization can be legally registered as a society, a public Company Limited by Guarantee (CLG) or as a charitable trust (foundation).
Society
A society is defined in the Societies Act as a club, company, partnership or association of 10 or more persons, whatever its nature or object, and not already registered under any other law. (resource from www.ros.mha.gov.sg)
A society is suitable for smaller group which does not excessively dependant on donations or external funding.
Characteristics of a Society
- It is governed by the Singapore Societies Act and is registered with the Registrar of Societies (ROS). It is not a separate legal entity, thus liabilities of its members are not limited.
- A minimum of 10 persons are required to form a society
- It is mandatory for each society to have 3 main office representatives (i.e. the President, Secretary, Treasurer). The office representatives should be either Singapore Citizen or Singapore Permanent Resident
- Constitution needs to be drafted in accordance to established precedents that governs the society
- Accounts must be audited annually
- Annual Returns must be filed with Registrar of Societies (ROS)
- A society that is registered with the Registrar of Societies (ROS) is exempted from income tax if:
- Surplus funds are from members’ contributions
- Over 50% of gross revenue receipts are from members and are non tax-deductible for members
- A society can enjoy full tax exemption after it has applied for charitable status and that its registration has been approved by the Commissioner of Charities
If you are interested to register a society, you are required to seek for professional advice.
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Public Company Limited by Guarantee (CLG)
This is a type of company which carries out non-profit making activities that are related to national or public interest. It exists as a separate legal entity which can sue or be sued in its own name, can enter into contracts or own property in its own name. Unlike a society, a CLG is governed by the Companies Act.
A CLG consists of members (or shareholders in profit-making organization) whom each of them contributed a guaranteed sum. Minimum guaranteed sum is SGD1. This sum will be liable in the winding up event of the company and does not extend to personal liability of its members.
Characteristics of a Public Company Limited by Guarantee (CLG)
- It is a separate legal entity governed by the Companies Act and is registered with the Accounting and Corporate Regulatory Authority (ACRA)
- A minimum of 2 directors, 2 members and a secretary is required. At least 1 director and 1 secretary must be a locally resided in Singapore (i.e. Singapore Citizen, Singapore Permanent Resident, Employment Pass or Dependant Pass holders)
- A CLG usually has a ‘Limited’ word as its ending (e.g. ABC Limited). If you do not wish to have this ending after your company name, you may seek to apply for removal of ‘Limited’ with ACRA once the company has been incorporated or after the company has obtained its charitable status
- Constitution needs to be drafted in accordance with the Singapore Companies Act and must set out the objects and the rule established by the CLG
- Accounts must be audited annually
- 1st Annual General Meeting (AGM) must be hold within 18 months from incorporation, and subsequently each AGM should not exceed the interval of 15 month. Furthermore, one AGM should be held for each calendar year
- Annual Returns must be with ACRA after AGM has been held
- A CLG that is registered with ACRA is exempted from income tax if:
- Surplus funds are from members’ contributions
- Over 50% of gross revenue receipts are from members and are non tax-deductible for members
- CLG can enjoy full tax exemption after it has applied for charitable status and that its registration has been approved by the Commissioner of Charities.
If you are interested to register a CLG, you are required to seek for professional advice.
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Charitable Trust (Foundation)
A charitable trust or foundation is a charity arrangement set out in a black and white document (called the ‘trust deed’) where a settlor will handle a certain property (labelled as trust property) to a group of individuals (trustees) who will help to administrate the trust property for charitable causes. It is a popular legal structure for a person who wishes to set aside some of his/her assets or income to be used in a structured manner. A common example is a foundation that is set up to disburse scholarship funds/ medical expenses to the people in need.
Characteristics of a charitable trust (foundation)
- It has no independent legal personality and it is controlled by a trust deed – this is a constitution which sets out the framework and rules on how the trustees should operate. The trust deed should state:
- The trustees
- The charitable intention of the trust
- The benefit of the trust to the national community
- It must have a board of trustees (at least 3 person), which control will be within them
- All liability arising from the charity will be borned by the trustees, thus it is not an effective structure if the daily operations and transactions involve significant risk of liability
- Trust is licensed by the Monetary Authority of Singapore (MAS) and are governed b the Singappore Trust Companies Act.
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Applying for charity status
As mentioned above, a society or a public Company Limited by Guarantee (CLG) is able to enjoy automatic tax exemption once it has been registered as a charity. A charity is a status and not an organizational structure.
Charity is an organization which:
- Operates on a non-profit basis
- Is set up exclusively for charitable purpose
- Carry out activities to achieve these purposes which benefit the public
Since charities are set up for charitable purposes, what constitutes it?
The following are recognized as charitable purposes:
- Relief of poverty;
- Advancement of education;
- Advancement of religion; or
- Other purposes beneficial to the community, which include commonly recognised ones such as :
- Promotion of health;
- Advancement of citizenship or community development;
- Advancement of arts, heritage or science;
- Advancement of environmental protection or improvement;
- Relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantages;
- Advancement of animal welfare; and
- Advancement of sport, where the sport promotes health through physical skill and exertion.
What do charities need to adhere to?
- It must ensure that accounting and donations records are properly maintained
- It must submit its financial statements and annual report detailing activities conducted and the proposed future plans
- It must hold AGM annually and submit annual returns
- It must disclose the fund-raising information online
What are the benefits of being a registered charity?
- It increases the credibility and image of the organization, thus it is more beneficial if your organization plans for fund raising initiative. Trustees and foundations can only give funding to recognized charities.
- It enjoys automatic tax exemption. For properties which are used exclusively for charitable purposes, property tax may be exempted in full or partially upon application and review by the Comptroller of Property Tax. For more information, kindly refer here
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